Why Bitcoin Is Down 30% While Gold And Silver Experience Parabolic Gains

Bitcoin (BTC) has seen a significant retracement of over 30% from its all-time high of $126,000, which was reached in October. This decline comes at a time when precious metals like gold and silver are achieving new records, marking a robust fourth quarter for these commodities. 

To understand Bitcoin’s next potential move, analysts at Bull Theory have suggested that historically, Bitcoin tends to rally after gold and silver have reached their peaks.

The Liquidity Effect

A look back at the events following the March 2020 market crash, the Federal Reserve (Fed) injected substantial liquidity into the financial system, and the first assets to respond were gold and silver. 

Gold, for instance, rallied from approximately $1,450 to $2,075 by August 2020, while silver experienced an impressive increase from around $12 to $29. 

During this entire phase, Bitcoin appeared stagnant, trapped in a trading range of $9,000 to $12,000 for five months. This inactivity followed a significant liquidation event triggered by the COVID-19 pandemic.

As gold and silver peaked in August 2020, capital began to rotate into riskier assets, marking the beginning of Bitcoin’s ascent. From that point, Bitcoin surged from $12,000 to $64,800 by May 2021.

The total market capitalization of cryptocurrencies skyrocketed by almost eight times during the same period, illustrating the impact of the liquidity-driven rally initiated by the Fed.

Future Recovery Potential

Fast forward to today, gold is nearing record highs around $4,550, while silver has surged to roughly $80. These commodities are currently experiencing upward momentum, while Bitcoin has largely remained in a sideways trend below the key $90,000 mark, similar to its behavior in mid-2020. 

Additionally, Bitcoin has had to contend with another significant liquidation event that took place on October 10th, paralleling the March 2020 scenario, and as a result, it has spent months moving sluggishly since then.

However, the context surrounding this cycle is notably different from 2020. While liquidity from the Federal Reserve served as the main driver back then, 2026 is poised for multiple catalysts that could underpin Bitcoin’s recovery. 

The Fed has already resumed liquidity injections, and expectations for further rate cuts loom on the horizon. Additionally, banks may receive Supplementary Leverage Ratio (SLR) exemptions, enabling more leverage within the system.

Moreover, clarity on crypto regulations is improving, and anticipation surrounding the introduction of more spot crypto ETFs—especially those focusing on alternative coins—is also building, alongside increased access to cryptocurrency for large asset managers. 

Lastly, a new pro-crypto chair at the Federal Reserve is expected to inspire market participants to front-run forthcoming policy changes.

The analysts concluded that the ongoing rise in gold and silver prices should not be interpreted as a negative signal for cryptocurrencies. In fact, this pattern has historically indicated an early signal for what could follow.

If this trend continues, Bitcoin and the broader crypto markets may not take the lead initially. Instead, Bull Theory analysts believe they could begin to move after the metals have paused, suggesting that the current period of sideways action in Bitcoin is not indicative of a bear market but rather a calm before a potential storm. 

Featured image from DALL-E, chart from TradingView.com