Is This the Crypto-pocalypse?

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How the mighty have fallen.

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 people not to invest more than 1% of their net worth in crypto. I cautioned against crypto’s volatility, and lack of intrinsic value; I told you that crypto was a bubble, that there was a risk that it would pop.

And that crypto-pocalypse is happening now.

This week, Bitcoin’s price dropped to under $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 publishing this, Bitcoin is trading at a little over $20,000 (you can check live updates here). So, Bitcoin has recovered a bit... but you don’t need to be a Good-Will-Hunting-esque-math-whiz to know that $20,000 is still a lot less than $68,000.

What's going on?

A lot of people are asking why this is happening, but I think the answer to that question isn’t exactly what people are looking for. I would argue that this crash has always been inevitable based on how crypto is structured (you can read more about this in my prior article, Here's Why Crypto Is So Volatile).

But, I think people asking questions aren’t really looking for this spiel; I think people are actually not wondering why crypto is crashing, but why it is crashing now.

First, crypto has not been immune to the macroeconomic factors we've been talking about here on the Money Minute— 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. As many crypto platforms have been sharing bad news, investors’ faith in crypto has started to get shaky.

Last month, I wrote an article about how Coinbase released a statement saying that in the case of bankruptcy, users may have their crypto assets seized. Since then, other companies have followed suit on similar— or even more disconcerting— updates.

Most notably, the crypto lending company Celsius Network announced that it would pause 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 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?

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 didn’t say that. Samsung did the responsible thing and recalled the phones. Celsius Network didn’t take the same responsibility.

If you did read my article on Coinbase, you might 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 1,000 people— which is about 18% 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— 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 well, and can’t afford the staff they’ve hired.

Other heavy-hitters in the crypto space have also announced layoffs, like Gemini, BlockFi and Crypto.com.

My two cents?

Throughout all of this, your biggest question, is probably: what should I do? My biggest piece of advice: don’t buy more crypto.

I know that this may feel like the opposite of the advice I gave recently on my podcast. In a recent episode, I told listeners that experienced investors buy more on market dips. But here’s the thing: there’s a difference between bad times for the market, and bad investments. Bad markets will rebound— always have, always will. Bad investments will not rebound. They will just go to zero. And crypto is a bad investment.

If you're looking for proof of that, look no further than the crypto disciples. According to them, among crypto's many accolades, crypto is supposed to be a hedge against inflation. With inflation at more than 8%— now should be crypto’s time to shine, and losing 75% of its valuation is not shining.

xo,

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