Bitcoin Decouples from Gold Following 13% Weekly Plunge; Altcoins Lose $10 Billion in Market Cap

Bitcoin’s status as a global safe haven came under scrutiny this week after the price plunged 19% peak to trough. The decline was technical in nature after the price failed to overcome $12,000 for the second time in a month. As Hacked reported last week, another rejection here would mark bitcoin’s second consecutive lower high since June, a clear sign that a bearish trend reversal was underway.

While bitcoin was plunging, gold and other traditional safe havens continued to rise. Bullion peaked at $1,546.10 a troy ounce this week, its highest in over six years.

Bitcoin Sees Significant Correction

Bitcoin was among the worst-performing cryptocurrencies this week, having declined more than 13% at the time of writing. An apparent flash crash on Thursday dragged bitcoin’s price all the way down to the sub-$9,500 range.

The decline was significant because it marked the loss of vital support and pushed bitcoin ever closer to oversold territory on the relative strength index (RSI). For only the second time since February, bitcoin’s daily RSI approached the low 40s. Oversold levels are typically seen when an asset’s RSI breaks below 30.

Bitcoin quickly recovered $10,000 and even traded as high as $10,410 on Friday, according to Bitstamp. At the time of writing, the BTC/USD exchange rate was holding above $10,100.

Bitcoin (BTC/USD) regains $10,000 after volatile week. | Source: TradingView.

Altcoins Plunge

Despite plunging more than 13%, bitcoin’s share of the overall cryptocurrency market held firm near 69%, which speaks volumes about the state of altcoins.

Assets not named bitcoin lost a combined $10 billion in value this week, with several of the leaders reporting double-digit percentage losses.

The total cryptocurrency market capitalization excluding bitcoin fell below $83 billion on Friday. | Source: CoinMarketCap.

Ethereum was among the biggest decliners, falling 12.9% to $184.65. XRP not only plunged to yearly lows, it pierced through a vital long-term support. By Friday, XRP had booked a weekly loss of 12.8% to trade at $0.2611.

Litecoin’s price fell 13.3% to $74.67. EOS was down 9.8% to $3.57.

Bitcoin cash outperformed its peers, declining only 2.5% to $311.25.

Gold: The Preferred Safe Haven

As global equity markets resumed their selloff this week, gold emerged as one of the best-performing assets. The yellow metal gained 1% during the week, upping its monthly return to 7%.

Gold for December settlement falls on Friday, but still books solid weekly gains. | Source: Bloomberg.

Investors are buying gold to hedge against real inflation, global trade wars and a sinking global economy. The gold bugs were vindicated this week after Germany became the second major economy to contract in the second quarter.

Up until last week, bitcoin was moving in lockstep with gold roughly 58% of the time, according to Bloomberg. The data seemed to suggest that investors were viewing bitcoin as an alternative safe haven in times of turbulence. That narrative came under scrutiny this week as both assets diverged.

The evidence for bitcoin being a non-correlated store of value is much stronger than its correlation with gold. Bitcoin has shown a stronger tendency of moving independently of the broader market than in lockstep (or inversely) with a particular asset.

Bitcoin Ponzi Scheme Uncovered

Some have speculated that there’s more behind bitcoin’s recent drop than just technical trading. Dovey Wan, a founding partner at Primitive Crypto, alleges that a Chinese ponzi scheme may also contributed to the decline.

In a series of tweets, Wan said she uncovered a “pure ponzi” scheme involving PlusToken, a Chinese digital wallet service that promised customers high-yielding investment returns. According to Wan, PlusToken has scammed ten million investors out of $3 billion since mid-2018.

When Hacked first reported the news on Thursday, crypto markets were mired in a deep slump. At this time, there’s no direct link between the alleged ponzi scheme and the market’s performance.

The Week Ahead and Things to Consider

The yield curve everybody is worried about just flashed its biggest recession warning since the financial crisis, a clear sign of investor anxiety over all things related to trade, economics and monetary policy. In this environment, safe haven assets are likely to become more attractive as investors look to hedge against market turbulence and volatility.

Speaking of volatility, the CBOE VIX surged again this week, peaking above 22.00 on Wednesday. VIX trades on a scale of 1-100 where anything above 20 is considered above-normal volatility. When the VIX rises, it usually means stocks are falling and vice versa.

It remains to be seen whether bitcoin will emerge as a digital safe haven for investors. The leading digital currency has vastly outperformed the market in 2019 but could face a prolonged consolidation phase as the price hovers around $10,000.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. Charts via TradingView, CoinMarketCap and Bloomberg. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi