I turned $8,000 into $45,000 investing in cryptocurrency in 4 months and lost it all. This was the lessons I learned.
The year was 2017. It was still a new year and Bitcoin – the most valuable cryptocurrency – was trading at $1,000. There was speculations that the price of Bitcoin was going to hit the roof before the end of the year. Some predicted $10,000; the over optimistic ones predicted $100,000 for one Bitcoin. Well, by December of the same year, Bitcoin traded at an all time high of $19,700 – over 1,900% growth. By early 2018, the price had fallen below $5,000. Within this period, the crypto market created many overnight millionaires, but majority of people lost a significant part of their investment.
I started investing in cryptocurrencies in the second half of 2017. But before I started, I spent about 6 weeks researching and studying about Bitcoin, cryptocurrency and the Blockchain technology. I even attended an all day Blockchain event that had big players in the industry delivering keynote speeches to hundreds of attendees. It was an exciting learning experience and I was convinced to give it a try.
I started with a few hundred dollars, and gradually increased to a few thousand dollars. I bought and held the alt coins I believed would increase in value over the midterm. Alt coins are other cryptocurrencies launched after the success of Bitcoin.
Within a few months, my portfolio grew to deliver more than 500 percent return on investment. Then I lost almost everything. Before I get on with sharing the lessons I learned from this experience, I’ll like to invite you to subscribe to After School TV and click the notification bell to keep in touch for more insightful videos like this.
1. Invest in what you understand and understand what you invest in
Towards the end of 2017, there were consistent speculations about how nothing was going to stop Bitcoin this time around. The price of Bitcoin had tested $7,000 to $10,000 highs. But anyone who understood how the speculative market worked would know that these were warning signs to abandon ship.
When I started investing in cryptocurrency, I relied on reading Whitepapers, researching the people and organizations behind the cryptocurrencies I invested in. I was making more informed and profitable investments during this period.
Then I started followed a lot of supposed crypto experts on Twitter and read unrealistic optimism about the crypto market. I read from people that claimed to have turned a few hundred dollars to hundreds of thousands, even millions of dollars. Exposure to this hype made me see my achievement as insignificant. So when the price of Bitcoin started crashing down from $19,000, I was still hoping it was going to go back up. I was wrong. The crash didn’t stop until it went down to $4,000. Some of the Alt coins went to almost zero value.
This though me an important lesson; don’t get influenced by Twitter experts. But more importantly, understand what you invest in. History always repeats itself. And when it comes to over hyped investments like this, the story always ends the same way. The lesson here is to be careful who you listen to when it comes to investing your money. Focus on developing your own knowledge and expertise about what you invest in because, the mass market is never a reliable source of knowledge.
2. You are not immune to greed
Like many people, you may say you can never make such mistake. You are a very rational person that knows what not to involve yourself in; and even if you do, knows when to walk away. Congratulations if that is you. But chances are that you are not as immune to your emotions as you may think. It takes experience and intentional discipline to deal with things like this. For example, we’ve all read about Sir Isaac Newton, the man that came up with the law of gravity, calculus and other mathematical solutions beneficial to mankind. But do you also know that Newton, one of the smartest men that ever lived, the great physicist, lost millions of dollars in today’s value investing in an overhyped investment like the crypto market?
In 1720, Sir Isaac Newton owned shares in the South Sea Company, an overhyped stock in England. Newton sold his shares at 100 percent profit – at 7,000 pounds when he perceived the market was getting out of hand. But few months later, he was influenced by the wild enthusiasm of the market and jumped back in at a higher price. The consequences was that he ended up losing 20,000 pound – worth millions of dollars in today’s value.
See, the only reason I lost my money was because of greed. Despite having made up to 500% of my initial investment, I was influenced by the continued wild enthusiasm and wanted, may be, another 500 percent growth.
According to Benjamin Graham, author of The Intelligent Investor, “…the investor’s chief problem — and even his worst enemy — is likely to be himself.” If you want to be successful with investing, you have to protect yourself from yourself.
3. Only count your money when the deal is done
In 2008, the company behind the Blackberry phone was worth over $80 billion. The founders were considered multi billionaires. But within 4 years, the value of the company had fallen below $4 billion. Today, Blackberry’s market cap is only $2.5 billion; less than 3 percent of its all time high. The shareholders had lost over 90% of their share value. Only shareholders that closed the deal and sold their shares when the company was at its prime can boast of making money.
In reality, I didn’t lose $45,000 trading cryptocurrency. I probably lost a good part of my initial investment. I was counting my money before the deal was done. Money is only made when the deal is done and you cash out. In investment, timing is everything. You have to know when to get in; and know when to walk away.
The lyrics of Kenny Rogers’ song, The Gambler, says it better,
“You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done”
4. When it’s all over the news, the money has been made
From the middle to the end of 2017, Bitcoin was consistently making headline all over the news. There were news about digital currency regulations, rumors of global corporations adopting cryptocurrency, and hype from media houses for the cryptocurrency market.
Suddenly everyone and their grandma were talking about Bitcoin. New alt coins were being created every day. There was Initial Coin Offering – ICO – almost every day. The news quickly turned into engineered market manipulations. These were all red flags that any rational person who had read about similar events in history could easily identify. But most of us wanted the media and the crowd to be right. And this blindness came at a cost.
Similar invent happened between 2007 and 2008 when banks, and insurance companies went on IPO spree in Nigeria. Buying company shares suddenly became the hot topic on the lips of everyone including petty traders. The result was a disaster. Many people lost their money as the value of some shares went to near zero.
The lesson here is that once an investment opportunity hits the mass market, and becomes a media sensation; that’s the time original investors are cashing out. Once everyone is talking about it, that is when the real investors are cashing out and making their money.
If you get in at that point, you are on your own. Imagine people that bought Bitcoin when it was $15,000, at the pick of the hype in December, or at $19,000. These people lost over 80 percent of their investment within 30 days. That is the danger of getting in when an opportunity becomes hype.
You see, no one likes to lose money. But it’s all part of the game. We make mistakes, we lose; we learn. That doesn’t mean we won’t make another mistake tomorrow. We just keep getting better with every mistake we make. It’s all part of the game. But you can minimize the mistakes you make by learning from other people’s mistake.
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