Cryptocurrency markets are once again facing turbulence, raising fundamental questions about the long-term viability of digital assets as safe havens for investment. Bitcoin, once heralded as “digital gold” and a potential hedge against inflation and geopolitical instability, has experienced a significant downturn, losing nearly half its value since October.
The recent sell-off accelerated on Thursday, with Bitcoin plummeting by more than 13%, and the broader cryptocurrency market following suit. This decline is particularly striking given the simultaneous surge in the price of traditional gold, which has risen by over 25% during the same period – a stark contrast that undermines the narrative of Bitcoin as a reliable alternative to precious metals.
“We’ve seen this argument from the pro-crypto crowd that bitcoin is this safe haven, but it never really works out,” says Igor Pejic, a tech strategist and author of “Tech Money.” He adds that Bitcoin ultimately behaves more like a speculative tech stock, rising and falling with market sentiment towards the technology sector.
Recent weakness in tech stocks has contributed to the pressure on Bitcoin. Concerns surrounding the potential impact of new artificial intelligence technology from Anthropic, which could disrupt the software industry, led to a 1.5% decline in the Nasdaq index on Thursday. Bitcoin’s fall, however, has been far more dramatic, dropping below $64,000 – a nearly 50% decrease from its peak of over $126,000 in October. Ethereum, the second-largest cryptocurrency, has experienced a similar downturn.
The Trump administration’s previously supportive stance towards cryptocurrency, including the establishment of a federal strategic reserve of Bitcoin and the launch of exchange-traded funds investing in the digital currency, had initially fueled investor enthusiasm. President Trump and his family also have connections to World Liberty Financial, a company focused on stablecoins – cryptocurrencies designed to maintain a fixed value relative to a traditional currency like the dollar.
However, growing economic uncertainty and geopolitical tensions have prompted investors to reduce their risk exposure, leading to a widespread sell-off in cryptocurrency markets. The downturn intensified after Treasury Secretary Scott Bessent informed the House Financial Services Committee that the government had no plans to provide a bailout for Bitcoin, effectively removing a potential safety net for investors.
This isn’t the first time Bitcoin has experienced a significant price correction. Over the past 12 years, the cryptocurrency has seen six declines of 60% or more, according to Campbell Harvey, a finance professor at Duke University. Historically, Bitcoin has rebounded from these downturns and reached new highs, but Harvey cautions that this time may be different.
One key change is the increased ease with which investors can “short” cryptocurrency – betting on its price decline – potentially creating opportunities for market manipulation. It’s now easier for investors to borrow funds to purchase Bitcoin, amplifying potential losses if the price falls. If investors are wrong about the future price of Bitcoin, they may be forced to sell their holdings to cover their debts, further exacerbating the downward pressure on the market.
“We’ve seen this movie so many times,” Professor Harvey says. “It’s an extremely volatile asset.”
The recent performance of Bitcoin is also highlighted by a shift in investor preference towards precious metals. Over the past week, precious metal funds absorbed $1.4 billion in fresh cash, while Bitcoin-linked funds saw roughly $300 million in withdrawals as the token slumped to almost $86,000. Simultaneously, spot gold surged past $5,500, and silver broke $118 per ounce, fueled by a four-year low in the dollar and geopolitical stress. This trend suggests that investors are increasingly seeking the traditional safety of gold and silver over the perceived risks of cryptocurrency.
The narrative of Bitcoin as “digital gold” is increasingly being challenged, with analysts pointing out its correlation with risk assets like tech stocks rather than its inverse relationship with them. The question now is whether Bitcoin can regain its footing and fulfill its promise as a long-term store of value, or if it will remain a volatile and speculative asset.
