A new narrative for bitcoin that will last

This is precisely how collateralized systems behave in equities, real estate and commodities. Bitcoin is now entering that same regime.

Thus, the real narrative for bitcoin is that it is emerging as the world’s first globally traded, neutral, programmable collateral asset. It is the canary in the coal mine; a high-duration, zero-cash-flow asset that is acutely sensitive to liquidity conditions.

In practical terms, this new narrative means that bitcoin behaves like a leveraged barometer for global risk appetite. When liquidity expands meaningfully, bitcoin can outperform dramatically. But when liquidity tightens — even marginally — it tends to break first. In multiple recent drawdowns, bitcoin has led equities lower by days or even weeks, functioning less as protection and more as a forward indicator of stress.

Bitcoin’s massive drawdown over the past five months has occurred against a macroeconomic backdrop that should have supported it: inflation has remained elevated, global liquidity has stabilized and begun to expand, geopolitical tensions persist, and traditional markets — from the S&P 500 to gold — have performed strongly until very recently. If bitcoin were meaningfully tied to any of these forces, it should have responded accordingly. It did not.

A few weeks ago, as equities fell from their highs, people pointed to bitcoin’s stable price behavior as proof of its hedging capability. It’s down 50% in five months; it’s not a hedge for anything, it just front-ran the wipeout.

Other popular narratives don’t work either. Consider the widely cited relationship between bitcoin and global M2 money supply. While there have been periods when bitcoin appeared to track the money supply, the relationship has proven highly unstable, shifting from strongly positive to strongly negative within the same cycle.

The same inconsistency appears when comparing bitcoin to traditional assets. Long-term data show that bitcoin’s correlation with both gold and equities tends to cluster near zero over extended periods, despite temporary spikes during specific market regimes. More recent data reinforces this instability. Bitcoin’s correlation with gold has at times turned sharply negative, falling as low as -0.9, indicating not just independence, but outright divergence. Meanwhile, its correlation with equities has ranged from negligible to as high as 0.8 during periods of institutionally driven risk-on behavior.

Similarly, the digital gold narrative has struggled to hold up in practice. Gold has materially outperformed bitcoin during recent periods of macro uncertainty, while bitcoin has continued to exhibit large, equity-like drawdowns. Even as an inflation hedge, bitcoin has disappointed. Since the inflation surge began in 2021, it has failed to deliver consistent, real returns.

What remains is an uncomfortable conclusion: bitcoin does not reliably rise with equities or any other asset class, it does not track gold and it does not hedge inflation. What it does do (consistently) is fall earlier and more aggressively when financial conditions tighten.

What all of that boils down to is that bitcoin is a high-volatility, reflexive, globally traded collateral asset. It is leverage on liquidity cycles, not protection.

This may be a less romantic narrative than asteroid mining and lunar data centers, but in order to be integrated into the traditional leveraged financial system in earnest, bitcoin must be understood for what it is, not what we wish it were.