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Does Capital Really Rotate From Gold To Bitcoin? On-Chain Data Offers Insight

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“Bitcoin is the digital gold” is one of the most popular narratives in the cryptocurrency industry, reiterating BTC’s growing status as a formidable store of value. However, while the premier cryptocurrency has floundered over the past months, gold and the metals market have largely witnessed explosive growth.

These contrasting performances have led to conversations about capital rotation between Bitcoin and gold, as the crowd expects one to always outperform the other at any given time. Recent data, however, suggests that the relationship between the BTC and gold price action is overrated.

Capital Flow Link Between BTC And Gold Overestimated 

In a January 24 post on the X platform, on-chain analyst with the pseudonym Darkfost weighed in on the discourse surrounding capital rotation between gold and Bitcoin. According to the market pundit, the idea that investor funds flow from gold to Bitcoin is somewhat overblown.

To highlight this overestimation, Darkfost shared a chart showing periods where BTC outperforms or underperforms depending on gold’s trend. This chart typically provides two signals: positive (BTC above the 180-day moving average [MA] and gold below the 180-day MA) and negative (BTC below the 180-day moving average and gold below the 180-day MA).

Bitcoin
Source: @Darkfost_Coc on X

As observed in the chart above and stated by Darkfost, the relationship between Bitcoin and gold does not appear to be fully substantiated. The on-chain analyst revealed that there have been as many positive periods as the negative ones, suggesting that the flagship cryptocurrency moves independently of gold.

Darkfost wrote:

This suggests that BTC continues to evolve independently, without clear evidence of a sustained capital rotation from gold.

Furthermore, Darkfost noted that a positive signal does not necessarily mean that capital is flowing out of gold into Bitcoin. According to the on-chain analyst, it is simply not possible to determine whether there is a capital flow relationship between the world’s largest cryptocurrency and gold.

Bitcoin & Gold Price Overview

While Bitcoin started the new year on a pretty strong note, the bullish momentum has pretty much waned over the past two weeks. Meanwhile, the gold price has continued to flourish this year, recently reaching a new all-time high above $4,900 per ounce.

As of this writing, the price of BTC stands at around $89,230, reflecting no significant movement in the past 24 hours. According to data from CoinGecko, the flagship cryptocurrency is nearly 30% adrift its all-time high above the $126,000 level.

Bitcoin

The price of BTC on the daily timeframe | Source: BTCUSD chart on TradingView

Featured image from iStock, chart from TradingView

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Deadly Winter Storm in US Impacts Foundry USA and Other Mining Pools

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The hashrate of Foundry USA, a digital asset advisory firm with the world’s largest Bitcoin (BTC) mining pool, has curtailed its hashrate by about 60% since Friday in response to the severe winter storm impacting large swaths of the United States.

“Bitcoin hashrate on Foundry USA alone is down by nearly 200 exahashes per second (EH/s), or 60%, since Friday amid continued curtailment. Temporary block production has slowed down to 12 minutes,” according to TheMinerMag. 

FoundryUSA still commands about 198 (EH/s) of hashing power, accounting for about 23% of the global mining pool hashrate, data from Hashrate Index shows. 

A breakdown of hashing power controlled by different Bitcoin mining pools. Source: Hashrate Index

The Bitcoin network’s hashrate is the total amount of computing power deployed by Bitcoin mining operators to secure the proof-of-work protocol.

The curtailment has affected other mining pools serving users in the US, including Luxor, TheMinerMag reported on Saturday, as winter storm Fern sweeps through the US and forces miners to adjust their energy usage to remove stress from grid infrastructure. 

Related: Tennessee city clears path for crypto mining, data centers with new zoning rules

Bitcoin miners can balance the energy grid in times of emergency

Bitcoin miners act as a controllable load resource for public electrical grid infrastructure, adjusting their energy needs to balance the grid during times of peak demand and low consumer usage.

Too much energy within an electrical grid system can damage energy infrastructure during times of low demand, and must be safely dumped to prevent harm to grid components and individuals.

Bitcoin miners can power their mining machines on when demand is too low, siphoning otherwise dangerous levels of power away from the grid. Conversely, they can turn their machines off during times of peak demand to allow energy to flow to consumers.

Mining, Bitcoin Mining, Mining Pools
Winter storm Fern is impacting large swaths of the US. Source: The Weather Channel

The current winter storm in the US features a mix of snow, ice and freezing rain throughout the Southeastern US, the Northeast, and parts of the Midwest, according to radar forecasts from The Weather Channel.

The storm is projected to extend about 1,800 miles, with widespread power outages affecting more than 1 million residents, The Weather Channel reported. 

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