SAN FRANCISCO – The bitcoin was conceived more than a decade ago as “digital gold”, a long-term value reserve that would withstand broader economic trends and provide a hedge against inflation.
But the falling value of the bitcoin over the past month shows that the vision is far from real. Instead, traders are increasingly looking at cryptocurrency as just another speculative tech investment.
According to data firm Arkin Research, since the beginning of this year, the movement of bitcoin prices has closely reflected the Nasdaq, a measure that weighs heavily on technology stocks. This means that as the price of Bitcoin fell more than 25% over the past month to less than $ 28,000 on Thursday – less than half of November’s peak – the decline came with a wider collapse of tech stocks as Investors suffered high interest rates. And the war in Ukraine.
The growing correlation helps explain why those who bought cryptocurrency last year, in the hope that it would become more valuable, saw the pitfalls of their investment. And while Bitcoin has always been volatile, its growing resemblance to risky tech stocks clearly shows that its promise as an asset of change has not been fulfilled.
“This invalidates the argument that bitcoin is like gold,” said Vettel Linde, an Arkin analyst. “Evidence in favor of bitcoin is just a risky asset.”
Arkin Research assigned a numeric score between 1 and -1 to capture the price relationship between Bitcoin and Nasdaq. A score of 1 indicates a definite correlation, ie prices moved together, and a score of -1 represents a correct deviation.
Since January 1, the Bitcoin-Nasdaq score has hovered near the 30-day average of 1, reaching 0.82 this week, which was the closest to a definitive, interconnected relationship. At the same time, the price movement of Bitcoin has shifted away from the fluctuations in the price of gold, the asset with which it is often compared.
Coordination with Nasdaq has grown during the Corona virus epidemic, which is driven in part by institutional investors such as hedge funds, endowments and family offices that have invested in the cryptocurrency market.
Unlike the idealists who created the initial enthusiasm for bitcoin in the 2010s, these professional traders see the cryptocurrency as part of a larger portfolio of high-risk, high-reward tech investments. Some of them are under pressure to secure short-term profits for customers and are theoretically less committed to Bitcoin’s long-term viability. And when they lose more and more confidence in the tech industry, it hurts their bitcoin business.
“Five years ago, those who were corrupt were corrupt,” said Mike Burrows, founder of the blockchain investment fund Fortis Digital. “Now you have people who are in risky assets for the whole period. So when they are killed there, it affects their psyche.
Concerns in the stock market – affected by challenging economic trends, including Russia’s invasion of Ukraine and the historic level of inflation – have manifested themselves especially in falling 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.
Shares of Coinbase, a cryptocurrency exchange, fell 26 percent on Wednesday after it reported first-quarter earnings declines and a loss of $ 430 million. The company’s stock has fallen more than 75% overall this year.
The Nasdaq is already in the bear market area, ending 29% below its mid-November record on Wednesday. November was also the time when the price of bitcoin peaked at about $ 70,000. This crash is a reality check for Bitcoin evangelists.
“It was an undeniable retail belief that bitcoin was an inflation hedge at the end of last year – it was a safe haven, it was going to convert dollars,” said Ed Moya, a cryptocurrency analyst at trading company OANDA. ۔ “And what happened was that inflation started to get very ugly, and the 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 by almost 25% since early April to less than 2, 2,300. Others, such as Solana and Cardano, have also experienced a sharp decline this year.
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Bitcoin has come back with huge losses before, and its long-term growth is impressive. Before the outbreak of the epidemic, the price of cryptocurrency was below $ 10,000. True believers, who like bitcoin more and more, insist that cryptocurrency will eventually break its relationship with risky assets.
Michael Seller, chief executive of the business intelligence company MicroStrategy, has spent billions of dollars on bitcoin, his firm’s hoarding of more than 125,000 coins. As the value of the bitcoin has risen, the company’s stock has fallen about 75% since November.
In an email, Mr Sailor blamed “merchants and technocrats” for failing to appreciate the bitcoin’s long-term ability to transform the global financial system.
“In the near future, the market will be dominated by those who have little appreciation for the merits of Bitcoin,” he said. “In the long run, more and more will prove to be right, because billions of people need this solution, and awareness is spreading to millions more every month.”