Bitcoin’s claim to be digital gold loses its shine after the token plunges alongside stocks in the Evergrande sell-off

  • Bitcoin’s claim to be digital gold was delivered a blow when it sold off alongside stocks on Monday.
  • The world’s biggest cryptocurrency tumbled over 8% as fears about Evergrande’s debt shook markets.
  • Data from Bloomberg shows that bitcoin’s correlation with stocks has been rising of late.

Bitcoin fans often say the world’s biggest cryptocurrency is “digital gold” – a safe-haven asset that investors can turn to at times of market stress or high inflation.

Yet that view was dealt a blow on Monday, when the digital currency crumbled along with stocks as Chinese property developer Evergrande’s debt crisis roiled markets.

Bitcoin tumbled 8.5% on Monday, according to Bloomberg data, while the S&P 500 fell 1.7% in its worst day since May and the tech-heavy Nasdaq 100 dropped 2.1%. Other cryptocurrencies, such as ether and cardano, also plunged.

Meanwhile, gold and government bonds rallied as investors turned to assets that are traditionally seen as safe places for investors to hide during market volatility.

Billionaire investor Ray Dalio is among those to have said bitcoin could be a diversifying asset in portfolios, while crypto bulls such as Mike Novogratz have long hailed it as digital gold. But a number of analysts said Monday’s sell-off showed there are problems with that argument.

“It’s funny, [bitcoin] always sells off when risk takes a hit,” said Neil Wilson, chief market analyst at trading platform Markets.com.

“That’s because it is the most risky asset, so it’s the first to dump when there is liquidating of positions, margin calls, et cetera, to worry about.” Data from Bloomberg showed that bitcoin’s correlation to the S&P 500 has been growing and is at its highest level in a year.

Naeem Aslam, chief market analyst at AvaTrade, said institutional investors in particular see cryptocurrencies such as bitcoin as risky assets. This means they are inclined to ditch them to cover other positions when stock markets take a tumble.

Cryptocurrencies’ wild volatility limits their appeal as diversifying assets, according to a report released by UBS Global Wealth Management this week.

However, bitcoin has other benefits for those who can stomach the wild ride, the UBS unit said, noting that it saw much higher returns than gold between 2016 and 2021. Bitcoin has risen around 290% in the last year.

Crypto advocates argue that bitcoin and other cryptocurrencies are still relatively young, and that their volatility is likely to decline as the market grows and matures.

Bitcoin was down 2.1% on Tuesday to $42,620, while the S&P 500 was up 0.15% as of 11.10 a.m. ET.

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