Bitcoin’s price was just cut in half during a week that included the worst day in seven years for the cryptocurrency, raising questions over whether it can be the “digital gold” during worldwide crises.
The price of one bitcoin decreased by more than 40 per cent last week, as markets around the world crashed as a result of the coronavirus pandemic.
Thursday last week was the worst day for Bitcoin in seven years.
With one Bitcoin trading at over $15,000 in early February, this price had dropped to as low as just over $7,000 on Monday morning after huge drops last week.
By Wednesday this had climbed back up to $8,979.
This corresponded with a huge crash in the traditional markets, with the Dow falling 12.9 per cent on Monday alone, and the S&P dropping 12 per cent.
In Australia, the ASX 200 posted its largest daily fall on record, dropping 9.7 per cent on Monday.
According to CoinMetrics, last week was the third biggest sell-off in Bitcoin’s history, despite the cryptocurrency touting itself as a gold replacement that would thrive when traditional markets fall.
CoinMetrics also found that most of the Bitcoin sell-offs came from people that had held the Bitcoin for 12 months or less.
CoinShares head of research Chris Bendiksen said the rapid price drop shows that Bitcoin hasn’t achieved the lofty heights of being “digital gold” just yet.
“While many in the Bitcoin industry have been hailing Bitcoin as a new safe haven, at this point it seems clear that proponents of this status have probably gotten a bit ahead of themselves,” Bendiksen told Fortune.
“To be clear, this does not mean that Bitcoin is somehow forever barred from attaining such a state, but it seems clear that this status has yet to be established.”
Prominent Bitcoin critic Peter Schiff agrees, saying that the cryptocurrency was now too closely linked with the traditional markets.
“Bitcoin is no longer a non-correlated asset,” Schiff tweeted. “It is positively correlated to risk assets like equities and negatively correlated to safe-haven assets like gold. When risk assets go down, Bitcoin goes down more. But when risk assets go up, Bitcoin goes up less. No value in that.”
Wences Casares, the CEO of digital wallet startup Xapo, also told Fortune that “Bitcoin wants to be digital gold when it grows up, but it is a toddler”.
Bitcoin is prone to sharp rises and drops, with a huge surge in 2017 seeing the price of one Bitcoin reaching $US20,000, hitting a market cap of $US326 billion.
A report last year claimed that this rapid rise was the result of one individual manipulating the Bitcoin market, but this was later debunked by cryptocurrency researchers.
The cryptocurrency also enjoyed a large surge midway through last year, with its price passing $15,000, the highest in a year. The digital currency peaked in December 2017 when it reached $26,000.