MW Bitcoin's latest selloff is shattering many of its most enduring myths

By Joseph Adinolfi

The crypto was supposed to be a hedge against currency debasement. Instead, it is trading like just another speculative tech stock, erasing 50% of its value since an early October high.

Investors are coming around to the idea that bitcoin behaves more like a leveraged technology stock than some kind of hedge.

As bitcoin prices press lower, investors and proponents are being forced to confront an uncomfortable reality regarding the nature of the pioneering cryptocurrency.

Perhaps the biggest myth that has been busted so far: During its early days, bitcoin was said to be a hedge against fiscal excess, government money-printing and inflation. Yet bitcoin prices have continued to trend lower since October, even as the U.S. dollar has weakened and worries about unsustainable levels of government debt have been blamed, at least in part, for driving a huge rally in gold.

"It's totally confounding. The dollar has been tanking by all metrics, yet bitcoin has done even worse. It's literally the opposite of what has been promised," one longtime crypto investor, who bought his first bitcoin in 2014, told MarketWatch.

The ICE U.S. Dollar Index DXY, a closely watched index of the dollar's value against a basket of rivals, has fallen by 0.5% since the start of the year and by more than 10% since its most recent peak in early 2025, FactSet data showed. The index stood at 97.87 on Thursday, up 0.3%.

On Thursday, bitcoin (BTCUSD) tumbled by more than 13% to trade as low as $62,339, the lowest level intraday since Oct. 13, 2024. The cryptocurrency has now wiped out all of the advance that followed President Donald Trump's November 2024 electoral win over former Vice President Kamala Harris, and then some.

Based on its performance through 4 p.m., Thursday marked the worst day for bitcoin since June 2022, Dow Jones Market Data showed. At its lows of the day, the crypto was down by more than 50% from its early October high.

The idea that bitcoin was a kind of digital gold and a hedge against currency debasement was a powerful piece of the myth that had helped fuel crypto's rise, said Michael O'Rourke, chief market strategist at JonesTrading and an admitted crypto skeptic. But more than a decade after the bitcoin price broke above $1,000 for the first time in late 2013, investors are starting to come around to the idea that bitcoin behaves more like a leveraged technology stock than some kind of hedge.

The chart below shows that the 21-day rolling correlation between bitcoin and the ProShares UltraPro QQQ exchange-traded fund TQQQ - which aims to amplify daily swings in the Nasdaq-100 by three times - is far higher than bitcoin's correlation with gold. If it were truly a hedge against monetary excess, one might expect bitcoin to trade more closely in lockstep with gold. Instead, its correlation with the ProShares UltraPro ETF stood at 0.4 on Thursday, after rising as high as 0.78 last year.

This undermines the idea that bitcoin offers meaningful diversification for an investor's portfolio, said Marta Norton, chief investment strategist at Empower.

"People have to remember that this is a risk-on trade, not a risk-off trade," Norton said.

Meanwhile, the rolling correlation between bitcoin and gold stood at -0.03 on Thursday, implying that there is almost no trading relationship between bitcoin and gold (GC00).

Investors have been facing up to other harsh realities, as well. Trump was supposed to be the "crypto president," but hopes for a strategic bitcoin reserve have yet to pan out. Instead, an asset that once sold itself as a decentralized alternative to the traditional financial system - or "tradfi" - has been incorporated into that very same system.

"It's just another speculative asset," O'Rourke told MarketWatch. "If you're looking for a store of value, you're better off buying a rental property."

Other myths about bitcoin have been crumbling for years. For instance, the idea that the cryptocurrency was a tool to help individuals move money privately and without government interference was laid to rest when the FBI first brought down Silk Road, an online marketplace that used bitcoin to help facilitate illicit transactions, back in 2013. Since then, crypto has gone from being "anti-Wall Street" to being "in bed with Wall Street," said Joseph Saluzzi, head of equity trading at Themis Trading.

"They sold out," Saluzzi said. "At first they were like, 'We're going to be this defi protocol.' Then BlackRock showed up, ETFs showed up, arbitrageurs showed up. Now it has become just another asset that Wall Street tosses around."

Investors have also become disillusioned with so-called digital asset treasury companies like Michael Saylor's Strategy Inc. (MSTR). Back when Strategy shares traded at a hefty premium to the value of its bitcoin, investors used to talk about Saylor as if he had found an "infinite money glitch."

See: Strategy's sinking stock puts the policy of 'don't ever sell your bitcoin' to the test

But on Thursday, the company's shares were off by more than 15% as Strategy found itself underwater on its massive stash of bitcoin, according to data shared on its website. The huge premium to its net assets that Strategy once enjoyed has turned into a discount.

The idea that blockchain technology would revolutionize the financial-services industry and help send crypto prices to the moon also clearly hasn't panned out, even as some applications with their roots in crypto and blockchain have found wider adoption: Stablecoins now control hundreds of billions of dollars in assets, for example, and the New York Stock Exchange has said it has developed a new platform to allow tokenized stock trading 24 hours a day, seven days a week.

But even if these other applications catch on, Saluzzi said, there is no reason to expect their adoption would be a boon for bitcoin or other cryptocurrencies.

"Everyone is talking about tokenization and blockchain and we're going to put many more of these assets on the chain - that doesn't mean crypto is any more valuable," Saluzzi said.

Other digital asset treasury companies that sought to ape Saylor's modus operandi have suffered a similar fate. Shares of Bitmine Immersion Technologies Inc. $(BMNR)$, a digital asset company focused on Ethereum, were off by more than 15% on Thursday, bringing their year-to-date drop to more than 30%. The company's chair, Tom Lee, has defended the company's strategy. He said during a podcast taping on Wednesday evening that volatility like this is par for the course in crypto. Ethereum was also down by more than 13% in recent trading, FactSet data showed.

Even the notion that the bitcoin network is secure from tampering is being challenged, as some investors have warned that the rise of quantum computing could threaten the network's cryptographic security.

Lee said during the podcast taping that quantum computing could threaten as much as 25% of the existing bitcoin supply. This means that coins held in older wallets, like the original Satoshi wallet, could be vulnerable to theft if quantum computing can crack their encryption.

Since these wallets presumably won't be able to upgrade to a new, quantum-proof bitcoin protocol, they could be vulnerable to hacking.

-Joseph Adinolfi

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(END) Dow Jones Newswires

February 05, 2026 17:05 ET (22:05 GMT)

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