Money Rehab with Nicole Lapin - Is This the End of Bitcoin?

Episode Date: June 23, 2022

Bitcoin peaked at over $68,000 in November. This week, Bitcoin fell below $18,000. Is this the crypto-pocalypse? Nicole explains.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. In November of this year, Bitcoin was the bell of the crypto ball.

It had reached $68,789.63 to be exact. And crypto fans used that number as proof that crypto was here to stay. Even as Bitcoin was reaching levels of unprecedented success, I was telling people to be careful. Even when crypto bros were buying Lamborghinis and making it rain, I kept my recommendation firm. I told you to not invest more than 1% of your net worth in crypto. OG money rehab fans will definitely remember this. I cautioned against crypto's volatility and lack of intrinsic value. I told you that crypto was a bubble and that there was a huge risk it would pop. And that crypto apocalypse, my friends, is happening now. This week, Bitcoin's price dropped below $18,000,

meaning Bitcoin was trading at around 75% less than the peak that it reached just seven short months ago. The price has rebounded slightly. At the time I'm recording this, Bitcoin is trading at a little more than $21,000, so it has recovered a little bit, but you don't have to be a Goodwill hunting-esque math quiz to know that $21,000 is a lot less than $68,000. A lot of people are asking why this is happening, but I think the answer to that question isn't exactly what people are really looking for. Because I would argue that this crash has always been inevitable. really looking for. Because I would argue that this crash has always been inevitable. Like I said months ago in episode 162 titled, Why is Crypto So Volatile? Crypto isn't intrinsically valuable. There isn't gold or diamonds or anything backing up crypto's value. At no point did the US

Treasury say, yes, anytime someone wants to bring us a Bitcoin, we will gladly give them X number of dollar bills from our reserves. No, crypto's value comes from how much people are willing to trade for it in goods, in other cryptocurrencies, or in dollars. When you invest in companies, there's normally some intrinsic value backing up the valuation of the investment. So say you invest in a tech company and you see the stock price going up. You may wonder what is driving that increase in valuation. And then you see that the company just announced that they're releasing a new product that they expect to be really popular. So they're anticipating bumps in sales and revenue. Bumps in sales and revenue are exactly the kind of concrete reasons a stock price may increase.

But Bitcoin isn't a company. It doesn't make products. Bitcoin is just a thing that only exists digitally that you can't even touch, meaning its value is entirely based on speculation. Speculative investments are essentially like hot air balloon rides. You might enjoy the view from the top, but once you realize that you are only suspended by hot air, you'll wish you could get off that ride without falling.

But unfortunately, when it comes to balloons and speculative investments, what goes up must come down. So yeah, I think people asking questions aren't really looking for this spiel. I think people are actually not wondering why crypto is crashing, but wondering why it is crashing now. First, crypto has not been immune to the macroeconomic factors we've been talking about lately. Interest rate hikes, out-of-control inflation, and general pandemic war doomsday vibes that tend to affect any type of investment. But the crypto industry specifically has been suffering. And as many crypto platforms have been sharing bad news, investors' faith in crypto is starting to get shaky. Last month, we put out an episode called

Decoding the Big Lesson from the Coinbase Catastrophe. It's episode 306 if you want to listen. In that episode, I outlined how Coinbase released a statement saying that in the case of bankruptcy, Coinbase users may have their assets seized. Since then, other companies have followed suit on similar or even worse updates. Most notably, the crypto lending company Celsius Network announced on Sunday night that it would freeze all withdrawals and transfers due to, and I quote, extreme market conditions. That terrified investors. And it should. The benefits of investing relies on free and fair markets. That's what makes investing so awesome. It's the idea that anyone can buy into the same track to wealth as the big bosses on

Wall Street. But if the big bosses tell you when you can and can't make investments, well, that's not fair at all. It's like this. Do you remember the Samsung Note 7, that phone that started spontaneously exploding in people's pockets? Well, going back to Celsius Network, Celsius Network freezing transfers is the equivalent of Samsung saying something like, I know this phone may spontaneously explode and you're hearing stories of people's pants catching on fire, but you have to keep the phone in your pocket. Of course, Samsung did not say that. Samsung did the responsible thing and recalled the phones. Celsius Network didn't take the same responsibility. If you did

listen to that episode on Coinbase, you may remember that I said I was expecting to see layoffs at the company. Well, sure enough, last week, Coinbase announced that they were laying off over a thousand people, which is about 18 percent of their workforce. Coinbase CEO Brian Armstrong addressed the layoffs on Twitter and said, the broader market downturn means that we need to be more mindful of costs as we head into a potential recession. That is such a lame cop-out and misleading to investors. Yes, there is a market downturn, Captain Obvious, but that's not why Coinbase is laying people off. It seems to me that Coinbase is laying people off because the company is not doing so well and they can't afford the staff they've hired. And other heavy hitters in the crypto space have also

announced layoffs like Gemini, BlockFi, and Crypto.com. Your biggest question, however, and most important one is probably, what should I do? My biggest piece of advice? Don't buy more crypto. I know this might feel like the opposite advice I gave you in last week's episode with Guy Adami. In that episode, I told you that experienced investors buy more on market dips. But here's the thing. There is a difference between bad times for the market and bad investments. Bad markets will rebound. Always have, always will. Bad markets will rebound. Always have, always will.

Bad investments will not rebound. And crypto is a bad investment. And if you're looking for proof of that, look no further than the crypto disciples. According to them, crypto is supposed to be the biggest hedge against inflation. So with inflation at more than 8%, the highest in 40 years, now should be crypto's time to shine. And losing 75% of its valuation is not shiny. For today's tip, you can take straight to the bank. Take the money that you would have used on crypto and put it into safer investments that we've celebrated here on Money Rehab. Index funds, ETFs, or more recently, series I-bonds.

Stay tuned for tomorrow's episode where I talk about the one ETF in particular that you should definitely know about. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design.

And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.