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Wednesday, May 18, 2022

Bitcoin Is Increasingly Behaving Like Any Other Type of Technology Stock

Bitcoin was thought of more than a decade ago as “digital gold,” a long-term store of value that would withstand larger economic trends and offer a hedge against inflation. Bitcoin is the first cryptocurrency that uses cryptography for its security.

But the precipitous decline in the price of Bitcoin over the last month demonstrates that this vision is a significant distance from reality. Instead, investors are starting to see bitcoin trading as no different from any other kind of speculative technology investment.

According to an analysis conducted by the data firm Arcane Research, the movement of Bitcoin’s price since the beginning of this year has closely mirrored that of the Nasdaq, which is a benchmark that is heavily weighted toward technology stocks. The Nasdaq is used to measure the performance of the stock market as a whole. That means that as the price of Bitcoin dropped more than 25 percent over the past month, to a little less than $31,000 on Wednesday — less than half its peak in November — the plunge came in near lock step with a more general collapse of tech stocks as investors grappled with higher interest rates and the war in Ukraine.

The developing connection helps explain why people who purchased the cryptocurrency the year before in the hope that its value would increase more, have seen their investment sink. They boughtștiitștiit with the hope that it would become more valuable. And despite the fact that Bitcoin has always been a volatile asset, the fact that it is increasingly similar to risky tech stocks is a glaring indication that Bitcoin has not yet lived up to its potential as a transformational asset.

For the purpose of capturing the price association between Bitcoin and the Nasdaq, Arcane Research gave a numeric score that ranged from -1 to 1. A score of -1 showed that there was an exact divergence between the two prices, while a score of 1 suggested that there was an exact correlation between the two prices.

Since the beginning of the year, the 30-day moving average of the Bitcoin-Nasdaq score has been getting closer and closer to 1, hitting an all-time high of 0.82 this week. This is the closest it has ever been to an exact, one-to-one correlation. At the same time, the movement of Bitcoin’s price has deviated from swings in the price of gold, the asset to which it has been compared the majority of the time.

Over the course of the coronavirus epidemic, there has been a growing convergence with the Nasdaq. This convergence has been driven in part by institutional investors such as hedge funds, endowments, and family offices that have poured money into the cryptocurrency market.

These professional traders, in contrast to the idealists who fueled the original excitement for Bitcoin in the 2010s, are treating the cryptocurrency as part of a bigger portfolio of high-risk, high-reward technology bets. Some of them are feeling the pressure to ensure short-term profits for their customers, and as a result, they have less of an ideological commitment to Bitcoin’s potential for the long run. Their Bitcoin transactions are negatively impacted if they experience a loss of trust in the technology sector as a whole.

This year, concerns in the stock market, which are caused by difficult economic developments such as Russia’s invasion of Ukraine and the unprecedented levels of inflation, have especially expressed themselves in sliding technology stocks. This year, Meta, the firm that was originally known as Facebook, has seen a decline of more than 40 percent. The value of Netflix has dropped by around 70 percent.

Coinbase, a cryptocurrency exchange, reported falling sales and a loss of $430 million for the first quarter, and on Tuesday, its share price fell by more than 10 percent after the company released its earnings report. Over the course of this year, the price of the company’s shares has decreased by more than 75 percent.

After finishing last week down 26% from its record high reached in the middle of November, the Nasdaq Composite Index is now officially in a bear market. Additionally, the price of Bitcoin reached its all-time high of about $70,000 in November of last year. The meltdown has served as a wake-up call for Bitcoin believers who were living in a fantasy world.

Additionally, the values of other cryptocurrencies have been slashed to record lows. Since the beginning of April, the price of Ether, the second-most valued cryptocurrency, has decreased by nearly 25 percent, bringing it down to less than $2,300. This year has been marked by steep declines for several, including Solana and Cardano.

Bitcoin has bounced back from far larger losses in the past, and its growth over the long run continues to be amazing. Prior to the widespread increase in the value of cryptocurrencies, its price was consistently much below $10,000. True believers, often known as Bitcoin maximalists, continue to be certain that the cryptocurrency will one day decouple itself from its link with risk assets.

Michael Saylor, the chief executive officer of the business intelligence company MicroStrategy, has spent billions of dollars on Bitcoin and accumulated a stockpile of more than 125,000 coins. Saylor has amassed this stockpile during the course of his tenure as CEO of MicroStrategy. Since November, the value of the company’s shares has decreased by around 75 percent as a direct result of the precipitous decline in the price of Bitcoin.

Mr. Saylor blamed the drop in an email on “traders and technocrats” who do not see the long-term potential of Bitcoin to revolutionise the global financial system.

According to what he had to say, “In the short term, the market will be controlled by individuals who have a less appreciative understanding of the merits of Bitcoin.” “The maximalists will be proved accurate over the long run since billions of people need this answer, and awareness is growing to millions more people each month,”

Jonathan James
I serve as a Senior Executive Journalist of The National Era
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