Bitcoin increasingly works as just another technical stock

SAN FRANCISCO – Bitcoin was conceived more than a decade ago as “digital gold”, a long-term value stock that would resist broader economic trends and provide a hedge against inflation.

But Bitcoin’s crash price over the past month shows that the vision is far from reality. Instead, traders are increasingly treating the cryptocurrency as just another speculative technology investment.

Since the beginning of this year, Bitcoin’s price movement has closely mirrored that of Nasdaq, a benchmark index that is heavily weighted against technology stocks, according to an analysis by computer firm Arcane Research. This means that when Bitcoin̵[ads1]7;s price fell more than 25 percent over the past month, to below $ 30,000 on Wednesday – less than half of the peak in November – the fall came in an almost locked step with a broader collapse of technology stocks as investors struggled higher interest rates and the war in Ukraine.

The increasing correlation helps to explain why those who bought the cryptocurrency last year, in the hope that it would become more valuable, have seen their investment crater. And although Bitcoin has always been volatile, its growing resemblance to risky technology stocks clearly shows that the promise of a transformative asset remains unfulfilled.

“It delegitimizes the argument that Bitcoin is like gold,” said Vetle Lunde, an analyst at Arcane. “Evidence suggests that Bitcoin is just a risk element.”

Arcane Research awarded a numerical score between 1 and -1 to capture the price correlation between Bitcoin and Nasdaq. A score of 1 indicated an exact correlation, which means that prices moved in step, 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 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 with which it has most often been compared.

Convergence with Nasdaq has grown during 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 drove the first enthusiasm for Bitcoin in the 2010s, these professional traders treat the cryptocurrency as part of a larger portfolio of high-risk, high-reward investments. Some of them are under pressure to ensure short-term returns for customers and are less ideologically committed to Bitcoin’s long-term potential. And when they lose faith in the technology industry more generally, it affects their Bitcoin trades.

“Five years ago, people were into crypto-crypto people,” said Mike Boroughs, founder of blockchain investment fund Fortis Digital. “Now you have boys who are across the whole range of risk takers. So when they are hit over there, it affects their psychology.”

Concerns in the stock market – influenced by challenging economic trends, including Russia’s invasion of Ukraine and historical inflation levels – have been particularly evident in falling technology stocks this year. Meta, the company formerly known as Facebook, is down over 40 percent this year. Netflix has lost 70 percent of its value.

Shares of Coinbase, the cryptocurrency exchange, fell 26 percent on Wednesday after reporting declining revenues and a loss of $ 430 million in the first quarter. The company’s share has fallen more than 75 percent in total this year.

Nasdaq is already in the bear market’s territory, after ending Wednesday down 29 percent from the record in mid-November. November was also when Bitcoin’s price reached a peak of almost 70,000 dollars. The crash has been a reality check for Bitcoin evangelists.

“It was this undeniable detail 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,” said Ed Moya, a cryptocurrency analyst at trading company OANDA. “And what happened was that inflation started to get really ugly, and Bitcoin lost half its value.”

The prices of other cryptocurrencies have also been crushed. The price of Ether, the second most valuable cryptocurrency, has fallen around 25 percent since the beginning of April alone, to below 2300 dollars. Others, such as Solana and Cardano, have also experienced steep falls this year.

Bitcoin has recovered from major losses in the past, and its long-term growth remains impressive. Before the pandemic boom in cryptocurrencies, the value soared well below $ 10,000. True believers, who call themselves Bitcoin maximalists, insist that the cryptocurrency will eventually break from its correlation with risk assets.

Michael Saylor, CEO of business intelligence company MicroStrategy, has spent billions of the company’s money on Bitcoin, building up a stockpile of more than 125,000 coins. As the price of Bitcoin has cratered, the company’s shares have 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 those who have less understanding of the benefits of Bitcoin,” he said. “In the long run, maximalists will be proven right, because billions of people need this solution, and consciousness is spreading to millions every month.”

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