An interesting trading pair

A lot of trading strategies rotate between stocks and bonds. This makes sense: stocks give returns during boom times (“risk-on”), while bonds give protection during downturns (“risk-off”).

But a less obvious strategy would be to rotate between bitcoin and gold.

As I’ve written about previously, bitcoin has acted like stocks on turbo-charge. When stocks rally, BTC rallies more. When stocks fall, BTC falls harder. Here’s a 10-year chart of BTC vs. the S&P 500:

Meanwhile gold has acted like bonds and benefited when stocks have been going sideways. Here’s a 50-year chart of gold vs. the S&P 500:

Finally, plotting bitcoin vs. gold directly drives home the point that these 2 assets are more different than alike.

As the above chart shows, there’s been enormous opportunity to rotate between bitcoin and gold, and that rotation tended to last 1-3 years.

This monthly chart also makes it clear that bitcoin is still in an uptrend while gold is in a downtrend.

Yes, in my last blog post a couple weeks ago, I did get cautious on bitcoin. On the daily chart, BTC had broken from a rising wedge while having several months of negative RSI divergence. However, in the following week, it reclaimed the March lows while Ethereum broke out to new highs.

The trick is always to stay aligned with the primary trend and not get whipsawed too much. In this case, I was fortunate to get a lower re-entry into bitcoin.


Important DisclaimerThis blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.