The price of bitcoin is trying to recover from the crash of the cryptocurrency market last week, marked by the collapse of UST, the stablecoin of the Terra blockchain. Falling below $30,000 – and to $25,400 on May 12 – can bitcoin still be considered a store of value? “Today, due to the fluctuations in the exchange rate, this cannot be qualified as such,” said Laurent Pinho, financial analyst at Zonebourse. “You can’t put your money in there and tell yourself it will hold its value over time,” he says.
Because the price of the most important cryptocurrency in terms of capitalization changes too quickly. It regularly experiences strong turbulence, as evidenced by the fall last week, and appears to be a very risky asset. Since hitting all-time highs in November 2021, Bitcoin has fallen nearly 60%. “No expert can predict the value of bitcoin in five years,” emphasizes Laurent Pignot. A difficult exercise for any asset, but it seems even more dangerous for cryptocurrencies. In the past, the price of bitcoin has already collapsed by more than 80% in a year.
Investing in this asset remains a bet on the future, on the value of the cryptocurrency and the technology on which it is based. Namely, a blockchain running with a proof-of-work mechanism to validate transactions, which is very energy-intensive, yet ultra-secure.
Too correlated with big tech stocks
Another obstacle to the store of value theory of bitcoin is the evolution of its price compared to other assets. The price of bitcoin is increasingly correlated with the stock prices of major technology companies listed, in particular, on the Nasdaq market in the United States. In 2021, many traditional finance players have entered the field of cryptocurrencies. Traders invest in bitcoin in the same way they invest in technology stocks, using comparable arbitrage.
But when the stock market drops, the drop in crypto assets becomes even more pronounced. “Correlation is very important at price peaks, but it is no longer observed at the troughs of bearish phases. Historically, there has been decorrelation in waterfalls,” notes Laurent Pignot. Currently, the crypto market counter is particularly prominent compared to other asset classes. Bitcoin has fallen 39% since the start of 2022, when the Nasdaq reported a loss of around 25%.
Not a solution for fluctuating stocks
“Therefore, unlike precious metals and, in particular, gold, bitcoin does not provide an opportunity to insure against price fluctuations,” the financial analyst believes. “YTD, the yellow metal continues to rise by 8.7%, while the CAC 40 has fallen by more than 11%,” emphasizes the Comptoir national de l’Or, which specializes in investments in the precious metal. in a note dated May 17.
And while gold, considered a safe-haven par excellence, can sometimes depreciate in value, it is never in the same proportions as bitcoin. This does not prevent the cryptocurrency from “remaining the best performing asset over the past 10 years,” recalls Laurent Pinho. But bitcoin remains a very young asset, whereas gold can claim a long history and thus convince its value over time.
Understandably, bitcoin today remains largely a speculative asset, bought by many people in the hope of seeing its price double, triple, or even more in the future.
But a rare and liquid asset
Despite everything, cryptocurrencies have arguments. And despite its high correlation with the Nasdaq, it has the characteristics to be a store of value. “Bitcoin is very liquid, easy to exchange, and becoming more and more accessible,” says Laurent Pinho.
In addition, the cryptocurrency benefits, like gold, from a certain scarcity, and the total number of issued bitcoins is limited to 21 million. A predetermined number since its launch in 2009, which can only contribute to its growth over time. “Central banks, on the other hand, can print as many banknotes as they want,” the analyst recalls.
Bonus to the first?
Moreover, if bitcoin is accepted much more widely as a real currency, its price could potentially become unlinked to tech stocks. Conversely, the rigid rules of powerful states can scare away investors and drive prices down. Especially if countries have gone as far as declaring cryptocurrencies illegal.
But today the trend is more towards the spread of bitcoins in the economic fabric. “Regulators don’t want to ban it, they just frame it, so it’s not the Wild West,” says Alexander Barades, head of market analysis at brokerage IG. “They understand the value of the technology behind it.”
According to the American billionaire Sam Bankman-Fried, head of the FTX cryptocurrency exchange, bitcoin has a future as an “asset, commodity and store of value” similar to gold, according to the Financial Times. On the other hand, he does not believe in his role as a means of payment.
The last argument in favor of bitcoin: it remains the benchmark of the crypto market. “Now it is sought by those who want to diversify their heritage,” says Alexander Barades. It will also get a kind of “first mover bonus,” he adds, like Tesla does with electric vehicles. Bitcoin is indeed the first cryptocurrency to be created, and the most famous so far. A position that can strengthen its value over time.