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 a long way from reality. Instead, traders are increasingly treating the cryptocurrency like just another speculative tech investment. The growing correlation helps explain why those who bought the cryptocurrency last year, hoping it would grow more valuable, have seen their investment crater. And while bitcoin has always been volatile, its increasing resemblance to risky tech stocks starkly shows that its promise as a transformative asset remains unfulfilled.
it delegitimizes the argument that bitcoin is like gold, evidence points in favor of bitcoin just being a risk asset. Arcane Research assigned a numeric score between 1 and -1 to capture the pricing correlation between bitcoin and the Nasdaq. A score of 1 indicated an exact correlation, meaning the prices moved in tandem, and a score of -1 represented an exact divergence. Since Jan. 1, the 30-day average of the bitcoin-Nasdaq score has approached 1, reaching 0.82 this week, the closest it had ever been to an exact, 1-to-1 correlation. At the same time, bitcoin’s price movement has diverged from fluctuations in the price of gold, the asset to which it has been most often compared. Since the start of this year, bitcoin’s price movement has closely mirrored that of the Nasdaq, that’s heavily weighted toward technology stocks, according to an analysis by the data firm Arcane Research. That means that as bitcoin’s price dropped more than 25% over the past month, to under $30,000 on Wednesday — less than half its November peak — the plunge came in near lock step with a broader collapse of tech stocks as investors grappled with higher interest rates and the war in Ukraine.The convergence with the Nasdaq has grown over the course of the coronavirus pandemic, driven partly by institutional investors like hedge funds, endowments and family offices that have poured money into the cryptocurrency market.unlike the idealists who drove the initial enthusiasm for bitcoin in the 2010s, these professional traders are treating 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 returns for clients and are less ideologically committed to bitcoin’s long-term potential. And when they lose faith in the tech industry more broadly, that affects their bitcoin trades.On Wednesday, shares of Coinbase, the cryptocurrency exchange, plummeted 26% after it reported declining revenue and a loss of $430 million in the first quarter. The company’s stock has fallen more than 75% overall this year.the Nasdaq is already in bear-market territory, having ended Wednesday down 29% from its mid-November record. November was also when bitcoin’s price hit a peak of nearly $70,000. The crash has been 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,” said Ed Moya, a cryptocurrency analyst at the trading company OANDA. “And what happened was inflation started to become very ugly, and bitcoin lost half of its value.
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