Why Has Bitcoin Been Hit So Hard Lately?

Bitcoin (BTC -3.89%) has been incredibly volatile lately. Year-to-date as of this writing, the popular crypto is down by nearly 10%. In this segment of Backstage Pass recorded on Jan. 21, Fool contributors Jason Hall, Jose Najarro, Rachel Warren, and Toby Bordelon weigh in on the crypto and NFT craze, and the volatility that is often rampant in this popular space. 

Jason Hall: I think I'm going to take Bitcoin and I'm going to put it with all of crypto and I'm going to lump it together and I'm going to throw it in the same bucket with growth stocks. It's riding the same wave right now, and it's painful and it's ugly and it's not a lot of fun. I think that broadly, there's going to be a lot of those crypto assets.

Sometimes they're called altcoins, sometimes they are called something else coins, that stuff we were spreading on the field earlier. [laughs] There is a ton of those that they're never going to recover. They're going to continue to fall and they're never going to recover because they don't really do anything. They can issue more of them.

With Bitcoin, there will never been more than 21 million, so there's like a certain amount of supply, so there's that aspect of it. There's utility value that's being built into it to use it for a lot of tools. That's a really interesting thing with Bitcoin and same thing in stocks. I think there's a lot of growth stocks that we thought might be great businesses that aren't going to be the great businesses that we thought, and maybe they'll never really recover the stock price.

But there's tons that I think are still going to recover, and if you own just a few of those, even if you have a few that don't recover, you just have a few that do recover, you're going to do well. I think with Bitcoin, that's going to be the case. I want to just quickly share this. What is that?

That is Bitcoin. This is going back to 2015 off of its all-time high. Bitcoin has spent more time 50% or more below its prior all-time high that has above it, not literally, but very close over the past five or six years. That is absolutely crazy. What has it generally always done so far? It's recovered and ended up worth more. Will that happen again? I think so. I really do. NFTs, I think as a thing, as they start serving utility purpose, because it's a mechanism. It can serve a really interesting purpose because it can give you ownership of something.

I think it's going to be around for a long time because it can be useful and it can serve purposes. I love it for the creator community. There's tons of people that have unique coding skills and some artistic ability that actually are making a living doing something that they really love because people are buying their art now as NFT. I think that's really cool and I absolutely love that about it. But I think there's still a very beanie baby-esque side of this as well.

There is the vast majority of it is never going to be worth what somebody bought it for. That's OK if you bought it because you love it and you wanted that creator to make money and it's something you like, that's great.

I've bought tons of art from local artists all over the U.S. that I couldn't sell it for what I paid for, but I don't care because I love it and I wanted them to make money by buying that art. If you treat the NFTs of art in that way, that's fine. If you paid $50,000 for an NFT because you think they give you $1 million dollars next year, you're going to lose money and you deserve it. [laughs].

Jose Najarro: Yeah, I agree there with Rachel and Jason when we talk about crypto. I think the growth stock explanation works really well. I feel most of these, especially the big ones, Bitcoin, Ethereum, growth stocks for me means that hey, they have huge potential going up, at the same time, they have huge potential of going down. Then you have your altcoins and your other coins like Jason mentioned and I would put those in the penny stock bag where they can really go south pretty quickly.

But I do believe the overall concept of cryptocurrencies will still be here. Who knows it will be the coins that we're using right now. Same with the NFT market. I think the NFT market, I would say, if obviously everybody wants to get that super popular the Bored Ape Yacht Club where six months ago you probably bought them for like $600.

Now you're selling them for millions and millions of dollars. I think something like that is almost as lucky as winning the lottery, very unlikely. Obviously, we hear about it a lot right now because we have the internet. The internet allows us to share this information super quickly. But we are seeing the NFT market entering a lot of the big players.

Twitter, I believe yesterday they announced that Twitter Blue, which is their subscription service, allows you to connect to your Meta wallet and you can verify that, yes, your profile picture is the NFT that you own. There were reports yesterday that Facebook is also doing the same thing. I think right now the younger generation, you have a lot of influencers, a lot of YouTubers, a lot of content creators focusing in the NFT market and I think that's going to continue especially in the younger generation.

But I don't believe they're going to hold the value that we're seeing right now. In forms of gaming, I do think game developers, especially the big players, it's very risky for, let's say, a Microsoft to start entering in the NFT market right now because if things go south, they would be like, hey, you guys are just following these scamming ideas. I think for the big game players, it's too early for them to really start adding it into their games.

Jason Hall: It's too niche. It's still too small. Yeah.

Jose Najarro: I think it was Ubisoft that tried to create a NFT weapon for one of their players, and that I think only sold about 50 units and people online were just making fun of that developer for going that route.

I think right now it's still too early for game developers, but who knows, maybe in two to three years, I know Zynga before they got acquired by Take-Two Interactive, they had actually started a blockchain gamer head to start focusing in that market. We are seeing big players focusing on it, or at least trying to grab ideas, but still too early for them to implement it.

Jason Hall: I just had a realization. I have to throw this out there. Every person that makes fun of somebody that bought an NFT that has ever downloaded a free game on their phone and then paid money for stuff in that game, you've bought NFTs. [laughs] You just didn't know it.

Rachel Warren: It's a valid point.

Toby Bordelon: Yeah, very similar.

Jason Hall: It's the same thing.

Toby Bordelon: Yeah. That's our question we're going to ponder over the weekend. Are Bored Apes are just digital beanie babies, right? [laughs] Jason Hall's opinion there folks.

Rachel Warren: Has someone made an NFT of beanie babies. I wonder.

Toby Bordelon: I'd be shocked if they haven't. I feel like that's the way to go. One thing that shows for me in terms of Bitcoin's fall, is that earlier we were hearing Bitcoin's like a digital version of gold.

It's going to have potentially that same place in the market. That's not true. It's obviously not a flat hedge against inflation, it's obviously not a hedge against falling.

Jason Hall: It hasn't been right? It hasn't been at all.

Toby Bordelon: It's rising and falling right along with the stock market, so it's moving in tandem with that. I don't know, maybe that will change at some point in future, who knows? But for now, it seems to do mainly what stocks do for better or for worse.