Financial Insights That Matter
The global sell-off in financial markets sparked by the new Trump tariffs has brought out the Bitcoin (CRYPTO: BTC) bears. The current thinking is that Bitcoin could get hammered by a mix of lower economic growth, rising inflation, and overall market uncertainty.
But how much of this bearish forecast is really just a case of investors overreacting? After all, as many crypto investors are now pointing out, there are no tariffs on Bitcoin. To understand where Bitcoin is headed next — it’s now down almost 30% from its all-time high of $109,000 in January — you need to ask yourself three key questions.
For much of its history, Bitcoin has been referred to as digital gold, given that it shares some of the same characteristics as physical gold. Bitcoin, for example, is inherently scarce, given that its total lifetime supply is capped at 21 million coins. Almost 20 million coins are already in circulation, so 95% of all the Bitcoin that is ever going to exist already exists.
Moreover, Bitcoin is inherently a disinflationary asset due to an algorithmically controlled event known as halving, in which the reward for mining new Bitcoin is cut in half every four year. Add in the fact that the typical image used to depict Bitcoin — a nice, shiny gold coin — creates a mental image of Bitcoin as being the perfect safe asset.
But is it? During the 2022 stock market decline, Bitcoin did not hold up at all as a store of value. For the year, the S&P 500 was down 18%, but Bitcoin was down 64%. Gold, on the other hand, held its value, up a modest 0.4%.
In early 2023, though, Bitcoin did prove its worth during the regional banking crisis. At that time, there was a clear flight to safety, and investors moved into Bitcoin. The thinking then was that Bitcoin was relatively insulated from the traditional financial system, and that it was safer to put your money into Bitcoin than into a U.S. bank.
So you can see where I’m going with this — 2025 is shaping up to be the ultimate test for Bitcoin. For the year, gold prices have surged past the $3,000 mark, while Bitcoin is down almost 30% from its high. So let’s see what happens next. If investors continue to pile into gold, but give up on Bitcoin, then all those store-of-value and digital-gold theories might turn out to be pure bunk.
And that leads us to the primary reason investors should be worried about Bitcoin right now: It’s starting to behave more and more like a volatile tech stock. Historically, this was never the case. Bitcoin was largely uncorrelated with every major asset class, and that included tech stocks.
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