During the interest rate cut cycle, Bitcoin underperformed gold. The last time this happened was in 2019.

Article by: Blockchain Knight

Despite the Federal Reserve signaling patience on rate cuts, gold and copper prices are moving higher against the trend. This divergence highlights the market’s tendency to price in liquidity changes in advance rather than waiting for central bank confirmation.

Historical experience shows that in the early stages of an easing cycle, metal prices are often driven by changes in real yields, financing conditions, and expectations, leading to early adjustments.

Bitcoin’s response to similar factors tends to lag, with strong rallies often occurring after metals have adapted to the easing environment. The current market pattern may be a replication of this rule.

Financial markets tend to adjust their pricing ahead of policymakers, especially when marginal capital costs change.

Gold’s movements have repeatedly confirmed this, with prices often peaking months before the first rate cut, rising in anticipation of declining real yields, reflecting investor expectations of diminishing real returns on cash.

The rise in copper prices further reinforces this signal. As an asset closely linked to industrial demand and credit supply, copper’s synchronized ascent with gold not only reflects a market defensive stance but also indicates that an easing environment will support the real economy, reducing the risk of misjudging signals from individual assets.

Real yields are the common core driver for gold, copper, and Bitcoin, especially the US 10-year yield.

Real yields represent the true return on risk-free assets. When they peak and fall, the relative attractiveness of scarce assets increases. This relationship is difficult to reverse even in the face of hawkish rhetoric.

Although copper’s correlation is slightly weaker, it still benefits from declining real yields, which lead to a more accommodative financial environment, a weaker dollar, and improved credit conditions, thereby supporting expectations for industrial demand.

Bitcoin follows the same framework but reacts with a lag because investors tend to wait for liquidity changes to become clear before acting.

Initially, capital prefers low-volatility, hedging assets, boosting gold; then, as market confidence in credit easing and economic growth expectations strengthen, copper prices follow; only when confidence in easing policies is sufficiently established does liquidity flow into higher-risk assets like Bitcoin.

In 2019, gold’s rise preceded Bitcoin’s breakout, and as rate cuts became reality, Bitcoin ultimately outperformed gold. In 2020, the timeline was shortened but the sequence remained similar.

Given Bitcoin’s smaller market size and sensitivity to marginal volatility, once positions shift, subsequent gains tend to be more intense.

Currently, precious metals have already priced in the easing expectations, while Bitcoin remains range-bound. This divergence is common early in easing cycles and will only disappear if real yields continue to decline, prompting a shift in capital allocation.

However, this framework also carries risks of failure. Continued rises in real yields will weaken the logic for metals’ gains and deprive Bitcoin of liquidity support; accelerated quantitative tightening and a sharp dollar rally will tighten the financial environment; soaring inflation may force central banks to delay easing, which would also push up real yields and limit liquidity expansion.

Currently, the futures market is still digesting easing expectations, with real yields on government bonds below cycle highs, and precious metals have responded accordingly.

If real yields continue to decline, the trend in metals is likely to signal that Bitcoin will follow with an even stronger rally.