(Bloomberg) — Bitcoin has fallen 36% over the past year and slipped below $70,000 this week, extending a retreat that is undermining several of the arguments that helped carry the cryptocurrency into the financial mainstream.
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The decline comes as investors pull money from Bitcoin ETFs, geopolitical tensions drive demand for traditional havens and inflation concerns re-emerge. Yet rather than benefiting from those pressures, Bitcoin has trended lower, leaving some of its most prominent investment claims looking increasingly strained.
Few of those claims have been tested more often than Bitcoin’s role as an inflation hedge. As a surge in electricity demand from the US artificial-intelligence boom strains power grids and feeds concerns about higher energy costs, investors are once again confronting the prospect of more persistent inflation. Yet rather than benefiting from those fears, Bitcoin has moved in the opposite direction.
The world’s largest cryptocurrency has left holders with an inflation-adjusted loss of about 39%. The performance is adding to a long record of periods in which Bitcoin has struggled to deliver on one of its most enduring promises: protection against rising prices and the erosion of purchasing power.
The argument rests on Bitcoin’s fixed supply. Unlike fiat currencies, which can be expanded by central banks, only 21 million Bitcoin will ever exist. For years, supporters argued that scarcity would make the token a digital equivalent of gold when inflation accelerated.
The theory has often struggled when put to the test. And that test is becoming more relevant again. Cleveland Fed President Beth Hammack on Tuesday became the latest policymaker to warn that inflation risks are rising, saying officials may soon need to act if recent price pressures persist. Her comments added to growing concerns that the Federal Reserve’s inflation fight may not be over, just as investors continue to treat Bitcoin more like a risk asset than a hedge against higher prices.
“If you’re adding Bitcoin to your portfolio thinking it’s a short-term inflation hedge, I think you need to re-evaluate,” said Cam Harvey, director of research at Research Affiliates and professor of finance at the Fuqua School of Business at Duke University. “The degree of randomness is very high, which will lead to potential disappointment.”
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Consumers are facing increasing cost pressures, with rising oil and gas prices pinching their pocketbooks further. An index of personal consumption expenditures last month rose 3.8% from a year earlier, the most since 2023, while a reading that excludes the volatile food and energy components was up 3.3%.
In recent weeks, Bitcoin has even failed to keep up with a broader rally in risk assets. As stocks have hit a string of record highs over the past month, Bitcoin has lost some 14% to trade around $67,500, way off its $126,000 all-time high reached in October. Its inability to stand up in a spiraling-prices environment has caught the ire of billionaire investor Mark Cuban, who made headlines recently when he said that he sold most of his stash as the token failed to act as a store of value.
“This might get some people upset: I think Bitcoin has lost the plot,” Cuban said on a recent podcast, explaining that he had expected the token to rise after the Iran war broke out. Bitcoin did the opposite while gold broke out higher. “It’s not the hedge that I expected it to be and that was really disappointing.”
The disappointment appears to be spreading. Liquidations in digital assets have reached around $1.5 billion over the last 24 hours,according to Coinglass, with Bitcoin leading the way. The crypto market has not seen this amount of liquidations since early February, when prices tumbled to recent lows.
Meanwhile, crypto critics have pointed out that variants on Bitcoin — the numerous ETFs that have been built around the token; as well as the derivatives, and the derivatives built on top of derivatives — belie the argument that its supply is limited. There might only ever be 21 million coins mined — but there will be various contracts and offshoots built around Bitcoin to trade perpetually.
“Was it ever an inflation hedge?,” said Steve Sosnick, chief strategist at Interactive Brokers. “Without a compelling use case for BTC beyond speculation and/or a store of value — at least not yet — the relatively fixed supply is much more compelling when the demand increases, not when it is stagnant or ebbing.”
(Updates prices.)
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