Bitcoin’s Role in Finance Is Changing – Here’s Why

Bitcoin’s reputation as a hedge against economic turmoil is fading as it moves in step with traditional risk assets.

Since Trump’s return to office, nearly $1 trillion has vanished from the crypto market, signaling a shift in investor perception.

Once seen as digital gold, Bitcoin no longer mirrors the metal’s gains. While gold continues to rise, Bitcoin has struggled, with analysts noting a sharp drop in market value despite Trump’s pro-crypto stance.

Its increasing correlation with traditional markets is a key factor—once independent, Bitcoin now moves in sync with the Nasdaq and S&P 500, though this link has weakened slightly in recent months.

Liquidity concerns add to the uncertainty. Capital is flowing back into the US dollar, leaving Bitcoin and other cryptocurrencies vulnerable to sudden crashes. ETF holdings have shrunk by $20 billion, and DeFi’s total locked value has plunged, reflecting declining confidence in crypto’s stability.

Geopolitical tensions are amplifying market volatility. A growing number of investors see trade wars as the biggest threat to risk assets in 2025, and only a small fraction still believe Bitcoin would thrive under such conditions. Meanwhile, volatility indexes are spiking, with analysts warning of continued price swings.

Despite the downturn, some believe Bitcoin could play a role in stabilizing the US economy. Advocates argue it offers an alternative to traditional finance, while corporations exploring Bitcoin holdings could fuel long-term demand.

Even skeptics admit Bitcoin functions as digital gold, though its ability to serve as a true financial hedge remains uncertain. Whether it rebounds or continues behaving like a high-risk asset will depend on how investors adapt to shifting economic conditions.