Cryptocurrencies are showing their volatility once again.  Back in October of last year Bitcoin wallets were bulging, with each coin valued at $126,272.  Today the coins are trading hands at around $64,000.  Meanwhile, Ethereum’s market value has fallen considerably since a high on April 22, and that high was roughly half the all-time high of $4,953 per token back in August of last year.  Other cryptocurrencies, including XRP, Solana and Cardano, are experiencing sharp declines.

The downturn has caused roughly $2 trillion in aggregate losses—or, put another way, people holding crypto are down about 50% in this gloomy cycle.

Is there an explanation?  Cryptocurrencies are always living on the edge of buyer confidence, since there is nothing tangible that backs their value.  They live as entities in the digital space, and all but true believers sometimes wonder whether there is any value there at all.  Volatile and speculative assets tend to be the first thing investors jettison during times of uncertainty, and the rise of geopolitical conflicts in the Middle East seem to have affected investor confidence.  

In addition, many speculators in the crypto world buy leveraged positions, making a bet that those $126,000 coins will (a phrase you hear in the crypto world) ‘go to the moon’.  Even minor drops in price trigger capital calls and forced liquidation, which are terrible for asset prices.

Fans of cryptocurrency investing say that ‘underlying fundamentals remain intact.’  But one must wonder: what fundamentals are we talking about in an ‘asset’ that depends entirely on confidence that it has a value in the first place?  Nevertheless, do not be surprised if there’s another 50% movement in these volatile entities.  We just don’t know which direction that will take.

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