Bitcoin dropped below $31,000 on 9 May, over 50% down from its November 2021 peak as market turmoil sent ripples through cryptocurrencies.
The digital currency rallied this morning, up 3.9% as at 10.30am, after the El Salvador President Nayib Bukele tweeted that his government had just “bought the dip”.
Despite this, the cryptocurrency is 33.4% down year-to-date and comes at a time of a broad downturn in financial markets, calling into question its ability to act as a diversifier in portfolios.
The slide has also been felt across other crypto markets, with ethereum also losing almost half of its value since its November 2021 highs, while solana is 71% down over the same period.
The digital assets market total value fell by 10% to $1.7trn in the 14 days to 3 May, with bitcoin accounting for $700bn, according to the Bank of America (BoA).
Alkesh Shah, crypto and digital asset strategist at BoA, said supply capped bitcoin has not been acting as a deflationary asset for almost a year.
“Bitcoin has traded as a risk asset since July 2021. The correlation between bitcoin and the S&P 500 reached all-time highs on 31 January of this year and the correlation between bitcoin and the Nasdaq 100 was near all-time highs,” he said.
“The correlation between bitcoin and gold, which is commonly viewed as an inflation hedge/store of value, remained close to zero since June 2021, but has become increasingly negative over the last 2 months.”
Despite this, there are signs investors have been looking to take advantage of the price weakness.
According to CoinShares, digital asset investment products saw inflows of $40m last week with bitcoin recording $45m inflows alone.
CoinShares’ $642m Bitcoin Tracker One ETP (XBT) has recorded the largest outflows year to date at $62.3m.
The $594m BTCetc Bitcoin Exchange Traded Cryptocurrency (BTCE) has seen outflows of $48.5m since the start of the year, but over $406m over past six months, as at 10 May, according to data from ETFLogic.
Investors remained negative on ethereum ETPs recording outflows of $12.5m, taking total outflows year-to-date to $12.5m.
James Butterfill, investment strategist at CoinShares, said: “Interestingly, we have not seen the same spike in investment product trading activity as we typically see historically during extreme price weakening periods, and it is too early to tell if this marks the end of the four-week run of negative sentiment.”
Elsewhere, short bitcoin products saw the second-largest weekly inflows on record of $4m. The 21Shares Short Bitcoin ETP (SBTC) is 8.4% up for the year.
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