The ratio of gold prices to other asset classes has been shown to be a useful predictor of stock market returns. We previously discussed how the gold-oil ratio serves as one such indicator.
Continuing this line of inquiry, Reference [1] examines the informational value of the Bitcoin-gold (BG) price ratio. The logic behind this metric is that Bitcoin represents a high-risk asset, whereas gold is traditionally viewed as a safe haven. Therefore, a rising BG ratio may signal increased investor risk appetite. It may also reflect growing optimism and interest in technological innovation, which boosts demand for Bitcoin. As a result, a higher BG ratio can indicate a tech-driven risk appetite that translates into stronger stock returns.
The authors pointed out,
…we show that the BG ratio has a positive effect on U.S. stock market returns across various market conditions during the pandemic and in the post-pandemic periods. This result holds with the inclusion of various financial and economic control variables. Our main result is robust to the use of Ethereum instead of Bitcoin, underlining the impact of the cryptocurrency-to-gold ratio on stock market returns. It generally holds when considering the European stock market, suggesting the impact of BG and EG ratios is not limited to the U.S. stock market.
We further show that the positive impact of the BG ratio on stock returns stems from the channel of risk aversion. Thus, the changes in the BG ratio manifest risk aversion or, in other words, risk appetite, which is new to the related literature and draws important implications for investors and policy-makers.
Changes in the BG ratio can serve as a potential indicator of risk appetite in both Europe and the U.S. Thus, investors could consider incorporating this metric into their portfolio strategies to adjust their exposure to equities under different market conditions…
In summary, the authors show that the Bitcoin-gold ratio is positively correlated with U.S. stock market returns.
Let us know what you think in the comments below or in the discussion forum.
References
[1] Elie Bouri, Ender Demir, Bitcoin-to-gold ratio and stock market returns, Finance Research Letters (2025) 107456
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