Lessons from Losing Thousands in Cryptocurrency

1. You will probably ignore most of these lessons.

Before “investing” in bitcoin, I had already read many financial advice articles. I knew the recommended secret to long-term financial success — “low-cost large-cap index funds” held long term and maxing out a “401k”. I knew that the average investor earns 3.5% annually while the S&P 500 Index earns around 8% annually. I knew that human emotion pushes us to buy high and sell low.

But you and I are obviously not the “average investor”. We have a unique perspective on the market that a regular investor is missing. We know where investors usually fail and can do better. We won’t make obvious mistakes. Of course, the average investor also thinks this. And of course, most people fail.

Here are some perhaps obvious lessons I thought I understood.

2. Highs feel really high

Bitcoin steadily rose to 10k. My friends and the media were all talking about it. This is just another get rich quick scheme I thought. 12k. I am just a broke college kid and should stay conservative. 14k. So if I put in 1k, then I would have 1.4k right now? $400 for doing nothing! 15k Amazing, this is reliably increasing. But, everyone thinks it is a bubble and will crash at any time. 16k I can probably get out before the crash. I won’t invest that much money anyway. I’m trying to become rich, not average. 17k My Coinbase account is set up and I’m ready to go.

3. Do not freak out with short term fluctuations

Nervously, I send a market order at 17k and watch the price. Before my eyes, the price of bitcoin just starts plummeting. What have I done? This was a mistake. 16.9k Do not freak out. 16.8k. It has only been 10 minutes. This must be the crash everyone fears. Sell now! And I send the order. Within, 10 minutes the price is back to 17k. Well then…

4. Acknowledge when you made a mistake and move on

I then proceeded to rebuy bitcoin at 17k. Though I had just made a laughable blunder, if it was a good investment before, then it is a good investment now. I moved on and learned from my mistake. Instead of watching the price, I quickly closed my computer and left.

5. The power of compound interest will always surprise me

As I dived into cryptocurrencies, I discovered alt coins, other much smaller and more volatile cryptocurrencies. There were groups who would organize a pump and dump scheme where everyone would buy a currency inflating the price. Then selling the bought currency to the emotional investors excited by the jump in price. One member claimed he earned 150% returns in a minute.

Do you know how good 150% in a minute is?

If I invested just $1 at 150% a minute and then went for a quick 40-minute lunch. By the time, I got back my account would have about 8 quadrillion dollars. Quadrillion is 15 zeroes, 3 more zeroes than a trillion. That is about 40 times the total wealth on EARTH.

6. If the price falls, do not wait for it to rise enough so you can “break even”

Every moment you own something is a decision it is worth it. You can imagine you are constantly selling and buying an asset at the current market price. If you wouldn’t buy it at the current price, then you should sell it and keep the money.

Selling it doesn’t make you lose money. The asset is already valued at its market price. You already lost the money and now just don’t want to admit the mistake.

Of course, I didn’t do that. As bitcoin fell past 12k, I held on so I wouldn’t “lose” money by selling. Ironically, this made me lose more money.

7. Do not invest when everyone else is investing

When I heard my friend’s mom had bought cryptocurrency, I should have known the market was a bubble about to pop. If everyone who will buy already bought, then the market can only go down.

8. Do not invest when everyone isn’t investing

Without popularity, the price of bitcoin will just fade to nothing. The asset is inherently worthless and only valuable because people are willing to pay for it.

Oh wait, 7 and 8 are contradictions. Well shit, I have no idea when to invest and neither does anyone else. Let me know if you figure that one out.