In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses the dramatic fall of Bitcoin and other crypto prices this week, and his thoughts on what you should do.
Less than a month ago, Bitcoin and other cryptos suffered their worst loss in a long time. There are several reasons why Bitcoin is crashing, which Adam Bergman discusses in this episode. If you are a crypto investor, should you be panicking? On the opposite end of the spectrum, may this be a good thing for you? We think a lot depends on your mindset, how and why you are investing, and what your long-term goals are. Lastly, is your belief in the technology behind Bitcoin, cryptos and blockchains in general.
Why is Bitcoin Crashing?
As you may be aware, Bitcoin has had tremendous growth since the COVID-19 pandemic started. More and more people got on board with the digital currency, worried about traditional assets, government spending, inflation, among other things. We saw all-time highs spread throughout the crypto space. Bitcoin soared to over $64,000. Ethereum, XRP, Cardano, Uniswap were among risers in the crypto space.
What happened that caused Bitcoin to plummet all the way down to the low $30,000s? Adam talks about three factors, each with a different impact on the popular currency. First, the tax deadline came and went. Many investors probably had to sell off some cryptos to pay their tax bill. This probably had a very limited impact. Next, came Elon Musk’s tweet.
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP— Elon Musk, the 2nd (@elonmusk) May 12, 2021
The Tesla CEO issued a statement that they would “suspend vehicle purchasing using Bitcoin.” Further, he was concerned about the environmental impact mining the crypto had. While he believes in the future of it, at this time, that impact of mining it can not be ignored. Of course, we all know it takes lots of computing power and energy to mine Bitcoin. So, it’s odd that he would bring this up now. It had a decent impact on the price of Bitcoin.
The biggest impact came from China. Asia has been the epicenter of the crypto boom. On May 18, 2021, it was reported that “China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.”
Once that news came out, Bitcoin and most other cryptos started plummeting. It was not a good day to look at your account balance if you had a lot of money on an exchange!
Related: The Rise of Inflation
What Does this Mean for You?
If you’re a short-term investor looking to make some quick cash, it was not a good time for you. The volatility of the crypto space sees dramatic gains and equally crazy falls. If you bought at the wrong time or didn’t sell in time, you were basically “screwed.” If you were a “big picture” long-term investor, the drop stung a lot, obviously. However, looking back a year ago, Bitcoin was sitting under $10,000 and less than half that when the pandemic hit. If someone said Bitcoin would be somewhere between $30,000 and $40,000 in one year, I think you would sign up for it any day of the week!
That’s not very comforting to those who watched their balances soar in the beginning of the year and then completely drop when May rolled around. As of this writing in mid-June, Bitcoin is hovering around the $38,000 mark. As Adam mentions in the podcast, we’re seeing higher highs and higher lows. However, we don’t know for sure if that trend will continue, especially with the energy use to mine the crypto and influencers shying away.
To be clear, don’t panic! If you follow along with Adam Talks and our videos and blogs, you know investing is not a get-rich-quick scheme. You need to be in it for the long haul. To be clear, Adam is not a financial advisor, but does suggest getting some exposure to the crypto space. It’s really up to you to decide how much and how big of a risk you want to take.
Is There a Silver Lining to Bitcoin Crashing?
As with anything that crashes, whether it be cryptos, stocks, real estate, whatever, you need to look through rose-colored glasses. Specifically, do you believe in the crypto technology? If you do, now may be the time to invest; maybe not in Bitcoin, but other cryptos. Adam’s favorite is Polygon, which did take a hit as well. There are others out there, which Adam talks about, that don’t use nearly the energy that Bitcoin does and has wider applications.
At IRA Financial, we always stress the power of tax deferral and compounding interest. Of course, using retirement funds to invest in cryptos brings in another level of uncertainty. You do not want to risk your future chasing a big score. It’s important to properly diversify and know the risks on any investment, not just Bitcoin. We feel strongly that cryptos should be a part of your portfolio, but so should stocks, bonds, mutual funds and even real estate, and other alternatives. In the end, it all comes down to you as an individual, and as an investor. It’s important to work with a financial advisor to decide if Bitcoin or another crypto may be right for you.
The bubble eventually bursts on just about everything. Lest we forget the “dot.com” bubble crashing over a decade ago, as well as the real estate market. The difference with Bitcoin crashing, is that cryptos are still in their infancy. The majority of people don’t understand them and why they even have value. They just see dollars and sense and can see the historical charts. It’s nice when those charts show the price going up, and downright frightening when it starts looking like a near-vertical cliff face. Stay tuned to see what happens in the next few months and years.
Of course, Adam will be here with his thoughts with any news on the Bitcoin front. Good or bad! You can listen to all our episodes on our SoundCloud page, including Adam’s experience at Bitcoin 2021 Miami! Thanks for listening and happy investing!