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I Lost $250,000 Investing in Cryptocurrency: Here Are 4 Things I Learned
Cryptocurrency has been controversial since the beginning, given that it’s a form of currency you can never get your hands on and because it tends to fluctuate wildly in value.
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Despite this, many investors have tried to invest in cryptocurrency, especially when it appears in recovery. Not everyone, however, is so lucky. Sandy Clarin*, a Californian investor, invested a lot in cryptocurrencies and also lost a lot.
Read on to find out what lessons he learned in the process.
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Take a jump
Clarin first started paying attention to cryptocurrency investments in 2017, when a client achieved billionaire status by investing in Bitcoin. In June 2020, he began seriously researching Bitcoin and blockchain. He started by dabbling with some Bitcoin investing apps, then moved a retirement account to Bitcoin entirely.
That retirement account, Bitcoin IRA, is insured against fraud, although it is subject to the same vagaries of the market as any other retirement account.
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The Blockfi catastrophe
Clarin and her husband are no strangers to investing: They have numerous investments in real estate rentals, 506cs, stocks, funds, annuities, life insurance, gold, bonds and personal loans. She ultimately decided to invest in a company called BlockFi, a digital asset lender, in 2021.
“I bought Bitcoin with the Blockfi stablecoin and still earned interest. It’s called interest farming. So now, instead of interest on your money, your interest on your coins and the coins themselves increase in value,” he said.
However, Bitcoin is not an infinite source of coins, he explained. It “halves” every four years or so, halving the supply and potentially increasing the value.
“So when the miners find it, it basically just contains gold and they won’t be able to mine it anymore. So theoretically it increases in value.”
Despite knowing that Bitcoin could just as easily fall in value, he said, “The market was going crazy, and so was the cryptocurrency.”
BlockFi was doing great at the time it was investing. Unfortunately, he didn’t know they were in “financial desperation” in time to release his cryptocurrency.
FTX Contributes to BlockFi’s Downfall
BlockFi has partnered with cryptocurrency exchange FTX.
“If you’ve heard of cryptocurrencies, you’ve probably heard of the complete FTX disaster,” he said.
The story continues
The company was eventually accused of defrauding customers, and its founder, Sam Bankman-Fried, went to prison on fraud charges.
When things went bad between BlockFi and FTX in October 2021, BlockFi froze everyone’s assets — including Clarin’s Bitcoin, valued at about $250,000 — and went into Chapter 11 bankruptcy.
“It was definitely a horrible time for our family. My husband said to me, what did you do?” she said.
Furthermore, the value of the coin has dropped by about half and is now stuck in the courts. He has no idea when or if he will see those coins again.
Even though he lost more than $1,000 just trading on Coinbase, nothing was as significant as this loss.
Keep an eye on cryptocurrencies
Despite all this, he said: “I still believe in Bitcoin, although not in all cryptocurrencies. It’s an asset unless you cash it out.
She still hopes to see some of her Bitcoin from BlockFi when the lawsuit concludes, and as far as she’s concerned, Bitcoin will eventually increase in value again.
Keep your keys
Another lesson he learned the hard way is to keep his cryptographic keys.
“So you buy your cryptocurrency on an exchange, through a coinbase or some other like BlockFi and then you have the asset. But you don’t have to leave your asset on that exchange. So my big mistake was leaving seven Bitcoins on the BlockFi exchange. That was the stupidest thing I did because I can take those seven Bitcoins and put them on a little USB stick and then it’s no longer on their network, so they can’t freeze it,” he said.
He added: “You have to figure out how to store your coins because you can’t have one hundred percent trust in the networks that are out there.”
The only good thing about the blockchain technology that makes cryptocurrencies work is that there is a digital trace of every transaction that takes place. But sometimes cashing out your cryptocurrencies, as in his situation with BlockFi, is complicated.
Avoid Altcoins
Another piece of advice Clarin gave is to be cautious around “altcoins,” a term that means “alternative coins.” Coins like Dogecoin fall into this category, which she called “A stupid, made-up thing.”
In general, he urged caution: “You can win a lot or lose a lot. And with cryptocurrency, it’s smarter to use available money in a trading scenario.”
In hindsight, with such a large sum of money, he wishes he had kept it in the stablecoin, which, while only earning 1%, would have kept his coin safe.
Focus on material resources, not soft ones
For those who want to invest but are unsure about cryptocurrency’s instability, he recommended “more hard assets, not soft assets.”
He doesn’t believe the stock market is much more reliable than cryptocurrencies, and if he gets his money back, he plans to invest it in something more tangible, such as real estate or dividend-producing investments like annuities.
It is best to educate yourself or seek financial advice before investing a lot of money in cryptocurrency.
*Sandy Clarin is not her real name.
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This article originally appeared on GOBankingRates.com: I Lost $250,000 Investing in Cryptocurrency: Here Are 4 Things I Learned