The Federal Reserve recently issued hawkish news. Bitcoin crashed with traditional stocks. This is not supposed to happen, as an inflation hedge typically rises when the central bank tightens. Bitcoin has repeatedly claimed to protect itself against such movements over the years, yet has acted like a typical technology stock.
The emperor has no clothes, and he is not aware of what clothes he wants.
Four Things At Once
Bitcoin has a non-technical and non-regulatory problem. It involves the nature of Bitcoin itself. Bitcoin tries to perform four functions at the same time: digital gold, a speculative bet, a safe reserve, and a trading coin. The lack of alignment between the four objectives causes the market to become volatile.
This was made clear in the year 2026. Bitcoin now moves in sync with stocks. The correlation coefficient peaked near 0.80 in previous years; now it remains highly coupled at 0.75. The volatility of Bitcoin is currently significantly higher than the S&P 500, with a realized volatility often double or triple that of equities—the highest in Bitcoin's history. Bitcoin has proclaimed itself as a defender of riches and safe portfolios; these numbers show these statements to be incorrect.
Prominent investors, in the event of the crash, posed a question of what we were actually buying. It is a question that the Bitcoin enthusiasts have ducked over the years. The market wants to know the answer.
The Big Cycle That Never Came
Market analysts forecast a 2026 supercycle in Bitcoin. CZ, the founder and former CEO of Binance, has historically been one of the most influential crypto personalities, though he no longer leads the exchange. He had expressed optimism about market cycles a few weeks before the crash. He would change his position afterwards: "A couple of weeks ago, I was very confident about the supercycle. But now with all that FUD, I'm not sure."
When the prophets lose faith, the followers flee.
The issue was triggered by panic fuelled by Michael Burry, who predicted the 2008 crash in advance. His warning resonated. A fall in Bitcoin would trigger massive liquidations across the broader commodities market. Burry warned that mining companies might go bankrupt if the price of Bitcoin drops to roughly $50,000, which is the estimated post-2024 halving break-even for many. He said this: "There is no organic use case reason for Bitcoin to slow or stop its descent."
The Quantum Scare
Quantum computing caused more concerns. The global head of equity strategy at Jefferies sold Bitcoin out of his portfolio, claiming that the use of quantum technology will compromise the security of Bitcoin in the long term. The majority of analysts consider this threat far-fetched; however, the very discussion made people anxious.
The functionality of Bitcoin is based on cryptographic security, and the possible threats undermine the confidence, even speculative ones.
This Fall Has No Floor
The 2022 collapse was a matter of bad actors, exchange failures, and the FTX scandal—an obvious blame game. The situation, however, this time is just confusion.
Bitcoin is falling right now, not because scammers have stolen the money, but for reasons no one can articulate.
The Truth Hurts
Markets are effective in dealing with risk and volatility, but how do they deal with uncertain risk?
Is Bitcoin the digital gold replacing the physical gold? Then why should it be moving with stocks? Is it a growth tech play? In that case, why do Bitcoin supporters speak in criticism of the Fed? Is it a safe reserve? Why, therefore, is it more volatile than other coins?
The truth is difficult.