Bitcoin has endured multiple collapses of 50% or more in its short history, often followed by powerful recoveries. The most extreme example was only a few years ago – after reaching a peak of around US$64,000 in late 2021, Bitcoin tumbled as the US Federal Reserve pivoted towards increasing interest rates, contributing to the cryptocurrency shedding around three quarters of its value through to the end of 2022.
Bitcoin, and cryptocurrencies generally, have been a volatile and fascinating watch over the past 15 years. This is also as the “asset class” entered the mainstream investment conversation in New Zealand – while certainly not the norm, some providers have allowed investors to hold Bitcoin in their KiwiSaver plan.
The latest slump, though, perhaps raises an uncomfortable question. Should an asset capable of halving in value in a matter of months play any meaningful role in a retirement portfolio?
Fall without a smoking gun
Unlike previous crypto crashes tied to exchange failures or systemic breakdowns, this downturn does not appear to have a single dramatic trigger.
Instead, it reflects a mix of forces: a large leveraged wipeout late last year, ETF (exchange-traded fund) outflows, a broader sell-off in US technology stocks, a stronger US dollar and fading speculative momentum.
Bitcoin has once again behaved more like a high-risk technology stock than “digital gold”. During recent bouts of geopolitical tension and macro uncertainty, capital flowed into gold (albeit that this has also been volatile) and cash – not crypto. That challenges Bitcoin’s claim to be a hedge against inflation or instability. In practice, it has largely traded as a liquidity-driven risk asset.
This divergence has led some to question whether Bitcoin is truly digital gold – or at times closer to “fool’s gold”. Traditional gold has a 5000-year history as a store of value. It is tangible and physically held. You can see it and fell it. Crypto exists only as code and confidence. When confidence wavers, so too can its price.
Expectations were high that a more crypto-friendly US administration and progress towards clearer regulation would provide a tailwind in 2026.
There has been political engagement and attempts to establish market-structure legislation designed to bring clarity and legitimacy. Supporters argue regulatory certainty could unlock broader institutional participation.
Yet despite that backdrop, Bitcoin has fallen sharply. Policy optimism alone cannot sustain prices if risk appetite is fading. Digital assets remain highly sensitive to global financial conditions.
The bull case remains (for some)
Long-time crypto advocates remain firmly bullish. Early investors such as the Winklevoss twins (who are also known for their legal dispute with Facebook founder Mark Zuckerberg) continue to argue that Bitcoin is “digital gold” – a scarce, decentralised store of value in a world of rising debt and expanding money supply.
They contend that scarcity underpins its long-term investment case, and that periodic “crashes” are simply part of its adoption cycle.
The current near-50% fall sits well within Bitcoin’s historical pattern. This in in stark contrast with equity markets. Over the past 15 years, the S&P 500’s largest drawdowns (during the Covid shock and the 2022 bear market) were roughly 34% and 25%. Sharemarkets are volatile, but they have not exhibited the repeated 70%-80% collapses that have characterised Bitcoin’s history.
Equities represent ownership in productive businesses generating earnings and cashflow. Bitcoin’s cycles have been driven largely by liquidity and investor sentiment.
Its defining feature has not been steady compounding, but extreme boom-bust swings. For traders, that can create opportunity. For retirement savers, it could be a white-knuckle ride.
It’s bigger than Bitcoin
Bitcoin is of course only one part of a vast digital-asset ecosystem. There are now more than 20,000 cryptocurrencies in existence, though only a small fraction have meaningful scale or liquidity. Many have experienced even more dramatic price swings. In past downturns, numerous smaller tokens have fallen 80% to 95%, with some disappearing altogether.
It is also worth distinguishing between volatile cryptocurrencies and so-called stablecoins. Stablecoins are digital tokens pegged to fiat currencies such as the US dollar and are designed to maintain steady value. They are increasingly used as payment and settlement infrastructure. But unlike Bitcoin, they are not growth assets – they are effectively digital cash. Much of crypto’s practical adoption is occurring in low-volatility financial plumbing, not speculative tokens promising outsized returns.
The uncomfortable question
There is also a harder truth: Bitcoin has a theoretical path to zero.
Unlike shares, which represent ownership in businesses with assets and earnings power, or bonds, which provide income streams, Bitcoin generates no cashflow. Its value depends entirely on collective belief and continued demand.
While the current White House Administration is very much pro crypto currencies, if regulation tightened dramatically under future Administrations, investor confidence eroded, or a critical technological vulnerability emerged, there is no underlying earnings base to anchor value.
Quantum computing is sometimes cited as a longer-term risk. Bitcoin’s security relies on cryptographic encryption. If quantum advances were ever able to break that encryption, it could undermine confidence in the network. While such a threat is widely viewed as distant (and potentially addressable through upgrades) it highlights a broader point: digital assets depend on technological resilience. Unlike gold or productive businesses, their value rests on code that must remain secure.
That does not make collapse likely. But it does mean the risk profile differs fundamentally from traditional retirement assets.
The KiwiSaver perspective
KiwiSaver is built on steady contributions, diversification and long-term compounding.
Most portfolios centre on productive assets – the likes of businesses, real estate and infrastructure – whose returns are supported by economic activity.
Bitcoin introduces a different risk profile.
Unlike equities, where earnings growth can justify higher prices over time, Bitcoin’s recovery depends primarily on renewed demand.
Retirement investing requires patience and discipline. Extreme volatility can undermine both.
For younger investors with long horizons, small allocations to higher-risk assets may be tolerable within a diversified portfolio. But concentrated exposure to speculative assets can significantly increase volatility without a clear fundamental anchor.
The bottom line
Bitcoin may recover. It has done so before. If risk appetite returns, prices could rebound sharply again.
But KiwiSaver is not designed to chase momentum cycles. It is designed to provide financial security in retirement.
Bitcoin’s latest 50% drawdown is a reminder of its defining feature: extreme volatility.
Extraordinary upside potential often comes with extraordinary downside risk. The key question for KiwiSaver investors is not whether Bitcoin might bounce back next year – but whether its risk profile aligns with long-term retirement goals.
In investing, excitement and predictability are rarely the same thing.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.
