Can Bitcoin still be called "digital gold" if it continues to perform poorly and fails to break through?

Stock and crypto markets were sluggish on Wednesday as geopolitical uncertainty intensified. Investors continued to sell, with the S&P 500 falling to its lowest point since June 2021, and the Nasdaq and Dow Jones indices also falling to their lowest points in nearly eight months. According to Bitpush terminal data, Bitcoin continued its decline after the close of U.S. stocks on Wednesday, down about 3%, trading around $37,000. Bitcoin is often referred to as "digital gold" by supporters and is believed to provide a store of value similar to gold-a store of value that is unrelated to other financial markets such as stocks. However, since the beginning of the year, dragged down by geopolitical tensions and expectations of the Federal Reserve's balance sheet reduction, Bitcoin has been unable to break through the sluggish trend. Does its claim as "digital gold" still hold water?

Bitcoin bulls also view BTC as a “safe haven” asset that can serve as a hedge against global economic uncertainty and rising prices that reduce the purchasing power of sovereign currencies such as the U.S. dollar.

According to the U.S. Department of Labor, the U.S. CPI rose 7.5% year-on-year in January, a 40-year high, and inflation data is at a historical high, which should be the time for Bitcoin to "shine". However, since reaching an all-time high of nearly $69,000 in November, the value of Bitcoin has fallen by nearly half, leading analysts to question whether its status as "digital gold" is still solid.

“Bitcoin is still in the early stages of its maturity curve and can be firmly categorized as ‘digital gold,’” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.

Safe-haven assets or risky assets?

Bitcoin’s latest decline comes as global stock markets tumble, with the S&P 500 closing in correction territory on Tuesday. Bitcoin’s price has increasingly tracked the stock market’s movements, with its correlation with the S&P 500 steadily rising.

Experts say cryptocurrencies are more closely tied to other speculative parts of the market, such as technology stocks, and prices for those assets are falling on concerns that lofty valuations could fall as the Federal Reserve and other central banks begin raising interest rates and scaling back their massive stimulus packages.

Chris Dick, a quantitative trader at cryptocurrency market maker B2C2, said: "Over the past few months, the correlation between cryptocurrencies and stocks has been high due to macro news related to inflation and the geopolitical situation in Russia and Ukraine. This correlation shows that Bitcoin is currently behaving like a risk asset - rather than the safe haven touted a few years ago."

In fact, gold has actually outperformed Bitcoin recently. The spot price of the precious metal reached its highest level since June 1 on Tuesday, climbing to $1,913.89 per troy ounce.

“Bitcoin, the alleged answer to all problems, has quietly weakened and is significantly underperforming its main rival, gold,” John Roque, head of technical strategy at 22V Research, said in a research note this week. “We believe Bitcoin will return to $30,000 and then break below that level, and continue to expect gold to set new all-time highs.”

Crypto Winter

Bitcoin’s plunge has led participants to begin to suspect that the market has entered a “crypto winter” – a prolonged bear market. The last time this happened was in late 2017 and early 2018, when Bitcoin plunged 80% from its all-time high of nearly $20,000.

However, not all analysts are convinced that the latest downturn in prices heralds a crypto winter, with many saying that market conditions have changed. There are now many institutions holding Bitcoin, which, according to experts, is one of the reasons why Bitcoin has become more closely correlated with stocks.

Chris Dick said: "The adoption of cryptocurrencies by investors in traditional asset classes is the driving force behind the correlation between Bitcoin and stocks, and given the different fundamentals of each market, this relationship may be broken at any time."

Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, said that in order to compete more effectively with gold as a store of value, Bitcoin needs to achieve wider adoption: "The fundamentals always make sense - a limited supply currency not affiliated with any nation-state, but Bitcoin needs to go through its monetization process, it is held by enough participants - representing more retail flow, larger institutions adding Bitcoin to their balance sheets, and more national-level adoption following El Salvador's purchase of Bitcoin."