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The key to successful diversification um for asset allocators is um adding new assets with very low correlation to all of the other assets in the ecosystem. If you do the correlation between Bitcoin and gold their returns uh since 2019 the correlation has been 0.14 uh one is perfect correlation. Uh and here we are at 0.14 very low almost no correlation.
It's close to it's closing in on the low point that many uh technical analysts are suggesting um as the place where it should stop. Uh these the these are very volatile moments uh at at or near the bottom. Um but uh we usually do look back and say, "Wow, I wish I had caught that low. this V-shaped recovery um has been quite significant.
It does seem like the stars are aligning. For years, Bitcoin has been framed as digital gold, a scarce, decentralized, rules-based asset meant to mirror gold's role in the financial system. Yet, recent price action has challenged that narrative. Gold has surged to new highs while Bitcoin has fallen nearly 50% from its peak, reigniting skepticism across markets.
Kathy Wood's key clarification is statistical rather than rhetorical. Bitcoin and gold were never meant to move together. Since 2019, their correlation has been just4, effectively no correlation at all, underscoring that Bitcoin should be understood not as a gold proxy, but as a fundamentally different asset evolving on its own trajecto.
Look at what the gold price has done in the last few years and look at what's happened to Bitcoin. Uh now this is a log chart. So um you can see uh gold has had a massive move to the upside. Uh this chart ends in at the end of 25 and of course uh I think last night we got down to roughly $60,000 in in Bitcoin.
So really cut in half since its peak in October. What is going on here? Isn't Bitcoin supposed to be digital gold? If it's digital gold, why isn't it behaving like gold? Uh and a couple of points to make here. If you do the correlation between Bitcoin and gold, their returns, uh, since 2019, and and I put this in, uh, my New Year's letter.
You can see the matrix there if you'd like. Um, the correlation has been 0.14. Uh, one is perfect correlation. Uh, and here we are at 0.14. very low almost no correlation. Uh so that is very important to understand. Um what you can also see here though is gold tends to precede a big move in bit uh in Bitcoin.
Uh you can see the circles there and we'd have a gigantic circle around what has happened recently. Um and and so maybe that will happen again. Uh we actually think it will. I cannot tell you how many bare stories I've heard about Bitcoin uh in in the last few weeks uh last few months um and just go on to X and you'll find all kinds of reasons why you must sell Bitcoin.
And these are the the periods that are kind of interesting. Uh we post our trading at the end of every day and you'll say you'll see that we had been nibbling at our our cryptoexposed stocks. We didn't know how far this was going to go and maybe it's not over. not promising that, but um uh there was so much negative sentiment that uh I I felt okay, you know, we need to leg in and lean into this if our research is correct.
Uh that this um this Bitcoin is three revolutions in one. It's a global digital private very important rules-based even more important monetary system. Uh and that's a very big idea. Um the second revolution is it is a technology. It's a a new technology. It's uh it's really adding another layer I would say to the internet so that we have um native currencies native to the internet uh that will be able to handle uh agentic commerce uh and uh other other such agentic movements taking place out there.
Uh that's a very big idea and then uh and it won't be of course just Bitcoin it'll be ether importantly ether uh Salana maybe Hyperlid we shall see um but what's interesting about this period is the big three have been identified uh and those are Bitcoin, Ether and Salana. You know, the worry historically has been how many of these things are there going to be?
Is this going to be a very fragmented situation? Uh, and we're learning uh we we're learning who the big winners are are going to be, who the big winners are. Uh, and I think that's very important. And then the third revolution is this is a new asset class. Bitcoin is leading the way. It is the most secure of all the crypto uh currencies out there backed by the largest computer network in the world.
Uh and so really an anchor to um an asset allocator looking to move into this new world. And why would an asset allocator do that? Well, if we're right and well, the it's a fact that at least over the last 5 years, the correlations have been uh the correlation has been as low as 0.14. Um the key to successful diversification um for asset allocators is um adding new assets with very low correlation to all of the other assets in the ecosystem.
Uh and uh this one qualifies. Uh why do they want that? It is because with that low correlation introducing it um risk adjusted returns go up over time. Uh and so I do think institutions are serious about this new asset class. They may have been reticent uh to move in because they were hearing about the four-year cycle, the four-year cycle.
And lo and behold, and uh I'll I'll hats off to Chris Berniski, who uh has been uh very right in in calling for whether it's the four-year cycle or whatever uh just this downdraft. Um and so it's close to it's closing in on the low point that many uh technical analysts are suggesting um as the place where it should stop.
Uh these the these are very volatile moments uh at at at or near the bottom. Um but uh we usually do look back and say, "Wow, I wish I had caught that low, this V-shaped recovery." um uh has been quite significant. Not promising. Uh I want to make I want to make sure that there are no promises here.
Uh but it does seem like the stars are aligning. Bitcoin remains volatile, particularly near market bottoms. Kathy acknowledges this openly. These periods are often chaotic, marked by sharp price swings and emotional decision-making. Yet, they are also the moments investors later look back on with regret for not acting.
While she avoids making predictions about exact timing, she notes that technical indicators and historical patterns suggest Bitcoin may be approaching a cyclical low. If history rhymes, recoveries from these levels tend to be swift and decisive. The current environment, while uncomfortable, may represent transition rather than decline.
So, what has been the biggest bugaboo in as it relates to Bitcoin or the worry that we've heard about more than anything else in the last few weeks? because it's all about uh quantum computing. The last few weeks have been uh you know lots of stories about quantum computing and I would say uh the the large shift in Bitcoin uh the OGs selling uh or just shifting uh wallets to more quantum resistant wallets.
Um, so I think that's really uh caused a lot of concern [snorts] and uh here's Michael Sailor's uh answer or I mean he was very reasonable last night in his discussion around quantum. He doesn't think it's going to be an issue for 10 years or more. Uh but he said here's what we're doing uh in terms of our commitment to Bitcoin security.
Um and and so you can see some of those um those moves now. But I also wanted to show our research again this is out of big ideas. Uh and this is when the quantum controversy uh had quieted down uh last year as it relates to Bitcoin. Uh so Brett Winton uh in as chief futurist has um has a a a big focus on quantum because we can't miss the next big thing.
It's all we do is disruptive innovation. And here I thought was a compelling analysis uh based on what has happened with quantum computing so far. And you and Google really leading the charge uh that little black line on that chart. So you can see that um it has been able to double the number of cubits over four years which is slower than Moors law in the semiconductor space.
And of course there there is an error rate consideration lowering that as well over four years. Um so if if Google does not pick up speed, the red line tells you how long it will take Google to and uh and quantum computing uh to really threaten Bitcoin, the Bitcoin blockchain as we know it now. Uh so we go into the 2060s there.
Now if you make the assumption that Google is going to pick up the pace uh and that's an interesting assumption because typically we learn a lot in the early years of a new technology you know um how how quickly are the units increasing and driving costs down. That's the learning curve associated uh with new technologies.
Um but let's assume it assume it does pick up the pace doubles the pace to Moore's law. Okay. Then uh we have a problem in the mid40s. Uh so I don't want to make light of it. Uh I do think it has caused movement uh uh among of Bitcoin uh between wallets between and among wallets. Are they leaving the crypto ecosystem?
Some say yes, maybe they're diversifying into other crypto assets, as um as the DeFi ecosystem evolves here. Uh I don't know how likely that is because these are Bitcoin OGs. They've been there uh forever and um so we'll see. Uh maybe they're diversifying because they were hodddlers and now they're 10 15 years older and they have families and you know their risk profiles have gone down.
Um they should they should diversify. Any financial advisor would say so. Um we'll find out. Uh but um uh I thought Brett added some good perspective here. Kathy Wood's perspective is not rooted in price targets or short-term forecasts. It is grounded in structural change. Bitcoin's divergence from gold is not evidence of failure, but evidence that it is something fundamentally different.
It is a monetary experiment, a technological platform, and a new asset class unfolding simultaneously.
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