Bitcoin investors endured a rocky start to 2026, with the leading cryptocurrency tumbling roughly 22% in the first quarter. This downturn extends a concerning trend: nearly six months of underperformance compared to U.S. Equities, a stretch without precedent in recent market history. The prolonged weakness has prompted questions about whether bitcoin is losing its status as a portfolio diversifier and instead behaving more like a risk asset, closely tied to broader economic sentiment.
The recent struggles aren’t happening in a vacuum. U.S. Stock markets also experienced a challenging quarter, marking their worst performance in four years, with the Nasdaq Composite declining by more than 10% from recent highs. This combined decline across both stocks and crypto has largely erased the gains seen following the 2024 presidential election. The current environment is a stark contrast to the optimism that fueled much of the market’s growth in the latter half of 2025.
“That’s never happened,” said Mark Connors, founder of Risk Dimensions, referring to the extended period of underperformance against the S&P 500. He explained that the *duration* of this gap, not just the size of the decline, is particularly noteworthy. “Previous pullbacks have been sharper, but shorter. This sustained lag is what’s different.” Connors’ firm analyzes risk across asset classes, and his observations highlight a shift in how investors are currently perceiving bitcoin.
Policy Developments Amid Market Uncertainty
Despite the market headwinds, some regulatory developments offer a glimmer of potential support for the crypto industry. The appointment of a new chair to the Securities and Exchange Commission (SEC) in December 2025 has been seen as a positive step, potentially paving the way for more crypto-related exchange-traded funds (ETFs). Paul Atkins, the new chair, has signaled a more open approach to innovation in the digital asset space.
Lawmakers have also made progress on key legislation. The GENIUS Act, passed by the Senate in June 2025, aims to establish a regulatory framework for stablecoins, a type of cryptocurrency pegged to a stable asset like the U.S. Dollar. In August 2025, President Trump signed an executive order designed to facilitate the inclusion of cryptocurrencies, alongside private equity and real estate, in 401(k) retirement plans. The Labor Department subsequently proposed a rule on Monday, March 31, 2026, to implement the executive order, potentially opening up trillions of dollars in retirement funds to alternative investments.
A Resilient March Amid Geopolitical Tensions
Interestingly, despite the overall weak quarter, bitcoin demonstrated unexpected resilience in March. Early in the month, escalating tensions between the U.S. And Iran sent shockwaves through global markets, driving up oil prices and bolstering the U.S. Dollar as investors reacted to potential supply disruptions.
This volatility triggered significant movements across various asset classes. Gold, traditionally considered a safe-haven asset, experienced extreme price swings as margin calls and liquidity demands forced selling from both institutional investors and sovereign wealth funds. These dislocations were among the most severe seen in decades. However, unlike gold, bitcoin did not experience the same level of forced liquidation. In fact, bitcoin rose approximately 1% in March, while gold fell by 11% over the same period. “It really hung in there,” Connors noted.
A “Coiled Spring” for Bitcoin?
Connors attributes this relative stability to earlier liquidations that had already purged many leveraged positions. He also suggests that bitcoin’s inherent ability to move quickly across borders may limit forced selling compared to physical assets. Looking ahead, he believes the extended period of underperformance relative to equities could set the stage for a potential reversal.
The data shows that bitcoin has lagged the S&P 500 since October 2025 – the longest such period on record. Historically, these imbalances have often been followed by a rebound in the underperforming asset. If this pattern holds, bitcoin could be entering a phase where relative weakness gives way to renewed demand, particularly as macroeconomic pressures related to debt and currency expansion continue to build.
However, the timing of any potential recovery remains uncertain. Connors emphasizes that geopolitical factors, particularly the evolving situation in the Middle East and its impact on energy markets, global liquidity, and overall risk appetite, will likely play a crucial role. “It’s either two months or two years,” he said, acknowledging the wide range of possible outcomes.
Disclaimer: Investing in cryptocurrencies carries substantial risk, including the potential loss of principal. Digital assets are highly volatile and are not suitable for all investors. Consult with a qualified financial advisor before making any investment decisions.
The next key event to watch will be the Labor Department’s final rule regarding 401(k) plan access to cryptocurrencies, expected in late April 2026. This decision could significantly impact institutional adoption and investor sentiment. We will continue to monitor these developments and provide updates as they unfold.
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