Why Bitcoin Often Falls During a Crisis — Even Though It Was Built For One
- Dr Ken Long
- Jun 23
- 2 min read
Bitcoin was born from the ashes of the 2008 financial crisis—a direct response to centralized banking and unchecked monetary policy. It was designed to be resilient, decentralized, and independent from traditional financial systems.
So, why does it often tumble with the market when things get bad?
It’s a fair question—and the answer reveals a lot about how Bitcoin actually behaves versus how it was originally envisioned.
Let’s break it down.
1. Correlated with the Stock Market
You might expect Bitcoin to zig when stocks zag. But in reality, it often moves with traditional markets.
During major market downturns—like the COVID crash in 2020 or inflation panics in 2022—Bitcoin dropped right alongside the S&P 500 and tech stocks.
Why? Because many investors still treat Bitcoin like a high-risk tech investment. When fear hits, they pull capital from riskier assets first—and Bitcoin gets sold just like shares of Tesla or ARKK.
2. It's Still a "Risk-On" Asset
Unlike gold (which tends to rally during times of uncertainty), Bitcoin is still seen by most investors as speculative.
In calm markets, traders chase returns. In crisis mode, they rush to safety.
That means capital flows out of crypto during recessions, wars, or interest rate shocks—and back into the dollar, treasuries, or even cash
3. Panic Selling and Sentiment Collapse
Markets run on psychology—and crypto is no exception.
When headlines scream “collapse,” fear spreads fast. Bitcoin holders, especially newer ones, often panic sell. This creates cascading sell pressure that can quickly snowball into sharp declines.
Add in social media amplification, and Bitcoin’s price can unravel fast—even without any change to its fundamentals.
4. Leverage Unwinds the Hard Way
The crypto market is notorious for its use of leverage. When prices fall, leveraged positions can be liquidated rapidly, forcing more selling.
During a crisis, investors often need to raise cash—fast. Bitcoin becomes a convenient source of liquidity. Selling increases, leverage gets crushed, and prices drop even further.
It’s not a flaw in the technology—it’s a reflection of how traders behave under stress..
5. Macroeconomics Rule Everything
Interest rates, inflation, and global risk appetite influence all markets—including crypto.
Bitcoin doesn’t exist in a vacuum. When central banks tighten, when economies stall, or when cash becomes king, even “decentralized” assets get repriced.
And in those moments, theory takes a backseat to liquidity
So… Is Bitcoin Broken?
Not at all. But it is misunderstood.
Bitcoin was built to be resilient. But today, it's still traded like a high-volatility, high-reward asset—closer to tech stocks than treasury bonds.
That doesn’t make it a bad asset. It just means we need to understand how it behaves in the real world—not just how we hope it would behave.
Bottom line:
Bitcoin might be the future—but in a crisis, investors still sell the future to survive the present.
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