As Bitcoin prices continue to slide, investors and supporters are being forced to confront an uncomfortable reality about the nature of the cryptocurrency. Perhaps the biggest myth shattered so far, MarketWatch notes, is the following: in its early days, Bitcoin was seen as a hedge against fiscal excess, government money printing, and inflation. Yet Bitcoin prices have been on a downward trajectory since October, despite the steady weakening of the U.S. dollar and concerns over unsustainable public debt levels—concerns that have partly fueled gold’s sharp rally.

“It’s completely baffling. The dollar is collapsing by every measure, and yet Bitcoin has done even worse. It’s literally the opposite of what it promised,” said a long-time crypto investor, who bought his first Bitcoin in 2014, speaking to MarketWatch.

The ICE U.S. Dollar Index (DXY) has declined by 0.5% year-to-date and by more than 10% from its most recent peak in early 2025, according to FactSet data. On Thursday, Bitcoin plunged by as much as 17%, hitting its lowest intraday level since October 11, 2024, falling to $60,057. The cryptocurrency has now erased all of the gains that followed Donald Trump’s election victory in November 2024—and more.

Thursday, February 7, marked Bitcoin’s worst day since June 2022, according to Dow Jones Market Data. At its intraday low, Bitcoin was down more than 50% from its early-October peak.

The “Digital Gold” Myth Fades

The idea that Bitcoin was a form of digital gold and a hedge against currency debasement was a powerful part of the narrative that fueled the rise of cryptocurrencies, said Michael O’Rourke, chief market strategist at JonesTrading. But more than a decade after Bitcoin first broke above $1,000 at the end of 2013, investors are increasingly accepting that Bitcoin behaves more like a leveraged technology stock than a risk-hedging asset.

The chart below shows that the 21-day rolling correlation between Bitcoin and the ProShares UltraPro QQQ—an ETF designed to triple the daily moves of the Nasdaq-100—is significantly higher than Bitcoin’s correlation with gold. If Bitcoin were truly a hedge against monetary excess, it would be expected to trade more closely with gold. Instead, its correlation with the ProShares UltraPro ETF stood at 0.4 on Thursday, after reaching as high as 0.78 last year.

This undermines the idea that Bitcoin provides meaningful diversification for an investor’s portfolio, said Marta Norton, chief investment strategist at Empower. “People need 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, suggesting virtually no trading relationship between the two assets.

“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.”

Trump-Driven Euphoria Had an Expiration Date

Hopes that the U.S. would buy Bitcoin under President Donald Trump were among the factors shaping prices in recent months. The Republican had branded himself the “crypto president” during his campaign and announced plans to create a national cryptocurrency reserve—similar to strategic reserves for commodities like gold and oil.

In practice, Trump did establish such a reserve last March. However, no cryptocurrencies were purchased for this purpose. Instead, it initially consisted only of coins seized by U.S. authorities in connection with illegal transactions. Treasury Secretary Bessent has since clarified that this approach will not change for the time being.

That said, Trump has fulfilled several of his promises, Handelsblatt notes. Among other moves, he appointed Paul Atkins—the most crypto-friendly chair ever—to lead the Securities and Exchange Commission. Atkins had previously served on the board of Securitize, a digital-asset firm promoting the use of tokenized securities.

Additionally, last summer Trump signed legislation that, for the first time, established national standards for cryptocurrencies such as stablecoins. Trump’s sons are also investing in the crypto space through various ventures. According to a report by The New York Times, these activities are highly lucrative, reportedly generating nearly $1 billion for the family.

All of the above fueled a temporary wave of crypto euphoria. From Trump’s election victory on November 4, 2024, through October 6 of the following year, nearly $3.7 billion flowed into U.S. Bitcoin spot ETFs. During this period, not only retail investors but also institutional players—such as hedge funds, asset managers, and pension funds—increased their exposure to Bitcoin.

“Just Another Asset Peddled by Wall Street”

Other Bitcoin myths collapsed years ago. For example, the idea that Bitcoin enabled private, government-free money transfers was shattered in 2013 when the FBI shut down Silk Road, an online marketplace that used Bitcoin to facilitate illegal transactions. Since then, the cryptocurrency has gone from being “anti-Wall Street” to being “in bed with Wall Street,” said Joseph Saluzzi, co-head of equity trading at Themis Trading.

“They sold their soul,” Saluzzi said. “At first it was, ‘We’re going to be this DeFi protocol.’ Then BlackRock showed up, ETFs showed up, the alchemists showed up. Now it’s just another asset that Wall Street peddles.”

Investors have also grown disillusioned with so-called digital-asset companies, such as Michael Saylor’s Strategy. When Strategy shares traded at a steep premium to the value of its Bitcoin holdings, investors spoke of Saylor as if he had discovered an “infinite money glitch.” But on Thursday, the company’s shares fell more than 15% as Strategy became effectively “hostage” to its massive Bitcoin position, according to data published on its website. The once-lofty premium to net asset value has now turned into a discount.

Other digital-asset firms that attempted to replicate Saylor’s strategy met a similar fate. Shares of Bitmine Immersion Technologies Inc., a digital-asset company focused on Ethereum, dropped more than 15% on Thursday, bringing its year-to-date losses to over 30%.

Trouble at the Winklevoss Twins’ Gemini

Market turmoil is also affecting other parts of the crypto industry. The Gemini cryptocurrency exchange announced on Thursday that it will cease operations in Europe, the UK, and Australia. Customers in these regions will only be able to withdraw funds until March 5, with accounts set to close permanently one month later.

Founders Cameron and Tyler Winklevoss took Gemini public in September. Since then, the stock has lost nearly 80% of its value. On Thursday, shares were trading about 6% lower in early New York trading.

Warning Bells from Mr Big Short

On Monday, Michael Burry—known as “Mr Big Short” for his bet against the U.S. housing market ahead of the 2008 financial crisis—also weighed in on the risks facing the market. He warned that Bitcoin’s decline could evolve into a self-reinforcing “death spiral,” causing lasting damage to companies that accumulated large amounts of the cryptocurrency over the past year.

In a post on Substack, Burry argued that Bitcoin has been exposed as a purely speculative asset, failing to function as a hedge against currency debasement comparable to precious metals. Further losses, he warned, could quickly strain the balance sheets of major holders, trigger forced selling across the crypto ecosystem, and unleash widespread value destruction.