A key investment argument in favor of bitcoin is deteriorating as geopolitical uncertainty and rising inflation hit cryptocurrency prices.

Bitcoin supporters often refer to it as “digital gold.” The term refers to the idea that bitcoin could become a store of value, similar to gold, and unrelated to other financial markets, such as stocks.

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

With inflation at an all-time high, one might expect now to be bitcoin’s time – U.S. consumer prices last month rose the most since February 1982, according to the Labor Department.

Instead, the cryptocurrency has lost nearly half its value since hitting a record high of nearly $69,000 in November.

That has led analysts to question whether cryptocurrency’s status as a form of “digital gold” is still fair.

“It’s too early to categorize Bitcoin as digital gold,” Vijay Aiyar, vice president of corporate development and international relations at cryptocurrency exchange Luno, told CNBC.


Safe haven or risky asset?

Bitcoin’s most recent decline occurred alongside a drop in global stocks, with the S&P 500 ending Tuesday’s session in correction territory.

The price of bitcoin is increasingly tracking stock market movements, with the correlation between bitcoin and the S&P 500 steadily increasing.

Experts say cryptocurrencies have become more closely correlated with other speculative parts of the market, such as tech stocks, which have been falling on fears that high valuations could fall as the Federal Reserve and other central banks begin raising interest rates and winding down their huge stimulus packages.

“The correlation between cryptocurrencies and equities has been high over the past few months on both inflation-related macroeconomic news and the geopolitical situation in Russia and Ukraine,” Chris Dick, a quantitative trader at crypto exchange B2C2, told CNBC.

“This correlation shows that bitcoin is now behaving like a risky asset rather than the safe haven it was touted as a few years ago.”

In fact, gold has been outperforming bitcoin of late. On Tuesday, spot prices for the precious metal hit their highest levels since June 1, rising to $1,913.89 per troy ounce.

“Bitcoin, the asset that is supposedly the answer to everything, has quietly weakened and is notably underperforming its nemesis, gold,” John Roque, head of technical strategy at 22V Research, said in a research note Monday.

“We expect bitcoin to return to the 30,000 mark and then break below it, and we still believe gold will set a new all-time high.”

Crypto Winter

Bitcoin’s fall has led to increased talk of a prolonged bear market, known as a “crypto-winter.”

The last one occurred in late 2017 and early 2018, when bitcoin fell 80% from its then-record highs of nearly $20,000.

However, not all analysts are convinced that the latest slump in digital currency prices signals the onset of cryptozyme: many believe that market conditions have changed.

Bitcoin is now owned by multiple institutions, which experts believe is one of the reasons why it is more closely correlated with stocks.

“The adoption of cryptocurrencies by investors from traditional asset classes is driving bitcoin’s correlation with equities,” said Dick of B2C2.

However, he added: “This correlation could be broken at any time given the different fundamentals for each market.”

In order to compete more effectively with gold as a store of value, bitcoin needs to achieve wider adoption, according to Aiyar of Luno.

“The fundamentals have always made sense – a currency with limited supply, not tied to any nation state,” he said.

“But bitcoin needs to go through a monetization process where a large enough number of participants become holders – more retail flow, larger institutions will add bitcoin to their balance sheets, and potentially more nation-states post-El Salvador will buy bitcoin.”