Bitcoin (BTC) is undergoing a significant transformation from a once-trusted hedge against financial uncertainty to a risky asset caught in the turbulence of global economic shifts. Since the start of Donald Trump's presidency, the crypto market has experienced a dramatic downturn, shedding close to $1 trillion in total value.
Traditionally seen as a reliable hedge that moved in sync with gold during times of crisis, Bitcoin has taken a different path under the Trump administration. While the price of gold continues to climb, Bitcoin has faced a substantial correction, signaling a shift in the market perception.
An interesting observation by crypto analyst Symbiote reveals that since Trump assumed office, the crypto market has plummeted from $3.7 trillion to $2.5 trillion, despite Trump being considered the most pro-crypto president. This decline highlights a departure from Bitcoin's former role as a safe haven and its evolving correlation with mainstream financial assets.
In a surprising turn of events, Bitcoin's correlation with traditional markets like the Nasdaq 100 and S&P 500 has surged to around 88% by 2024, a stark contrast to its previous reputation as a negatively correlated asset.
Moreover, a decline in liquidity has impacted the crypto market significantly, as the financial sector reallocates capital to the US dollar, historically known for its stability during trade conflicts. This shift has contributed to increased volatility and uncertainty in crypto markets, as illustrated by the drop in Bitcoin ETF assets under management from $120 billion to $100 billion within weeks.
The decentralized finance (DeFi) sector has also taken a hit, with the total locked value decreasing from a peak of $128.7 billion to $93.2 billion. This trend reflects diminishing trust in crypto's ability to withstand economic uncertainties and provide financial stability.
Recent survey data from Bank of America points to growing concerns about global trade wars impacting risk assets, with 42% of respondents viewing it as the most bearish development for 2025. This sentiment contrasts starkly with Bitcoin's perceived effectiveness as a hedge in times of economic turmoil.
While market sentiment may currently lean bearish towards Bitcoin, some experts maintain hope for its potential resurgence. Suggestions of Bitcoin serving as a strategic financial asset for the US economy amidst rising national debt have been put forth. Additionally, corporate adoption of Bitcoin as an alternative asset could enhance liquidity and stock performance for struggling companies.
In essence, the evolving role of Bitcoin in global finance underscores its changing dynamics and the need to adapt to the shifting landscape. As the market continues to navigate uncertainty and evolving correlations, Bitcoin's future remains a topic of intrigue and debate among experts and observers.