SAN FRANCISCO – Bitcoin was conceived more than a decade ago as “digital gold,” a long-term store of value that would resist broader economic trends and provide a hedge against inflation.
But Bitcoin’s crashing price over the past month shows that vision is far from reality. Instead, traders are increasingly treating the cryptocurrency as just a speculative technical investment.
Since the beginning of this year, Bitcoin’s price movement closely mirrors that of the Nasdaq, a benchmark heavily focused on technology stocks, according to an analysis by data firm Arcane Research. That means that as Bitcoin’s price dropped more than 25 percent in the past month, falling below $30,000 on Wednesday — less than half of its November peak — the plunge nearly came to a close with a wider slump in technology stocks as investors struggled with higher interest rates and the war in Ukraine.
The growing correlation helps explain why those who bought the cryptocurrency last year in hopes of making it more valuable have seen their investment crater. And while Bitcoin has always been volatile, its increasing resemblance to risky technology stocks clearly shows that its promise as a transformative asset remains unfulfilled.
“It debunks the argument that Bitcoin is like gold,” said Vetle Lunde, an analyst for Arcane. “There is some evidence in favor of Bitcoin being just a risk asset.”
Arcane Research assigned a numerical score between 1 and -1 to capture the price correlation between Bitcoin and the Nasdaq. A score of 1 indicated an exact correlation, meaning prices moved in tandem, and a score of -1 represented an exact deviation.
Since January 1, the 30-day average of the Bitcoin-Nasdaq score has approached 1, reaching 0.82 this week, the closest ever to an exact, one-to-one correlation. At the same time, Bitcoin’s price movement diverges from fluctuations in the price of gold, the asset it is most often compared to.
Convergence with the Nasdaq has grown over the course of the coronavirus pandemic, driven in part by institutional investors such as hedge funds, endowments and family offices who have poured money into the cryptocurrency market.
Unlike the idealists who sparked the initial enthusiasm for Bitcoin in the 2010s, these professional traders treat the cryptocurrency as part of a larger portfolio of high-risk, high-yield tech investments. Some of them are under pressure to secure short-term returns for customers and are less ideologically committed to Bitcoin’s long-term potential. And when they lose faith in the tech industry in general, that affects their Bitcoin transactions.
“Five years ago, people who were in crypto were crypto people,” said Mike Boroughs, founder of the blockchain investment fund Fortis Digital. “Now you have guys who have the whole range of risky assets. So if they get hit there, it affects their psychology.”
Equity market concerns – influenced by challenging economic trends, including the Russian invasion of Ukraine and historic inflation rates – have manifested themselves this year in declining technology stocks. Meta, the company formerly known as Facebook, is down more than 40 percent this year. Netflix has lost 70 percent of its value.
Shares of Coinbase, the cryptocurrency exchange, plunged 26 percent on Wednesday after it reported declining revenues and a loss of $430 million in the first quarter. Shares of the company have fallen more than 75 percent this year in total.
The Nasdaq is already in bear market territory, finishing 29 percent lower Wednesday from its mid-November record. November was also when Bitcoin’s price peaked at nearly $70,000. The crash was a reality check for Bitcoin evangelists.
“There was an undeniable belief from the retail trade that Bitcoin was an inflation hedge at the end of last year — it was a safe haven, it would replace the dollar,” said Ed Moya, a cryptocurrency analyst with trading firm OANDA. “And what happened was that inflation started to get really ugly and Bitcoin lost half of its value.”
The prices of other cryptocurrencies have also been crushed. The price of Ether, the second most valuable cryptocurrency, has fallen about 25 percent to below $2,300 since early April. Others, such as Solana and Cardano, have also experienced steep declines this year.
War between Russia and Ukraine: important developments
To the ground. A Ukrainian counter-offensive at Kharkov appears to have contributed to the sharp decrease in Russian shelling in the eastern city. But Moscow’s troops are advancing along other parts of the front line.
Bitcoin has recovered from previous major losses and long-term growth remains impressive. Before the pandemic boom in crypto prices, its value hovered well below $10,000. True believers, who call themselves Bitcoin maximalists, remain adamant that the cryptocurrency will eventually break its correlation with risky assets.
Michael Saylor, the chief executive of business intelligence firm MicroStrategy, has spent billions of his company’s money on Bitcoin and built a stash of more than 125,000 coins. As Bitcoin’s price plummeted, the company’s stock has fallen about 75 percent since November.
In an email, Mr. Saylor blamed the crash on “traders and technocrats” who do not appreciate Bitcoin’s long-term potential to transform the global financial system.
“In the short term, the market will be dominated by people who value the benefits of Bitcoin less,” he said. “In the long run, the maximalists will be right, because billions of people need this solution and the awareness spreads to millions more every month.”
