Crypto winter: survival demands real-asset reform

At the time of writing, Bitcoin was hovering just above $65,000, down again from a short-lived rally earlier this week.

The price represents a massive 48.5% drawdown from the all-time high of $126,272 last October, with no end in sight. We’re now in the fourth crypto winter since Bitcoin, the original cryptocurrency, was born in 2009.

Will this winter’s retreat prove to be as severe as the previous 77.3% drop recorded in November 2022? This is not the most urgent question. The large amount of assets wiped out — for the second time in less than four years, in each case about $2 trillion) — represents nothing less than an existential risk.

Google reports a record spike for “Bitcoin to zero” searches in February, and jittery retail investors are not the only ones sharing the sentiment.

Cryptocurrencies will survive as an important and growing asset class, but not in their current form — and not without critical reforms. Bitcoin and Ethereum’s “digital gold” moniker, long cherished by the industry, was always largely born of wishful thinking.

Expectations that Bitcoin would prove as good as gold and deserve comparable safe-haven status had largely gone out the window by November 2025, following the “10/10 crash.” They all but vanished after the second down-leg started on January 15, 2026.

Bitcoin-gold decoupling

There have been major crypto crashes before, most notably Bitcoin’s first major collapse, which took the price from $1,007 on Jan 26, 2014, down to $112 by Feb 20, a whopping 88% loss. This was driven by the collapse of Mt. Gox, the dominant exchange at the time.

But nothing is likely to rival, in terms of speed and size, the initial flash crash on October 10, 2025 when Bitcoin plummeted from roughly $122,000 to $105,000, a drop of around $17,000 in just minutes.

The crash resulted in the liquidation of over 1.6 million trader accounts and a total market capitalization loss of $350 billion.

In roughly the same time frame, and for the same basic reasons, gold prices soared from $3,600 in mid-September to $4,300 by mid-October, a buoyant 20% rise.

Gold and Bitcoin share several important characteristics: scarcity, durability, portability and decentralization. Gold supply is finite; Bitcoin has a fixed maximum supply of 21 million coins. Central banks, on the other hand, can increase the fiat money supply at will.

Bitcoin supply follows a predetermined supply schedule that acts as built-in inflation protection. Gold is durable; Bitcoin, on the blockchain, is indestructible. Both are portable, with Bitcoin more so. Both are decentralized and therefore not controlled or manipulated by central monetary authorities or governments.

So, what happened in early October 2025 that suddenly caused gold and Bitcoin to decouple so sharply, with Bitcoin surrendering its putative safe-haven status and gold going on a tear?

What happened was a massive risk-off event meeting a period of already high uncertainty caused by the US government shutdown starting October 1, after Congress failed to pass a continuing resolution at the end of the fiscal year to maintain funding.

With focus already on the unsustainable US debt load of $36 trillion, on October 10, President Donald Trump announced a “massive increase” in tariffs, accusing China of “very hostile” behavior following its export restrictions on rare earth minerals. These included a 100% additional tariff on all Chinese imports and new export controls on “any and all critical software.”

The enormous size of the tariff threat, with heightened debt fears and data uncertainty as government agencies were closed, came as an ugly surprise to markets. Liquidity evaporated. Equities tanked. And a huge deleveraging/massive liquidation spiral hit crypto.

By that evening, Bitcoin was down 15% with no end of the sell-off in sight. Markets treated crypto as a liquidity asset, similarly priced to high-growth technology plays that thrive when cash is cheap and risk appetite is high, not as the new gold.

Simultaneously, investors piled into good old gold, which hit a then-record high of $4,254 per ounce on October 16. Even the US dollar strengthened as a safe-haven.

These crisis events had made the crucial differences between digital and real gold obvious. The fundamental difference is Bitcoin’s lack of intrinsic value. Stocks have earnings and price-to-earnings ratios. Bonds have yields.

Bitcoin lacks traditional valuation anchors. Therefore, price discovery and price action are heavily influenced by investor sentiment, which, in turn, is acutely dependent on often-biased geopolitical news, market rumors, social media trends and fads, and, above all, changes in global macro conditions and liquidity.

Tight or tightening liquidity is the mortal enemy of crypto. Gold, on the other hand, in times of geopolitical or financial stress, has shown the resilience expected of a reliable store of value. Developments since the onset of the latest crypto winter have underlined its safe-haven claim and proved it an unquestioned hedge against systemic risk.

Worth noting as well is that, as with any haven, size matters. The current market cap of physical gold is approximately $35.8 trillion while that of Bitcoin is $1.3 trillion.

Stablecoins are the future

Bitcoin and related cryptocurrencies such as Ethereum and Solana have lost their safe-haven status and are highly unlikely to regain it. But that should not be taken to mean that they will disappear as a significant asset class.

Precisely because of their often dramatic price volatility, which goes with their promise of outsized gains, they will continue to have a place in any well-designed portfolio as high-risk, high-return assets. Since Bitcoin crossed the $5,000 line in 2019, it is up by over 12 times — no mean feat.

Even more mistaken would be the conclusion from price action since last October that all forms of cryptocurrencies should be consigned to the dustbin of history. The illusory notion of digital gold aside, the principal characteristics of digital currencies are compelling and reflect the ongoing rapid spread of the digital economy and its assets.

The reforms required to make cryptocurrencies, whether centralized or decentralized, the practical future of global finance are clearly suggested by the shortcomings of the dominant cryptocurrencies, namely Bitcoin and Ethereum.

Most importantly, to be widely adopted as a universal means of payment, digital currencies must be anchored by real-world assets of clearly determinable value. Subjective investor sentiment cannot be the guide.

The primary hurdle to Bitcoin’s adoption for everyday transactions is its volatility. For a currency to function as an effective unit of account, it must have at least short-term stability without dramatic value swings.

Stablecoins address this issue by pegging their value to stable assets, whether a hard fiat currency like the US dollar, the euro or the Swiss franc, or their central bank digital analogues (CBDCs); physical commodities such as precious metals, notably gold or silver; or treasury bonds creating yield-bearing stablecoins, also known as tokenized T-bills.

There are few limits to the financial engineer’s imagination. But global financial regulators have reached a broad consensus that stablecoins must be fully backed by high-quality, liquid assets to ensure they can be redeemed at a $1 par value at any time. 

Detailed regulatory action has been taken or is in various stages of legislative progress in all major global financial jurisdictions: in the US, the GENIUS Act and the detailed implementation guardrails CLARITY Act; in the EU, the MiCA regulation; in Hong Kong, the Stablecoin Ordinance; in Singapore, the MAS Framework.

At present, the total global stablecoin market cap at about $300 billion still lags far behind Bitcoin-style cryptocurrencies. But I am confident that stablecoins’ market cap will catch up with and surpass Bitcoin well before the end of this year.

David Sacks, the White House AI and crypto czar, speaking to CNBC at this year’s Davos Forum, urged Congress to pass the already long-delayed CLARITY Act market-structure legislation.

He expects this to be the catalyst for banks to fully adopt crypto and to lead the way toward merging banks and crypto into a unified industry. That’s a goal worth targeting, one that would open a new chapter in banking history and prepare the financial industry for the fast-emerging digital economy.

Dr. Bruno Wu is a US, Europe and China-based investor in the digital finance, tech and media industries. He is also a shareholder of Asia Times Holding Limited, owner of the Asia Times news site.