The main investment case for bitcoin (BTC) is deteriorating quickly as rising inflation and geopolitical uncertainty hammer crypto prices.

The price of BTC has fallen to a two-week low this week after Russian Pres. Vladimir Putin ordered his military into Luhansk and Donetsk, the two breakaway regions that are in the eastern part of Ukraine, shortly after declaring the regions as independent.

BTC is often called “digital gold” by its investors. The term is referring to the idea that BTC can provide a store of value like gold does— one that is uncorrelated with the other financial markets, such as stocks.

BTC bulls also see the crypto as a “safe haven” asset that could serve as a hedge against any uncertainty in the global economy and rising prices.

With inflation at record highs, you would expect this to be BTC’s time to shine — the U.S. consumer prices this past month increased the most since Feb. 1982, according to Labor Dept. figures.

Instead, the crypto has lost close to half of its value since hitting an all-time high of almost $69,000 in Nov. That has led some analysts to question whether or not its status as a type of “digital gold” is still true.

“BTC is still early in its maturity curve to have a firm position in the category of ‘digital gold,’” says Vijay Ayyar, VP of corporate development at a cryptocurrency exchange.

Is it a Safe haven or a risk asset?

The recent declines for BTC came in tandem with a decline in the global stock market, with the S&P 500 closing out a Tuesday session in correction territory. BTC’s price has been tracking the moves of the stock market more and more, with correlation between BTC and the S&P 500 steadily increasing.

Experts say cryptos have become more closely connected to other speculative segments of the market like tech stocks are, which are dropping due to concerns that lofty valuations could come down due to the Federal Reserve and as well as other central banks starting to increase interest rates and drop their huge stimulus packages.

“The correlation between cryptocurrency and stocks has been higher over the past few months on both the Ukraine-Russia geopolitical situation and inflation-related macro news,” says Chris Dick, a quantitative trader at cryptocurrency market maker B2C2.

“This correlation indicates that BTC is firmly behaving more like a risk asset at the current time— not the safe haven that it was thought to be just a few years ago.”

In fact, gold has recently been outperforming BTC lately. Spot rates for gold has reached their highest levels since June 1, reaching levels as high as $1,913.88 per troy oz.

“BTC, the asset purported to be an answer to every question, has quietly gotten weaker and is notably performing worse than its arch enemy, gold,” said John Roque.

“We are looking for BTC to get back to the 30,000 level and then break under there and we are continuing to expect gold will reach new all-time highs.”

Bitcoin’s slump has resulted in an increased talk regarding a prolonged bear market called “crypto winter.” The last time this happened took place during the end of 2017 and early parts of 2018, when BTC plunged as much as 80 percent from then-record highs of near $20,000.

Not all analysts have been convinced that the latest downturn in cryptocurrency prices is indicative of a crypto winter, though, with many analysts saying that market conditions have changed from what they were. There are now a lot of institutions that are holding BTC which, according to some experts, is one of the reasons why it has become more closely connected to the stock market.

Author: Steven Sinclaire

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