Bitcoin is just a shitty tech stock now
Originally, Bitcoin was meant to be a currency.
Then it was supposed to be an inflation hedge, a kind of digital gold.
But as the big crypto market crash of the last three months started to unfold, it started to look like something much more mundane: a crappy tech stock.
Digital currencies, on the whole, have been in freefall lately. Despite a very slight rally on Monday, Bitcoin has lost around 45% of its value since November, while other crypto assets, such as Ether, have lost even more. During this crash, the broader crypto market lost over $1.3 trillion in value, roughly the value of all outstanding federal student debt.
This resounding crash that has been going on for months reminds us why Bitcoin has never really done well as a mainstream currency despite the vast resources that have been expended trying to publicize it. Reliable currencies tend to have relatively stable values - it’s considered a big deal if the US dollar goes up or down by 10%. Bitcoin, on the other hand, can move so much in a day, thanks to the massive amount of speculative trading surrounding it, making it a poor medium, exchange, or store of value. Investors now take this volatility for granted. “Long downturns like this are normal with crypto,” the CEO of a crypto technology company that works with asset managers told CNBC. “People should know it fits.” That might be good advice, but it mocks the idea that crypto will ever really be able to replace dollars or euros.
But this crash didn’t just undermine the case that Bitcoin could be a viable currency (which seemed pretty unlikely for a while). It also breaks one of the big arguments for Bitcoin, and other cryptocurrencies, as an investment asset class. Because Bitcoin’s supply is technically capped and there is no central bank to print more of it, it has long been touted as a safe place for investors to put their money if they were worried about inflation – a form of gold without the inconvenience and cost of storing a charge of shiny metal. That has traditionally been a big part of its appeal to hard-money libertarians who distrust the Federal Reserve.
The theory that Bitcoin would act as an inflation hedge seemed plausible for much of 2021, when consumer prices rose and crypto values soared. But now? Not that much, since Bitcoin and its cousins are retreating even though inflation is still very much present. “You’d think with the inflation we’re seeing you’d see the opposite,” Bob Fitzsimmons, executive vice president of fixed income, commodities and equity lending at Wedbush, told The Washington Post recently. Securities. “That has been one of Bitcoin’s selling points.” In contrast, the price of real gold, the oldest hedge against inflation, has remained relatively stable in recent months and has risen slightly over the past 60 days.
Instead of a currency or an inflation hedge, Bitcoin seems to act like something else: a tech stock. Over time, its performance has become increasingly correlated with the NASDAQ index. (Its correlation with gold is virtually nil.)
In short, investors bet on Bitcoin as a bet on tech foam, of which there have been many in recent years. Lately, investors have been dumping stocks and other risky assets in anticipation of the upcoming Federal Reserve hike in interest rates in an attempt to control inflation. As a result, they also drop crypto. (It doesn’t help matters that the Russian central bank has announced its intention to ban crypto, just like China has already done) There is a dramatic irony here: again, the ideological roots of Bitcoin lie in part in the desire to create a form of private money that is totally free from central bank interference. But ultimately, like all other assets, its value oscillates at Jerome Powell’s pace. You can never really escape the influence of the Fed.
All of this also raises an important question about Bitcoin: what, exactly, is it supposed to be good for? No one really needs another way to bet on tech stocks. You can… just bet on tech stocks for that. Unlike some of its siblings like Ether, the Ethereum network token, it does not underpin payment on a blockchain capable of being an advanced financial services platform. One potential answer is crime – crypto is the preferred payment method for hackers who carry out ransomware attacks – but that doesn’t bode well for bitcoin’s long-term future. So if it’s not a currency, a substitute for gold, and even a great way to diversify your portfolio, what exactly is it for? As far as I know, other than buying drugs online, the answer is absolutely nothing.