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The stock market had its worst day since 1987 Thursday, but it wasn’t half as bad as the day bitcoin had.

The price of the largest cryptocurrency plummeted by 27% to $5,772 and at one stage dipped below $4,000, the culmination of a descent from over $10,000 earlier this year and around $20,000 in 2017, when the bitcoin bubble first popped. (As of midday on Friday it was trading at about $5,122.)

If the 2017 boom-and-bust dashed hopes that the digital currency could be a viable alternative to the dollar, bitcoin’s participation in the coronavirus crash raises questions about its other “use case” as a viable alternative to gold and other stores of value.

“Yes, bitcoin was a victim of the scramble for cash, and, over the past year, it had some days where it did correlate with some of the other safe havens, but it clearly is not one,” said Edward Moya, senior market analyst at foreign-exchange brokerage OANDA.

Asked where he would place bitcoin on the risk spectrum, Moya said: “Around roulette….”

In Math We Trust?

Advocates had long claimed that bitcoin’s existence outside the financial system would make it less vulnerable to global crises, when it could even act as a safe haven, a form of “digital gold.” It was the same quasi-apocalyptic argument made by “gold bugs”: When something like a pandemic panic breaks down the trust on which the banking system is built, they say, the only investments left standing will be those whose intrinsic value is not based on trust.

Most economists and computer scientists agree that cryptocurrencies in general, and bitcoin in particular, are an elegant invention. The crypto system uses strings of numbers cleverly linked by hidden formulae stored on a decentralized computer ledger to remove trust from the monetary equation. It's backed by math rather than any particular government.

At first, bitcoin and gold appeared to have some immunity to the coronavirus shock. As recently as March 3, Barry Silbert, the founder of Grayscale Investments, which manages the closest thing on U.S. markets to a bitcoin exchange-traded fund, the over-the-counter traded Grayscale Bitcoin Trust, was quoted on bitcoin bible Coin Telegraph as saying the stock-market volatility “solidified” its status as digital gold.

(An email to Silbert's representative seeking comment wasn't immediately returned.)

Trial by Fire

This week was the closest in living memory to the kind of global chaos envisioned by the bitcoin evangelists and the gold bugs. Headlines like “Most European flights banned from U.S.,” and “Tom Hanks contracts coronavirus” were ripped straight from dystopian Zombie novels. But bitcoin liquidated rather than solidified. Gold didn't do too much better.

At some stages Thursday, the price of the cryptocurrency fell even more than it did on Dec. 22, 2017, the day that the bubble popped. Digital gold likely started to fall for the same reason that analog gold did Thursday – because neither truly exists outside the financial system. Many of the same institutional and retail investors that buy stocks with borrowed money are also buying futures contracts and investment funds tied to the price of gold and bitcoin.

“Forced selling” caused by “margin calls” can lead investors who trade with borrowed money to dump seemingly unrelated assets just to raise cash and cover their bets, said Quincy Krosby, chief market strategist at Prudential Financial. That would explain why gold and even, at times, short-term Treasury securities, sold off Thursday at the same time as stocks and bitcoin.

“I think the big problem with bitcoin is that the regulatory pressures are not going away any time soon and you’re just seeing a lack of confidence in risky assets,” said Moya.

Even when risk appetite recovers sufficiently to support the stock market settles down, Moya said he doubted there will be any appetite among mainstream investors for bitcoin.