Bitcoin Outshines Gold for First Time Since June

Bitcoin logged double-digit gains in October, outperforming gold for the first time since June.

The world's biggest cryptocurrency by market value ended last month with a gain of 10.26 percent, snapping a three-month losing streak, according to Bitstamp data.

Meanwhile, gold gained just 2.74 percent in October, having dropped 3.17 percent in September – the biggest monthly drop since June 2018.

Bitcoin scored gains for five straight months from February to June – its longest winning streak since August 2017.

Gold, however, registered losses in February, March and April. The yellow metal did inch higher by 1.7 and 7.9 percent in May and June, respectively, although gains were meager compared to bitcoin's 62 percent and 25.89 percent rise in the same months.

While BTC outshone gold by big margins in the five months to June, the tide turned in favor of the yellow metal in the third quarter.

Bitcoin fell by 6, 4 and 13.5 percent in July, August and September, respectively. Experts associated the sell-off with fears of Facebook's Libra fast-tracking regulation for cryptocurrencies in general, overbought technical conditions and other factors.

Gold gained 0.23 percent and 7.65 percent in July and August, respectively, as markets priced in heightened prospects of aggressive monetary easing by the U.S. Federal Reserve and other major central banks amid escalating China-U.S. trade tensions.

The metal dropped by 3.17 percent in September, but the decline was restrained as compared to BTC's double-digit sell-off.

Looking forward, gold may underperform bitcoin in November, as the optimism on the U. S.-China trade front may reduce haven demand for the metal.

Further, on Oct. 31, the Fed signaled that it would pause rate cuts to assess incoming data before considering lowering borrowing costs again, in part because of a potential easing of trade tensions, according to The New York Times. Gold, a zero-yielding asset, usually cheers dovish Fed policy and faces selling pressure when the central bank signals a pause or rate hikes.

Meanwhile, the seasonality is positive for bitcoin – the cryptocurrency has gained in November in six out of the last eight years. More importantly, BTC tends to pick up a strong bid six months ahead of the mining reward halving, according to historical data. The next halving event is due in May 2020.

What's more, the ongoing rally in the US stocks may bode well for bitcoin. "Prior bitcoin bull runs were characterized by a gradual decline in equity market volatility. For example, we’ve noted its, albeit imperfect, inverse relationship with the VIX Index over longer time horizons (i.e. 2017 run-up)," analysts at Delphi Digital wrote in their monthly report.

The S&P 500 clocked a record high of $3,066 on Friday and the bull market is expected to continue on the back of three big buyers – corporations, foreign investors and US households – according to Goldman Sachs.

Bitcoin's technical charts are also biased bullish, as seen below.

Daily, three-day and monthly charts

BTC is currently changing hands at $9,170 on Bitstamp.

Prices jumped 28 percent in the three days to Oct. 27 (above left), with trading volumes hitting the highest level since February 2018.

Additionally, the recent pullback from $10,350 to $9,000 was accompanied by a drop in volumes. A low-volume pullback is often short-lived. The 200-day MA has restricting downside since Oct. 30 (above left).

All-in-all, the path of least resistance appears to be on the higher side and prices look set to revisit resistances at $9,600 and $10,000.

The bullish case would weaken if the 200-day MA at $9,106 is breached to the downside. That would validate the bearish view put forward by the descending 5-month MA at $9,268 (above right) and will likely yield a big drop to $8,500.

Note that, BTC repeatedly failed to keep gains above the 5-month MA over the weekend. The bulls, therefore, need progress soon.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View