Copper Surges 12% on Tariffs, Bitcoin Correlation Weakens

Copper, a metal historically recognized as a reliable economic indicator, has recently surged to near-record highs. This surge has sparked speculation about whether Bitcoin, which was once positively correlated with copper, will follow suit. The industrial metal has seen significant gains, closing at its fourth highest level in history, just 2.5% below its record high. This rise is largely attributed to the tariffs imposed by the Trump administration, which have weakened copper's appeal as a leading indicator for risk assets, including cryptocurrencies like Bitcoin.

The relationship between copper and Bitcoin has been a topic of interest among analysts. Historically, copper has been seen as a barometer for global economic health, with its price movements often reflecting broader trends in the economy. Bitcoin, on the other hand, has been viewed as a digital gold, a store of value that can act as a hedge against economic uncertainty. The positive correlation between the two assets in the past has led some to believe that movements in copper prices could provide insights into the future direction of Bitcoin.

However, the recent surge in copper prices, driven by tariffs, has complicated this relationship. The tariffs have created a supply-demand imbalance, driving up the price of copper. This has weakened copper's appeal as a leading indicator for risk assets, as the price movements are now more influenced by geopolitical factors than by broader economic trends. This raises the question of whether Bitcoin, which has traditionally been influenced by economic factors, will follow copper's lead.

Analysts have differing opinions on the matter. Some believe that the surge in copper prices could be a leading indicator for a broader economic recovery, which could in turn drive up the price of Bitcoin. Others, however, point to the weakening correlation between the two assets and argue that Bitcoin's price movements are now more influenced by factors such as regulatory developments and institutional adoption.

According to analysts, the year-to-date increase of 12% to $5.10 per pound on COMEX has been primarily driven by President Donald Trump's trade tariffs, which pose risks to both the U.S. and global economies. These aggressive policy moves likely led the Federal Reserve to lower growth forecasts while raising inflation projections. The not-so-bullish nature of the ongoing copper rally is also explained by losses in the Aussie dollar-U.S. dollar exchange rate. Australia is a significant producer and exporter of copper, and historically, the AUD and copper prices have had a strong correlation. However, this correlation is not holding this time, likely due to the tariffs-led surge in copper.

Other factors powering the copper rally, such as the recent China stimulus, could be positive for Bitcoin and risk-taking in general. China, the world's largest importer of commodities, announced its most potent plan in decades to boost domestic consumption as it battles external uncertainties posed by Trump's tariffs. The plan noted a direct link between consumption, affordable childcare, and the country’s long-running property crisis. The policy package includes efforts to increase household income, spur spending, and support population growth. Fresh data was also released for the first two months of the year showing Chinese consumption, investment, and industrial production exceeding estimates.

Regardless of the outcome, the recent surge in copper prices serves as a reminder of the complex interplay between different asset classes. While copper and Bitcoin may have once been positively correlated, the relationship between the two assets is now more nuanced, influenced by a range of factors including geopolitical developments and regulatory changes. As such, investors should approach the relationship between copper and Bitcoin with caution, and consider a range of factors when making investment decisions.