Since crypto’s drawdown in early May, investors in digital coins have been selling off their tokens and buying Bitcoin at a pace not seen in almost a year.
Currently trading above $31,200, up more than 4% in the last day, Bitcoin, the world’s largest cryptocurrency by market capitalization now makes up 47.3% of crypto’s total market cap, according to TradingView. Bitcoin hasn’t played such a dominant role in investors’ portfolios since July 30, 2021, when the asset traded above $42,000.
The increasing value relative to crypto’s total market cap suggests investors are seeking it as a safer investment during a period of contraction, which Gemini co-founders Tyler and Cameron Winklevoss have deemed the “crypto winter.”
“Bitcoin is probably the most volatile major asset in history,” Andy Edstrom, managing director of advisory services with Swan Bitcoin, a bitcoin trading app, told Yahoo Finance. “But the reality is that its volatility has come down over the many years it has been in existence.”
Created during the 2007-2009 Financial Crisis, bitcoin proponents originally envisioned it as an electronic cash outside of the monetary control of governments. Between those early days and now, advocates have altered their thinking, most often likening it to “digital gold” as Edstrom pointed out.
While volatility has proven to be one of its main characteristics, data from Coin Metrics shows bitcoin’s whipsaw fluctuations have dropped over time.
Since December, BTC has moved at an increasing lockstep with the stock market, especially high-growth technology stocks. Following the crypto market’s sell-off in early May, during which the algorithmic stablecoin TerraUSD collapsed, bitcoin’s correlation with the S&P 500 has seen a sharp drop, though it remains at levels higher than at any point in 2021.
Off 54% since its November 2021 peak of $68,789, the asset has performed 9% worse than Meta ($FB) but held out 16% better than Netflix ($NFLX) in that time. However, in the last two years, its value has risen by 233% from $9,300 per coin, beating all large-cap tech stocks outside of Tesla.
Still, bitcoin remains “heavily influenced by the macroeconomic environment,” Tom Dunleavy, a senior research analyst with Messari, told Yahoo Finance, largely due to the current cycle of monetary tightening. Such a relationship has kept traders and investors focused on U.S. economic events when considering near-term cases for trading the asset.
Potential regulation also is key, according to Dunleavy who is awaiting the release of the bipartisan crypto regulation bill proposal from Sens. Lummis (R-WY) and Gillibrand (D-NY), which could come as early as Tuesday.
As Bank of America CEO Brian T. Moniyhan previously told Yahoo Finance, large financial institutions are heavily regulated, which prevents them from making significant moves into Bitcoin or other crypto assets. More clarity on regulation could alter their position.
After seeing rising buyer demand and trading volumes Monday morning, Mark Newton, a technical analyst with Fundstrat suggested in a research note that bitcoin might have already found its near-term bottom, though monetary tightening will keep investors cautious.
After nine straight weeks of showing negative performance, Newton said that bitcoin’s price could reach between $37,000 and $39,700 this month “before showing some consolidation in late June.”
But with recent job cuts at Coinbase, Gemini and Robinhood - major crypto trading venues that plan to cut approximately 10% of their workforce - the digital asset industry appears to be bracing for its dreaded “crypto winter.”
It’s still “too early to call” whether crypto is headed for a muted next few months, Swan’s Edstrom said, or a “multi-year downturn.”
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.