More than 10 years ago, bitcoin was conceived as “digital gold,” a long-term store of value that would resist general economic trends and act as a hedge against inflation.
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But the collapse of bitcoin’s price over the past month shows that this vision is far from a reality. Instead, market operators are increasingly treating cryptocurrency as just another speculative technology investment.
Year-to-date, bitcoin’s price action has closely mirrored that of NASDAQ, a benchmark heavily weighted by tech stocks, according to analysis by data firm Arcane Research. This means that when bitcoin’s price fell more than 25% in the past month, dropping below US$30,000 on Wednesday, less than half of its November peak, the plunge followed closely. the general slump in tech stocks as investors grapple with higher interest rates and the war in Ukraine.
This growing correlation explains why those who bought the cryptocurrency last year, hoping it would go up 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 Arcane analyst Vetle Lunde. The evidence argues that bitcoin is simply a risky asset. »
Arcane Research assigned a numerical score between 1 and -1 to capture the price correlation between bitcoin and NASDAQ. A score of 1 indicates exact correlation, meaning prices moved in tandem, and a score of -1 represents exact divergence.
Since 1er January, the 30-day average bitcoin-NASDAQ score edged closer to 1, reaching 0.82 this week, the closest score to an exact 1-to-1 correlation. bitcoin’s price has deviated from fluctuations in the price of gold, the asset it has been most often compared to.
Convergence with NASDAQ has increased during the coronavirus pandemic, driven in part by institutional investors such as hedge funds, endowments and wealth management offices which have injected funds into the cryptocurrency market.
Unlike the idealists who sparked the initial enthusiasm for bitcoin in the 2010s, these professional market traders see 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 their customers and are less ideologically committed to bitcoin’s long-term potential. And when they lose faith in the wider tech industry, it affects their bitcoin transactions.
“Five years ago, people who were in crypto were crypto people,” says Mike Boroughs, founder of blockchain investment fund Fortis Digital. “Now you have guys who are on the full spectrum of risky assets. So when they get hit there, it impacts their psychology. »
Concerns about the stock market – hit 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, has lost more than 40% this year. Netflix has lost 70% of its value.
On Wednesday, shares of Coinbase, the cryptocurrency exchange, plunged 26% after reporting lower revenue and a loss of $430 million in the first quarter. The company’s stock overall is down more than 75% this year.
The NASDAQ is already in bear market territory, ending Wednesday down 29% from its all-time high in mid-November. It was also in November that the price of bitcoin peaked near $70,000. The crash was a reality check for bitcoin evangelists.
“There was this undeniable retail belief that bitcoin at the end of last year was an inflation hedge – it was a safe haven, it was going to replace the dollar,” says cryptocurrency analyst Ed Moya at OANDA trading company. “And what happened was inflation started to get really bad, and bitcoin lost half of its value. »
The prices of other cryptocurrencies were also crushed. The price of Ethereum, the second most valuable cryptocurrency, has fallen about 25% just since the beginning of April, to below the $2300 mark. Others, like the solana and the cardano, have also seen steep drops this year.
Bitcoin has already rebounded from significant losses, and its long-term growth remains impressive. Prior to the pandemic cryptocurrency price boom, its value hovered well below $10,000. True believers, who call themselves bitcoin maximalists, remain confident that the cryptocurrency will eventually break its correlation to risky assets.
Michael Saylor, CEO of business intelligence firm MicroStrategy, has spent billions of his company’s dollars on bitcoins, building up a stockpile of more than 125,000 coins. With the price of bitcoin crashing, the company’s stock is down about 75% since November.
In an email, Saylor blamed the fall on “market 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. »
This article was originally published in The New York Times.