A recent article, whose author possesses a remarkable gift for understatement, opened by noting that “Bitcoin has seen better days.”  Those better days might include last summer, when tokens were being exchanged for $126,000 each.  Today, you can buy an individual bitcoin on one of the exchanges for a little under $64,000—roughly a 50% drop in value in less than a year.

Of course, this has happened before.  In 2022, when the crypto exchange FTX collapsed in scandal, digital assets took an even deeper plunge.  Bitcoin, the supposed gold standard of crypto, dropped 76% from its all-time high.  There was a similar price collapse in 2018, and in 2014 another trading platform, called Mt. Gox, lost its way and took Bitcoin’s price down with it.

But for a variety of reasons, many say this plunge feels different.  For one thing, there has been no obvious trigger like the collapse of a major exchange.  Instead, it is believed that higher inflation and global uncertainty have led some investors move into securities that have actual, tangible value and don’t create return graphs that look like they are tracing the movements of a ping pong ball.  In other cases, companies were borrowing money to purchase the tokens—a fantastically risky strategy for such a volatile asset.  One company, perhaps ironically called Strategy (it bills itself as a ‘digital stockpile’) has lost 75% of its value in the digital downturn.  

Meanwhile, ETFs that proposed to invest in crypto assets—somewhat legitimizing the asset by taking it out of cold storage wallets and putting it in retirement portfolios—have seen outflows totaling $3 billion.  At worst, this could lead to a fire sale of the tokens, which is never a positive sign for any asset.  And finally, interest rates and bond yields are ticking up, drawing investor dollars away from tokens that don’t generate any interest payments.  In retrospect, bitcoin thrived in a historically low-interest rate environment and now must convince investors that the tokens are worth forgoing the income the money to buy them would otherwise earn.

Which, of course, is what hardcore bitcoin purists (called ‘maxis’ in the community) are saying: that the digital currency always seems to recover from these $200 billion collapses, and bitcoin is going to the moon.  Their narrative is that capital is currently being sucked out of crypto into artificial intelligence (another highly speculative asset at current prices), but this is a temporary phenomenon that will soon reverse itself.  Bitcoin lives or dies based on the story, that is, the belief that whatever you buy, at whatever price, you will always be able to sell to somebody at a much higher price down the road.  

We will see.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.