The cryptocurrency world is experiencing what many within it have wanted: government approval and institutional credibility.  President Trump has declared that he wants to establish the United States as the ‘crypto capital of the world.’  The U.S. has taken steps to integrate digital assets into the U.S. financial system and reduce regulations.  A recent executive order establishes Bitcoin as a government reserve asset, with the Strategic Bitcoin Reserve capitalized with digital tokens and owned by the U.S. Treasury Department.  America now has a U.S. Digital Asset Stockpile, and the Trump Administration features the first ever ‘Crypto Czar.’

Meanwhile, a new cadre of ETF investment pools now allow citizens to invest their retirement accounts directly into Bitcoin and Ethereum without having to worry about digital wallets.  So-called ‘institutional ownership’ of Bitcoin by mainstream organizations has risen from 0.9% in 2014 to 19.8% today.

With all this newfound credibility, one might expect Bitcoin and other crypto tokens to be experiencing the best of times.  But in fact, the value of a Bitcoin token, which reached $120,000 in the summer, has fallen to around $70,000 currently.  Over the same period, Ethereum tokens have dropped from more than $5,000 down into the $2,000 range.

Cryptocurrency volatility is nothing new; a downturn in 2013 eliminated much of Bitcoin’s value, and in 2017 the tokens skyrocketed before tumbling again in 2018.  But to some, the recent downturn feels different.  The recent selloff has raised new questions about the purpose of digital assets whose sole existence is in computer ledgers.  Is it a hedge against inflation or political uncertainty?  Gold and silver appear to be taking on that role, as they have in the past.  Is it a currency where people can buy and sell?  Yes, but if you are heading to your average grocery store, it is unlikely they will want you to open your digital wallet (at least for now).  Stablecoins—which are convertible directly to more traditional currency—are now being used to facilitate payments—and neither Bitcoin nor Ethereum are among them.

The problem might be the public’s evolving perspective on the crypto market.  Once, Bitcoin and Ethereum were an exciting new development, a truly libertarian innovation that always seemed to rise in value after every pullback.  But now they look like every other Wall Street instrument to many, available in ETFs, with their own ticker symbols like stocks and bonds.

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