Bitcoin Bulls, Watch Out! Copper Goes Against Gold

If you’ve been following the crypto space for at least a while, you’ve likely heard market participants say that the launch of bitcoin (BTC) spot ETFs has unlocked billions of dollars worth of mainstream demand, sending the cryptocurrency on a long-term upward trajectory.

However, traders should recognize that the billions of dollars expected to enter the market are dependent on economic developments. Therefore, investors should pay attention to critical macro indicators such as the copper-gold ratio. The fact that this ratio is currently falling rapidly indicates a negative environment for risk assets, including cryptocurrencies.

The ratio, which represents the market price of copper per pound divided by the price of gold per ounce, has fallen more than 8% this month, hitting its lowest level since November 2020, according to data tracked by TradingView and MacroMicro.

Demand for copper, a key metal in the manufacturing sector, is closely linked to industrial activity. For this reason, it is commonly referred to as the “Doctor Copper”, a proxy for economic health and investor risk appetite. Gold is a safe haven.

The relative valuations of metals reflect investors’ appetite for risk- and growth-sensitive assets like tech stocks and bitcoin, compared to safe havens like gold and Treasury bonds. Traditional market giants like DoubleLine Funds are known to track this ratio to help predict demand for risk assets.

According to data tracking platform MacroMicro, “As the global economy expands, the copper-to-gold ratio increases and stocks rise. When economic uncertainty increases, demand for gold increases as a hedge against risk and shifts from copper to gold decline.”

In summary, considering the falling copper-gold ratio, bitcoin could be subject to a downward price swing.

According to Double Line Capital, a falling copper-gold ratio has historically been a precursor to downward movements in interest rates and the 10-year Treasury yield.

The U.S. Federal Reserve’s benchmark interest rate is expected to fall from the current 5.35% to 5.5% range to 4.75%-5.00% by the end of 2024, 3.00%-3.25% by the end of 2025 and 1.75%-2.00% by the end of 2026, according to Morningstar.