The price of bitcoin is trying to recover after the crash suffered by the cryptocurrency market last week, marked by the collapse of the UST, the stablecoin of the Terra blockchain. Falling below 30,000 dollars – and up to 25,400 dollars on May 12 – can bitcoin still be considered a store of value? “Today, in view of the fluctuation of the course, it cannot be qualified as such”, notes Laurent Pignot, financial analyst at Zonebourse. “You can’t put your money there and tell yourself that it will retain its value over time,” he says.
Because the price of the most important cryptocurrency in terms of capitalization is changing too quickly. It regularly experiences severe turbulence, as illustrated by last week’s fall, and appears to be a very risky asset. Since hitting record highs in November 2021, bitcoin has tumbled almost 60%. “No expert can predict the value of bitcoin in five years”, underlines Laurent Pignot. A difficult exercise whatever the asset, but which seems even more perilous for cryptocurrency. In the past, the price of bitcoin has already collapsed by more than 80% over one year.
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Investing in this asset remains a bet on the future, on the value placed on cryptocurrency and the technology on which it is based. Namely a blockchain operating with a proof-of-work mechanism to validate transactions, which is very energy-intensive but also ultra-secure.
Too correlated to big tech stocks
Another obstacle to the theory of bitcoin as a store of value is the evolution of its price compared to other assets. The price of bitcoin is increasingly correlated with the prices of major technology stocks, listed in particular on the Nasdaq market in the United States. In 2021, many players in traditional finance have entered the field of cryptocurrencies. Traders invest in bitcoin as they do in tech company stocks, adopting comparable arbitrages.
But when the stock market falls, the plunge in crypto assets appears even more pronounced. “The correlation is very important in the price peaks, but in the troughs of the bearish phases, it is no longer observed. Historically, there is therefore a decorrelation in the falls”, notes Laurent Pignot. Currently, the crypto market stall is particularly marked compared to other asset classes. Bitcoin has plunged 39% since the start of 2022, when the Nasdaq posted a loss of around 25%.
Not a solution to fluctuating stocks
“Unlike precious metals, and in particular gold, bitcoin therefore does not make it possible to hedge against fluctuations in stocks”, considers the financial analyst. “Since the beginning of the year, the yellow metal has continued to grow by 8.7%, while the CAC 40 has fallen by more than 11%”, underlined the Comptoir national de l’Or, which specializes in investment in the precious metal, in a note on May 17.
And if gold – considered the safe haven par excellence – can sometimes lose value, it is never in the same proportions as bitcoin. This does not prevent cryptocurrency from “remaining the best performing asset over the last 10 years”, recalls Laurent Pignot. But bitcoin remains a very young asset, when gold can assert a long history, and thus reassure on the conservation of its value over time.
It is clear that bitcoin today remains a primarily speculative asset, bought by many individuals in the hope of seeing its price double, triple or soar even more in the future.
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But a rare and liquid asset
Despite everything, cryptocurrency has arguments to make. And despite its high correlation with the Nasdaq, it has characteristics to become a store of value. “Bitcoin is very liquid, easily exchangeable, and increasingly accessible,” says Laurent Pignot.
In addition, cryptocurrency benefits like gold from a certain scarcity, with the total number of bitcoins issued to be limited to 21 million. A predefined quantity since its launch in 2009, which can only favor its appreciation over time. And which earned him to be qualified by some “digital gold”.
“Central banks can conversely print as many banknotes as they wish,” recalls the analyst.
A bonus to the first?
Moreover, if bitcoin were to be adopted much more widely as a real currency, its price could potentially become unrelated to tech stocks. Conversely, drastic regulations from powerful states could scare away investors and encourage a fall in the price. Especially if countries went so far as to make cryptocurrency illegal.
But today, the trend is rather towards a diffusion of bitcoin in the economic fabric. “Regulators don’t want to ban it, only frame it, so it’s not the Wild West,” says Alexandre Baradez, head of market analysis for the broker IG. “They understand the value of the technology behind it.”
According to American billionaire Sam Bankman-Fried, boss of cryptocurrency exchange FTX, bitcoin has a future as an “asset, commodity and store of value”, similar to gold, reports the Financial Times. On the other hand, he does not believe in his role as a means of payment.
Last argument that pleads in favor of bitcoin: it remains the benchmark of the crypto market. “It is now sought after by those who want to diversify their heritage,” says Alexandre Baradez. He would also enjoy a kind of “first mover bonus”, he adds, like Tesla in electric cars. Bitcoin is indeed the first cryptocurrency to have been created, and the best known still today. A position that could strengthen its value over time.