Gold has just wiped out $5.5 trillion in worth, and Bitcoin supporters see a significant opportunity ahead.

This week, gold’s unprecedented rally finally faltered, and Bitcoin traders are keenly observing what follows.

After surging to an all-time record of $5,594.82 per ounce, spot gold retreated to approximately $5,330 as investors secured profits, marking a decline of about 4.7% from its peak.

The Kobeissi Letter highlighted that the erratic price behavior of the precious metal resulted in a $5.5 trillion fluctuation in its market capitalization, the most significant in history.

Chart Illustrating Gold’s Market Capitalization Fluctuation on Jan. 29. (Source: The Kobeissi Letter)

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Simultaneously, Bitcoin dropped 7% to around $82,381, presenting a contrasting scenario for two assets frequently promoted as “hard money” hedges.

Thus, the pressing inquiry for cryptocurrency markets is not whether gold can undergo a correction following a steep ascent.

The real question is whether a gold pullback serves as a catalyst for capital rotation, liberating funds, focus, and narrative space related to the “debasement trade” that could subsequently flow into Bitcoin, or if it indicates a macroeconomic environment that exerts pressure on both assets.

Gold, the crowded macro trade

Gold’s ascent has been driven by a potent combination of geopolitical tensions, policy ambiguities, and a weakening dollar.

The precious metal’s rise beyond $5,000 was spurred by a rush for safe-haven assets and followed an extraordinary 64% increase in 2025, the largest yearly gain since 1979.

Notably, market positioning has also been bolstered by significant ETF demand.

Eric Balchunas, a senior ETF analyst at Bloomberg, noted the unprecedented nature of current trading volumes. In his words:

“The GLD volume is the craziest, that's about 50% beyond its old all-time record.

Chart Displaying the Top 10 Most Traded ETFs on Jan. 29 (Source: Eric Balchunas)

This came after the World Gold Council reported that physically backed gold ETFs attracted $89 billion in 2025, elevating global gold ETF assets under management to a record $559 billion and holdings to a historic 4,025 tonnes.

In its examination of the factors behind those flows, the WGC emphasized “momentum buying” along with lowering opportunity costs as US Treasury yields declined and the dollar weakened. These conditions can change swiftly if rates or the dollar rebound.

Meanwhile, the pace of gold’s upward movement is now evident in its volatility. The CBOE Gold ETF Volatility Index (GVZ) surged from 30.01 on Jan. 23 to 39.67 on Jan. 28.

Chart Depicting CBOE Gold Volatility Index Since 2016 (Source: FRED)

This rapid shift is the highest level since 2020 and is often accompanied by forced de-risking when trades become overcrowded.

The $39 trillion referendum

At unprecedented prices, gold’s total “above-ground” worth is nearing some of the largest benchmarks in global finance.

The World Gold Council estimates that approximately 216,265 tonnes of gold have been extracted throughout history. At around $5,088 per ounce, this suggests an above-ground gold value of about $36 trillion.

This figure is strikingly close to the US government’s total debt of $38.54 trillion, as recorded on Jan. 28.

Chart Comparing Gold Market Cap and US Debt (Source: Joe Consorti)

This comparison is significant because it positions gold’s rally as more than just a commodity squeeze. Market analysts noted that it appears to represent a macroeconomic “balance sheet” trade, or a referendum on sovereign debt and currency trustworthiness.

If this perspective is what drew marginal buyers into gold, then a pullback does not necessarily invalidate the thesis.

Joe Consorti, a Bitcoin analyst, remarked:

“Gold is on the verge of surpassing the United States’ debt of $38.5T. This is what a global monetary reset looks like.”

Therefore, as gold’s correction takes place, it may prompt a reevaluation of where the debasement hedge should be positioned, particularly now that Bitcoin has more mainstream entry points than in previous cycles.

Mechanics of the narrative handoff

Bitcoin’s potential as a subsequent beneficiary relies less on the simplistic idea of “gold down, BTC up” and more on portfolio dynamics and correlation.

ARK Invest observed that Bitcoin’s correlation with gold since 2020 has been low (0.14 based on weekly returns), indicating that the leading cryptocurrency can act as a diversifier in relation to traditional asset allocations.

Chart Illustrating Correlation Between Bitcoin, Gold, and Others (Source: Ark Invest)

It is important to note that a low correlation does not ensure a rally, but it supports a scenario where gold can increase without Bitcoin mechanically following suit.

This creates an opportunity for a subsequent “catch-up” trade if capital shifts back towards higher-convexity hedges.

Additionally, there is a “narrative handoff” effect. Gold’s rise has been a highly visible manifestation of monetary anxiety.

If that anxiety continues but gold’s trade appears stretched, Bitcoin becomes the apparent alternative risk bucket for investors seeking liquidity and 24/7 pricing.

Interestingly, Bitcoin analyst James Van Straten pointed out that the leading digital asset is currently on track for six consecutive months of declines compared to gold.

This pattern mirrors what was seen in 2018 and 2019, after which BTC delivered five consecutive months of gains.

Capital rotation into Bitcoin

A practical approach to modeling the next phase is to consider gold’s pullback as a signal and investigate which macro driver is behind it.

In a “benign unwind” scenario, gold cools due to profit-taking and volatility spikes (similar to the GVZ’s surge) that eliminate leverage. In this scenario, the overarching macro backdrop of liquidity expectations and a softer dollar does not reverse.

As a result, Bitcoin may initially lag before catching up as investors return to the “digital hard asset” trade.

Alphractal CEO Jaoao Wedson stated:

“When gold enters a Buy Climax (BC) phase, the next move is usually a sharp decline.”

Wedson observed that following such a correction, gold typically enters a sideways consolidation phase, after which risk assets like Bitcoin tend to respond favorably. He added:

“Historically, this phase unfolds over several months and appears to be closely aligned with the historical fractal Bitcoin has followed across cycles — the period where large institutional capital reallocates aggressively into Bitcoin.”

However, if the gold sell-off reflects a broader deleveraging across risk markets, Bitcoin often acts as a high-beta asset and can decline alongside equities before rebounding.

This path suggests that Bitcoin, as a macro hedge, may lose the initial battle but can secure the second once funding conditions stabilize.

Conversely, the most pessimistic scenario for both assets would be a strong dollar and rising real interest rates.

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ARK Invest’s outlook considers a stronger dollar regime by drawing comparisons between US policy conditions and the early days of Reaganomics, when the dollar surged. In this scenario, the debasement trade diminishes, and Bitcoin’s potential for growth becomes increasingly reliant on crypto-specific catalysts.

ARK Invest’s Cathie Wood cautioned that the “bubble today is not in AI, but in gold,” implying that a rise in the dollar could burst that bubble.

She remarked that the ratio of gold to the US money supply (M2), which is approximately $22.69 trillion, has recently reached levels reminiscent of those during 1980 and the Great Depression.

Gold Market Cap as a Percentage of US Money Supply (Source: Cathie Wood)

Nonetheless, if gold’s correction proves orderly and the macro drivers that ignited the hard-asset demand remain intact, Bitcoin may find itself next in line.

However, it would not merely reflect gold; rather, it would be the market’s higher-volatility manifestation of the same underlying monetary concerns.

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