The enthusiasm surrounding Bitcoin this month, known as “Uptober,” is buoyed by increasing stablecoin liquidity and a surge in Bitcoin transactions. These positive shifts coincide with a higher likelihood of Republican candidate Donald Trump, who has supportive stances on cryptocurrency, winning the U.S. presidential election. Alongside this, there are growing expectations that the Federal Reserve will implement rate cuts. However, despite these bullish signals for Bitcoin (BTC), there's an underlying concern for risk assets highlighted by the decline in the copper-to-gold ratio. This ratio, a measure obtained by dividing the market price per pound of copper by the price per ounce of gold, recently hit its lowest point of the year, reminiscent of levels last observed in late 2020 according to TradingView data.
The copper-to-gold ratio is often viewed as an indicator of global economic health and investor risk preference. A noteworthy drop of over 15% this year marks its steepest decline since 2018. More pressing is the 10% decrease witnessed since China's announcement in late September of various fiscal measures aimed at rejuvenating its struggling economy. Despite the U.S. Federal Reserve's sizable 50 basis point rate cut in September, indicating a potential increase in liquidity, this did little to stabilize the declining ratio. The persistent downturn in this metric suggests a bleaker global economic landscape that many risk assets might currently underestimate. Typically, copper benefits from global economic expansion and reacts favorably to Chinese stimulus efforts, given its role as an industrial metal.
In contrast, gold acts as a safe-haven asset. Consequently, a fall in the copper-to-gold ratio is generally interpreted as a movement toward less risky investment avenues. As of now, Bitcoin has gained 60% year-to-date, trading around $67,800 as per CoinDesk statistics. Nevertheless, the substantial price increase occurred mainly in the year's first quarter, after which Bitcoin bulls have struggled to sustain levels beyond $70,000. This inability to maintain momentum is partly ascribed to concerns over excess supply triggered by the potential reissuance of credits from the defunct Mt. Gox exchange. Notably, the copper-to-gold ratio began its decline in May, contributing risk-aversion signals.
Financial market strains intensified in July, culminating in an early August downturn that saw Bitcoin prices fall from $65,000 to $50,000. Historical data from TradingView indicates that Bitcoin's most prosperous periods, including 2013, 2016-17, and 2020-21, coincided with uptrends in the copper-to-gold ratio. Thus, based on historical patterns, the decline in this economic indicator raises skepticism about the optimism for Bitcoin reaching $100,000 by year-end.
