Bitcoin climbed back to the $113,800 level on Tuesday after hitting an early-morning low beneath $108,000, as spot gold prices plummeted more than 5.3% to $4,125. The cryptocurrency's recovery coincides with gold's largest single-day decline in over five years, signaling a potential shift in market dynamics.
Gold's retreat follows traders taking profits from the precious metal's record run to an all-time high of $4,260 reached Monday. The sell-off comes after months of parabolic gains driven by rate-cut expectations and geopolitical hedging, with the extended rally now appearing stretched.
Bitcoin vs. Gold Performance Shift
For much of the past two months, gold has significantly outperformed Bitcoin by a wide margin. The Bitcoin/gold ratio fell roughly 30% since mid-August, dropping from around 37 to approximately 25, marking its lowest level since President Donald Trump's "Liberation Day" tariff shock in April.
Over that period, Bitcoin declined about 12% while gold surged nearly 30%. This performance cemented the physical metal as one of 2025's top-performing investable assets during elevated market uncertainty, leaving Bitcoin trailing behind.
Market Dynamics and Potential for Bitcoin's Rise
Analysts attributed gold's surge to a "risk-off" rotation tied to global trade frictions and revival of the debasement trade. The belief that persistent fiscal deficits, rising debt, and falling real rates will erode fiat value has driven consistent demand from individuals, central banks, and sovereign funds.
However, market dynamics may now be shifting in Bitcoin's favor. Horizon's Head of Growth Joe Consorti called the movement the "early stages of an aggressive catch-up trade," noting fund managers are shifting back into risk through year-end amid a dovish Fed and calming geopolitical tensions.
"early stages of an aggressive catch-up trade"
With the Federal Reserve widely expected to cut rates again later this month, conditions are becoming more favorable for risk assets like Bitcoin. CME's FedWatch tool shows this move priced in at just under 99% probability, reflecting broad market consensus on monetary policy direction.
Potential Capital Flows from Gold to Bitcoin
Bitwise researchers reached similar conclusions, arguing that even modest reallocation of gold's $17 trillion market could significantly impact Bitcoin's price. The firm said in a Monday report that only a 3% to 4% rotation would be enough to double Bitcoin.
A 2% shift alone could lift the cryptocurrency above $161,000, according to Bitwise's analysis. The potential for capital flows from gold into Bitcoin represents a major catalyst as traders reassess their portfolios amid changing market conditions and renewed appetite for digital assets.