I guess I'm going to tell my friend I don't want to be friends anymore
You sound sad about it. What makes you not want to be friends any longer?
Because he spreads too many bad rumors about me.
Sounds like this friendship isn't working out for either of you any longer.  There's nothing wrong with ending a friendship when it gets to a stage like that.  Sounds like you both might be happier afterwards.
Yeah, maybe it's stupid to keep trying to hang on.
It does really sound like moving on would be best for you. You'll be happier when you don't have to deal with that drama and tension anymore.