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 the fall in the price of Bitcoin over the past month shows that the vision is far from reality. Instead, traders are increasingly treating cryptocurrency as just a speculative technology investment.
Since the start of this year, Bitcoin’s price movement has closely mirrored that of the Nasdaq, a benchmark heavily weighted in tech stocks, according to analysis by data firm Arcane Research. This means that while Bitcoin’s price has fallen more than 25% over the past month, reaching below $30,000 on Wednesday – less than halfway from its November peak – the plunge almost happened with a broader slump in tech stocks as investors grappled with higher interest. exchange rate and the war in Ukraine.
The growing correlation helps explain why those who bought the cryptocurrency last year, hoping it would gain in value, saw their investment plummet. And while Bitcoin has always been volatile, its growing resemblance to risky tech stocks makes it clear that its promise as a transformative asset remains unfulfilled.
“It delegitimizes the argument that Bitcoin is like gold,” said Vetle Lunde, analyst for Arcane. “Evidence indicates that Bitcoin is just a risky 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 indicates exact correlation, meaning prices move in tandem, and a score of -1 represents exact divergence.
Since January 1, the 30-day average of the Bitcoin-Nasdaq score has approached 1, reaching 0.82 this week, the closest it has ever been to an exact, one-to-one correlation. At the same time, Bitcoin’s price movement has deviated from fluctuations in the price of gold, the asset it has been most often compared to.
Convergence with the Nasdaq has increased during the coronavirus pandemic, driven in part by institutional investors like hedge funds, endowments and family offices pouring money into the crypto market -cash.
Unlike the idealists who sparked initial enthusiasm for Bitcoin in the 2010s, these professional traders treat cryptocurrency as part of a larger portfolio of high-risk, high-reward technology 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 more broadly, it affects their Bitcoin transactions.
“Five years ago, people who were in crypto were crypto people,” said Mike Boroughs, founder of blockchain investment fund Fortis Digital. “Now you have guys covering the whole spectrum of risky assets. So when they get hit there, it impacts their psychology.
Concerns about the stock market – affected by tough economic trends including Russia’s invasion of Ukraine and historic levels of inflation – have been particularly evident in the fall in tech stocks this year. Meta, the company formerly known as Facebook, is down more than 40% this year. Netflix has lost 70% of its value.
On Wednesday, shares of Coinbase, the cryptocurrency exchange, fell 26% after reporting lower revenue and a loss of $430 million in the first quarter. Shares of the company have fallen more than 75% overall this year.
The Nasdaq is already in bearish territory, after ending Wednesday down 29% from its record high in mid-November. November was also when Bitcoin price peaked near $70,000. The crash was a reality check for Bitcoin evangelists.
“There was this undeniable belief among retailers that Bitcoin at the end of last year was an inflation hedge – it was a safe haven, it was going to replace the dollar,” said crypto analyst Ed Moya. currency to the trading company OANDA. “And what happened was inflation started to get really ugly, and Bitcoin lost half its value.”
The prices of other cryptocurrencies were also crushed. The price of Ether, the second most valuable cryptocurrency, has fallen around 25% since early April to below $2,300. Others, like Solana and Cardano, have also seen steep declines this year.
Russo-Ukrainian War: Main Developments
On the ground. A Ukrainian counter-offensive near Kharkiv appears to have greatly reduced Russian bombardment in the eastern part of the city. But forces from Moscow are advancing along other parts of the front line.
Bitcoin has rebounded from significant losses before, and its long-term growth remains impressive. Prior to the pandemic crypto price boom, its value was hovering 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, building up a stockpile of more than 125,000 coins. As Bitcoin’s price crashed, shares of the company have fallen around 75% since November.
In an email, Saylor blamed the crash on “traders and technocrats” who don’t appreciate Bitcoin’s long-term potential to transform the global financial system.
“In the short term, the market will be dominated by those who less appreciate the virtues of Bitcoin,” he said. “In the long run, the maximalists will be right, because billions of people need this solution, and awareness is spreading to millions more every month.”