Bitcoin is increasingly acting like just another tech stock

Written by: David Yaffe-Bellany

Bitcoin was conceived more than a decade ago as “digital gold,” a long-term store of value that would withstand broader economic trends and provide a hedge against inflation.

But the drop in the price of bitcoin over the last month shows that the vision is far from reality. Instead, traders are increasingly treating cryptocurrency as just another speculative technology investment.

Since early this year, bitcoin’s price movement has closely mirrored that of the Nasdaq, a benchmark that is heavily weighted toward tech stocks, according to analysis by data firm Arcane Research. That means that as bitcoin’s price fell more than 25% over the past month, to below $30,000 on Wednesday (less than half of its November high), the drop occurred almost in unison with a crash. broader view of tech stocks as investors grappled with higher interest rates. and the war in Ukraine.

The growing correlation helps explain why those who bought the cryptocurrency last year, hoping it would rise in value, saw their investment tank. And while Bitcoin has always been volatile, its growing resemblance to tech venture stocks clearly shows that its promise as a transformative asset remains unfulfilled.

“It delegitimizes the argument that bitcoin is like gold,” said Vetle Lunde, an analyst at Arcane. “The evidence points in favor of Bitcoin being 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 indicated exact correlation, meaning prices moved in tandem, and a score of -1 represented exact divergence.

Since January 1, the 30-day average of the bitcoin-Nasdaq score has been closer to 1, reaching 0.82 this week, the closest it has ever been to an exact 1:1 correlation. Over time, bitcoin’s price movement has deviated from fluctuations in the price of gold, the asset it has been most frequently compared to.

Convergence with the Nasdaq has grown over the course of the coronavirus pandemic, fueled in part by institutional investors such as hedge funds, endowments and family offices that have poured money into the cryptocurrency market.

Unlike the idealists who fueled 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 technology 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 in general, it affects their bitcoin trading.

“Five years ago, the people who were into crypto were crypto people,” said Mike Boroughs, founder of blockchain investment fund Fortis Digital. “Now you have guys that are across the spectrum of risky assets. So when they get hit there, that affects their psychology.”

Concerns in the stock market, hit by challenging economic trends including the Russian invasion of Ukraine and historic levels of inflation, have particularly manifested themselves in the drop 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 cryptocurrency exchange Coinbase plunged 26% after it reported declining 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 bear market territory, having closed Wednesday down 29% from its record high in mid-November. November was also when the price of bitcoin reached a peak of almost $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 trading firm OANDA. “And what happened was that inflation started to get very 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 by around 25% since the beginning of April, to below $2,300. Others, such as solana and cardano, have also seen sharp declines this year.

Bitcoin has bounced back from huge losses before and its long-term growth continues to be impressive. Before the pandemic boom in cryptocurrency prices, its value hovered well below $10,000. True believers, who call themselves bitcoin maximalists, remain adamant that the cryptocurrency will eventually break its correlation with risk assets.

Michael Saylor, CEO of business intelligence company MicroStrategy, has spent billions of his company’s money on bitcoin, amassing a stash of more than 125,000 coins. As the price of bitcoin crashed, the company’s shares are down roughly 75% since November.

In an email, Saylor blamed the collapse 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 with less appreciation for the virtues of bitcoin,” he said. “In the long run, the maximalists will be proven right, because billions of people need this solution, and awareness is spreading to millions more every month.”

This article originally appeared in The New York Times.

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