Bitcoin diverges from tech stocks with a 5% gain

Bitcoin has gained over 5% since the start of the U.S.-Iran conflict on February 28, diverging sharply from software stocks as geopolitical tension and concerns over AI's impact on margins reshape market dynamics.

"That’s never happened,” said Mark Connors, founder of Risk Dimensions, pointing to data showing bitcoin lagging stocks consistently since early October, a record-long stretch that raises questions about its role as a hedge.

The correlation between Bitcoin and the iShares Expanded Tech-Software Sector ETF (IGV) collapsed from nearly 1.0 in early February to 0.13 after the conflict began, before a partial recovery to 0.7. While Bitcoin is up more than 5% since Feb 28, the IGV ETF has fallen over 2% in the same period, with the S&P 500 dropping 7.41% in a month.

The divergence suggests investors may be increasingly treating Bitcoin as a geopolitical risk gauge, separate from its prior lockstep moves with tech equities, a trend that could redefine its role in diversified portfolios if Middle East tensions persist.

Digital Gold Narrative Falters as Geopolitics Drive Price

The "digital gold" narrative took a hit as Bitcoin’s price moved in near-real time with geopolitical headlines. The asset fell toward $67,000 following signals from President Donald Trump of continued military action against Iran, triggering $328 million in crypto market liquidations in 24 hours, according to Coinglass. When Trump later announced a requested ceasefire, Bitcoin rebounded sharply to $68,700, underscoring what analysts at crypto exchange MEXC described as a shift to a real-time geopolitical risk gauge.

This behavior contrasted with traditional safe havens. Gold fell 11% in March as it faced forced selling amid urgent liquidity needs, while Bitcoin rose about 1% in the same period. The divergence was stark, with one Reddit trader capturing the mood: "Bitcoin stopped being digital gold the moment it started moving tick-for-tick with whatever Trump tweeted about Iran." The asset's correlation with the tech-heavy Nasdaq Composite turned positive at 0.13 in March, according to Whalesbook, further cementing its link to risk assets over havens.

A Coiled Spring for a Rebound?

Despite the weak first quarter, which saw Bitcoin tumble 22%, some analysts see potential for a rebound. Connors pointed to the extended underperformance relative to equities as an imbalance that has historically preceded reversals. He argues that earlier liquidations in the crypto market cleared out excessive leverage, allowing Bitcoin to absorb the geopolitical shock better than other assets like gold.

Institutional flows also show signs of life, with U.S. spot Bitcoin ETFs recording net inflows of $471 million on April 6, the strongest daily intake in over a month, according to Farside Investors. This demand is helping anchor the price even as some large holders sell. Still, the near-term outlook remains tied to Washington's foreign policy. "It’s either two months or two years,” Connors said, referring to the timeline for a potential reversal, which he believes hinges on the trajectory of the Iran conflict and its impact on global risk appetite.

This article is for informational purposes only and does not constitute investment advice.