As geopolitical uncertainty and rising inflation batter cryptocurrency values, a crucial investment case for bitcoin is weakening.

After Russian President Vladimir Putin deployed soldiers into Donetsk and Luhansk, two separatist regions in eastern Ukraine, immediately after declaring them independent, the price of bitcoin plummeted to a two-week low Tuesday.

Bitcoin supporters commonly refer to it as "digital gold." The concept alludes to the assumption that bitcoin can serve as a gold-like store of value that is unrelated to other financial markets such as stocks.

Bitcoin proponents also perceive the cryptocurrency as a "safe haven" asset that may protect investors from global economic uncertainties and rising prices, which erode the purchasing power of national currencies such as the US dollar.

With inflation at historic highs, you'd think this would be bitcoin's time to shine - according to Labor Department numbers, consumer prices in the United States climbed the most since February 1982 last month.

Instead, since reaching an all-time high of about $69,000 in November, the cryptocurrency has lost nearly half of its value. As a result, analysts are questioning if its reputation as "digital gold" is still valid.

"Bitcoin is still early in its maturation curve to be properly categorized in the category of'digital gold,'" according to Vijay Ayyar, vice president of business development and international at crypto exchange Luno.

Are you looking for a safe haven or a risky investment?

Bitcoin's recent losses coincided with a sell-off in global stocks, with the S&P 500 ending Tuesday's session in correction territory. The price of bitcoin is increasingly mimicking stock market movements, with the correlation between bitcoin and the S&P 500 continuously increasing.

S&P500 and BTC price activity

Closing price in US$

 

Cryptocurrencies, according to experts, have become more closely linked to other speculative parts of the market, such as tech stocks, which are falling due to fears that lofty valuations will come crashing down as the Federal Reserve and other central banks begin to raise interest rates and wind down their massive stimulus packages.

“The correlation between crypto and stocks has been high over the last few months on both inflation-related macro news and the Russia-Ukraine geopolitical situation,” Chris Dick, a quantitative trader at crypto market maker B2C2, told CNBC.

“This correlation shows that bitcoin is firmly behaving like a risk asset at the moment — not the safe haven it was touted to be a few years ago.”

In fact, gold has actually been outperforming bitcoin lately. Spot rates for the precious metal reached their highest levels since June 1 on Tuesday, climbing as high as $1,913.89 per troy ounce.

Gold and BTC price activity

Closing price in US

 

"Bitcoin, the asset ostensibly the answer to all questions, has quietly faltered and is notably underperforming its arch rival, gold," according to John Roque, head of technical strategy at 22V Research.

"We predict Bitcoin to return to 30,000 and then drop below that level, while gold is expected to reach a new all-time high."

'Winter of Cryptography'

As a result of Bitcoin's decline, speculation about a long-term bear market dubbed as "crypto winter" has grown. The last time this happened was in late 2017 and early 2018, when bitcoin fell by as much as 80% from its then-record highs of close to $20,000.

However, not all analysts believe the recent drop in digital currency prices represents the start of a crypto winter, with several claiming that market conditions have changed. Bitcoin is currently held by a large number of institutions, which, according to analysts, is one of the reasons why it has grown more closely associated with stocks.

B2C2's Dick explained that "the adoption of cryptocurrencies by investors from traditional asset classes is the main cause behind bitcoin's correlation with stocks." "Given the various fundamentals for each market, this relationship has the potential to be disrupted at any point," he noted.

According to Luno's Ayyar, bitcoin has to gain greater widespread adoption in order to compete more successfully with gold as a store of wealth.

He explained, "The foundations have always made sense - limited supply currency not affiliated with any sovereign state."

"However, bitcoin must go through its proper monetization process, where it is held by a large enough pool of participants – more retail flow, larger institutions adding bitcoin to their balance sheets, and possibly additional country states after El Salvador's purchase."

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