Bitcoin is highly volatile—but even the skeptics must concede—it has a distinct tendency to spring back to life no matter what happens to it.
Whatever does not kill Bitcoin seems to make it stronger.
One possible explanation for this is that the adverse macroeconomic or market conditions that initially bring Bitcoin down ultimately make Bitcoin look more appealing.
The recent tariff debacle is a good example.
The price of Bitcoin fell nearly 30% from the January peak to the April trough (versus a nearly 20% peak to trough decline in the S&P 500 Index during the same general time frame).
Tariff risk temporarily drained liquidity from markets, which negatively affected the price of Bitcoin. Investors soon came to the realization, however, that Bitcoin is not necessarily a bad asset to have in a trade war context.
Bitcoin’s recovery in April and May was partly driven by the broader recovery in stocks and risk assets. But it was also the recognition that tariffs could in various ways lead to looser monetary policy and even quantitative easing, which is music to any Bitcoin investor’s ears.
The more fiat money central banks print, the more compelling Bitcoin becomes as a supply-constrained alternative form of financial capital.
Early-stage gold
Bitcoin is often described as “digital gold,” which is a good way to think about it. Bitcoin does not, however, always (or at least immediately) behave like gold, which tends to perform well in “risk off” scenarios.
Bitcoin critics often point to Bitcoin’s “beta” to the stock market—meaning its tendency to move up and down in sympathy with stocks—as evidence that it is not a bona fide uncorrelated store of value asset like gold.
We would counter that Bitcoin is better understood as an emerging store of value asset. From a long-term Bitcoin holder’s standpoint, this is actually a much more attractive designation.
If Bitcoin already behaved totally like gold, and for example tended to go up or stay flat whenever stocks went down, it would probably not have all that much growth left.
At some point, in the perhaps fairly distant future, Bitcoin may in fact behave like gold.
But the reason most investors are interested in Bitcoin is that they perceive it to have many years (if not decades) ahead of it as a high growth asset. If Bitcoin did not also decline when other high growth assets declined, this would suggest that it is not a high growth asset.
Bitcoin’s volatility and correlation to tech stocks in particular signal that it remains a high growth technology play with room to run.
Bitcoin’s market cap, just over $2 trillion, is still just about one-tenth the total market cap of all above-ground gold.
