Business: I Messed Up: Lessons Learned From Losing 6-Figures+ Investing in Cryptocurrency
Do you remember what life was like back in December 2017?
You couldn’t go a day without hearing someone talking about bitcoin or cryptocurrency.
I’d never seen anything like it.
Every time I got on Facebook or YouTube, I would come across guys calling themselves “crypto traders.”
My YouTube feed was full of guys in their mom’s basement talking about how they had inside information on the next coin offering that was going to the moon.
Many of my friends left affiliate marketing to do crypto trading full-time.
And the Bitcoin prices? They were crazy.
Here’s a rough timeline of Bitcoin prices in 2017.
- January 24, 2017: $900
- August 15, 2017: $4,100
- October 24, 2017: $5,500
- November 28, 2017: $10,500
- December 13, 2017: $17,000
The price just kept climbing and it didn’t seem like it was ever going to stop.
Until it did. And fell off a cliff.
December 18, 2018: $3,406.85
Bitcoin crashed from $17,000 down to $3,400.
And those guys who kept talking about Lambos, mooning, and HODL?
A lot of people have lost a lot of money investing in crypto, but no one’s talking about it.
This isn’t an, “I told you so,” post because I also invested in it and lost money.
Here’s my experience:
- I invested six-figures cash into crypto in 2017.
- My portfolio skyrocketed up to over over seven-figures by December 2017.
- The market started crashing, but I never sold anything. I thought the market would bounce back.
- I recently sold off some coins at a huge loss. I believe these coins have zero hope of ever recovering.
- My portfolio is now worth five-figures (NEO, OMG, BTC, etc.)
- I don’t plan on investing any more money into crypto coins.
I’m writing this post for myself in order to learn and to grow from my mistakes.
I believe I’ll become a better investor because of this experience. Not only have I learned more about my own cognitive biases, but I’ve also learned to respect money more.
One side’s going to be “Wow can’t believe you fell for that pyramid scheme! It was sooo obvious!”. The other side…”You fool! The entire marketing’s going to bounce back. KEEP HODLING!”
This is one of the hardest posts I’ve ever written – I think someone said that the best posts are the ones that you’re not sure about publishing.
How I Started With Cryptocurrency
I first bought bitcoin in 2011.
It made sense to me from the beginning.
It was perfect – a currency that was supposedly “anonymous” and wasn’t controlled by the governments (we’ve since learned it’s not as anonymous as we thought).
I bought a few thousand dollars worth at $100 a piece. It ballooned to $1,000+, then the price crashed because of Mt. Gox and Silk Road being shut down.
I slowly spent my bitcoins over the next few years until I didn’t have anymore.
I remember thinking that cryptocurrency was a great idea, but was too early for its time, kinda like Google glasses.
It’ll come back one day, I thought.
Fast forward to 2017. Cryptocurrency started making waves again. In addition to Bitcoin, there were all these new coins like Ethereum and Ripple.
But I was hesitant to get into crypto at this point for several reasons.
- I saw my bitcoin holdings crash in 2011.
- My friends who were into crypto at the time weren’t exactly the kind of people I wanted to take investment advice from.
- I always believed that the best investments were either in more personal education or Vanguard Index Funds. (I’m a Boglehead.)
As Bitcoin started becoming more popular, I made this video in August 2017.
I told people to be careful of Bitcoin and crypto and to consider investing in index funds instead.
Within a few days, I had to turn the comments off. The number of negative comments and trolling I received was INSANE.
But even though there were a lot of dumb comments, I did see some people encouraging me to do more research on the potentials of Blockchain technology.
So I did, and in September 2017, I bought crypto again. There were a few reasons:
- The price was going up at a rapid pace. It was hard to ignore.
- I had a friend sit down and explain to me why he invested so much into crypto. He is someone I respect.
- I did more and more research on Blockchain technology.
After a week of heavy research, I bought Bitcoin, NEO, and OMG.
Why Cryptocurrency EXPLODED
I’m 34, so I’m part of the first wave of millennials.
A lot of millennials feel like they got the shit end of the stick.
We graduated with huge student loan debts, only to enter one of the worst job markets since the great depression.
Properties are so expensive that a lot of us can’t imagine owning our homes, especially if we’re in NYC or California.
We never had a chance to invest in property when it was cheap. We also didn’t get a chance to invest in a lot of the big tech companies in the 90s.
Have you ever heard the term “Keeping up with the Joneses?”
If your neighbors buy a new car, then you might feel pressure to buy a new car in order to “keep up” with them.
In the past, you were limited to keeping up with just your neighbors.
Now we have Facebook, Instagram, and the rest of the web. Suddenly, we have to start keeping up with everybody!
- Alan, your high school chemistry partner, just bought a new Tesla.
- Your sorority sister just went to Bora Bora for her Honeymoon.
- John from accounting just took his wife to a 3-star Michelin restaurant for their anniversary.
You’re not just keeping up with the Joneses now – you’re also keeping up with The Ngos, the Kardashians, the Browns, etc. You get the point.
The combination of us feeling “behind” and the pressure to “keep up” made us want to find that big break.
Every generation has their big investment opportunity, and it felt like Crypto was ours.
The “bubble” started happening because people stopped caring about the technology, and it became a vehicle to get rich.
My Mistakes and Cognitive Biases
This is the part I’ve been looking forward to writing. I made a ton of mistakes investing in crypto, and many of them were due to blind spots in how I made decisions.
I’m sure I’ll understand more of them as time goes by and as I become more knowledgeable about crypto, but here are the ones I see clearly now.
Extreme Groupthink and Confirmation Bias
- Groupthink is when a group of people make irrational decisions together.
- Confirmation Bias is the tendency to search for and interpret information in a way that confirms your pre-existing beliefs.
My social circle is mainly affiliate marketers and nerds – aka the group most likely to buy crypto.
My sources of information were also full of groupthink. If I wanted to research a coin, then I’d head over to that coin’s subreddit.
It’d be nothing but positive news.
Any bad news or distractors would automatically get downvoted.
I remember first seeing Bitcoin dropping from $17k down to $12k.
Everyone would be like…
- HOLD (don’t sell!)
- Shake out the weak hands
- Yay, we get to buy bitcoin at a discount!
It was tough to have rational discussions because everyone’s invested in the success of Bitcoin.
One key to making better decisions is to seek out devil’s advocates.
Anytime you need to make an important decision, seek out people with opposing views.
When the prices started going down, I should’ve researched people who were anti-cryptocurrency and listened to their arguments.
Taking Everything as a Fact
The coin market was all about hype because everyone had an incentive to drive the prices up.
Rumors would quickly become “facts”.
I remember two situations clearly.
First, there was a ton of hype about Tron as an investment.
The hype was that the founder, Justin Tron, was the protege of Jack Ma (founder of Alibaba).
There was a photo of them together that was spread everywhere.
Maybe it’s just me, but it looks like a fan pic from Jack speaking at a conference.
Yet everyone bought into it because they wanted to convince themselves that Alibaba would enter crypto via Tron!
Where did Justin’s “student” of Jack Ma story come from? Apparently, Jack Ma had a new university in China and Justin was a student there.
Think about this. If Bill Gates had a university and I attended it, would I be Bill Gates’ “protégé”?
Second, everyone was forming “partnerships”
The name of the game is hype. ANY news could add a billion dollars to the market cap.
It seemed like crypto scions were namedropping fortune 500 companies any chance they could, implying that they were teaming up with them. Disney, Pricewater Cooper, etc.
The problem was that most of the time the specifics on the partnerships were never mentioned.
Imagine that you’re a small coffee shop and you deliver coffee to a small PriceWaterCooper office every Friday. Would you do a press release and announce that you have a partnership with PWC?
Well…that’s kinda what happened with Crypto.
Not Accounting For the High Amount of Black Swans
One of my best investments was in Nano coin (formerly RaiBlocks).
I heard about it early and managed to buy thousands of it around $.50 a coin. It blew up to $33 a coin.
Then something unimaginable happened.
At the time, you could only buy RaiBlocks via a website called BitGrail. Long story short, the website had some vulnerabilities that people exploited.
The price completely crashed.
No one saw this coming. It was a “Black Swan” event.
Another Black Swan affected me as well.
I invested in a coin called Oyster Pearl.
Imagine investing in a company where the founder was anonymous to the point where even his own employees didn’t know his identity.
Major red flag right? Well, it didn’t stop my dumbass from investing, lol.
The founder manipulated the total supply to give himself $300,000 USD worth of coins.
You can imagine…the price crashed. Read about it here
Does shit happen in the stock market world? Yes. Enron. Madoff. WorldCom.
But because crypto is largely still unregulated, there will be more and more scams.
Chasing the Shit Coins
When I first started investing in crypto, I did a TON of research on the coins I invested in.
I poured weeks of research into some of my favorite coins.
But you know what happened?
It seemed like every coin started exploding in value.
My babies? They barely moved. They were growing, but not growing fast enough.
At some point, I realized that this wasn’t investing anymore, it was gambling.
So, I stopped focusing on the fundamentals because they just didn’t matter anymore.
- Hmmm…this coin has a really good website. Must mean they have a competent team. Boom $10k.
- Ohhh shit everyone’s talking about this coin in the YouTube comments…Boom $15k.
And within a week those coins would double their value.
Shocker: those are the coins that ended up being worthless in the end.
It Hit my Gambling Neurons
I have a few addictions that could destroy me.
One is gaming. I can’t play any MMORPG’s (like World of Warcraft) or MOBAS (DOTA or League of Legends). There’s something about those games where I could easily play an entire day without eating. I have to stay away from them.
The other addiction I’ve battled before is Gambling. I use to be big into Poker but had to stop. I remember being a huge UFC fan, but I couldn’t enjoy the fights unless I had money riding on it. I remember skipping a huge meeting with an advertiser at ASW once, because I was on a hot streak in Craps.
Fortunately, I never had any huge issues with Gambling. But I knew if I kept betting, then this could destroy me. So several years ago I vowed to never gamble again.
Then in comes Cryptocurrency.
Imagine putting $10,000 on a coin and watching it skyrocket within a week.
Cryptocurrency started off as investing for me, but towards the end it became Roulette.
Not Cashing Out…Ever
I saw my portfolio slowly plummet this year.
Each month I’d calculate my net worth, and I’d cringe every time it went lower.
Why did I never cash out?
For starters, I couldn’t deal with the regret. What if I cashed out now and next month every coin exploded to 10x its current value? It was a risk versus reward scenario.
If I lost all the money I invested, it wouldn’t make much of a difference in my life.
And that’s where I messed up. I didn’t respect the money I worked so hard for.
Another reason that I held on? I wanted to prove to myself how mentally strong I am.
It’s like that scenario people play: what if you held on to Apple stock from the 1980s?
I should’ve made a rule to myself that I kept.
Mistakes Other People Made
I’ve seen other people end up in some pretty bad situations because of crypto.
1. Getting their coin hacked or stolen
I’ve seen people have their Nano Ledger S physically stolen. I’ve also seen people have their laptops hacked.
2. Not accounting for taxes
Note: I am not an accountant. This is my interpretation of how things work based on my research and talking to my accountants.
You get taxed at the time you sell or spend crypto.
Here’s an example scenario:
- You bought a bitcoin for $5,000
- A few months later that coin is worth $15,000. You decide you want to get into Ethereum so you change that Bitcoin into some Ethereum.
- You have a $10,000 gain. You owe taxes on that $10,000 gain. How much you owe depends on your tax bracket, and how long you held the coin for (short term or long term capital gains).
What happens if your $15,000 worth of Ethereum is now worth $2,000? Doesn’t matter…you still owe taxes.
A large majority of people think that you don’t pay taxes when you withdraw the money. Not true.
So, there are a lot of people out there who not only lost money investing in crypto but now they owe taxes that they can’t afford.
3. Investing more than they can afford to lose
Rule #1 of investing is to never invest more money than you can afford to lose. I guarantee that not many people followed this rule.
There are thousands of people out there who borrowed money to invest, bought at the PEAK, and now they have worthless coins but still have to pay off the debt.
Lessons for the Future
I graduated from university around 2007, and I didn’t have money to invest until 2009.
I’ve been in a huge bull market for the past decade. I never experienced the housing crash or the dot-com crash.
Because of this, I’d become overly aggressive in my investment strategies. Going through this crash and losing money has calibrated me more as an investor.
Even though I’ve lost money, I have no regrets going through this experience.
Here’s how I view investments now.
1. Invest in myself and my businesses first
This philosophy got me to where I am.
Invest in knowledge, invest in great employees, invest in my businesses.
2. Max Out Retirement Accounts and Take Advantage of Tax Savings
401k, Roth IRA, HSA, etc.
Saving taxes is pretty much free money.
3. All in on VTSAX
VTSAX stands for Vanguard Admiral Shares. It’s an index fund that tracks the entire USA market.
Invest in what you know.
The only “edge” I have in life is marketing – aka investing in myself.
I don’t invest in real estate because I don’t have an “edge” there. Index funds are a way of coming out ahead, without having an “edge.”
I haven’t kept up with crypto much this year.
I believe there will be another huge “bull run” 2 to 3 years from now.
By then the technologies will be more mature, and people can’t resist the allure of easy, fast money.
But I’m going to stick to what I know.