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4 Things I learnt Investing in Cryptocurrency

“A young man stood to inherit $10 million if he could turn $10k into $1m by the end of the month.

The young man put the entire $10k into Cryptocurrency and it turned from $10k into $100 million in a matter of days.

Fortunately for the young man, on the last day of the month, the value of Cryptocurrency crashed through the floor and his $100 million turned into $1m”.

That was a joke I first heard during the last Crypto boom in late December/early January, a mere 4 months ago.

Surely you all remember how social media, mainstream media and our own personal medium were all abuzz with Cryptocurrency news.

The price of 1 bitcoin was nearing USD20k, and seemingly “Crypto-millionaires” were being minted everywhere.

「oprah winfrey prize giveaway gif」的圖片搜尋結果
“You’re a millionaire, you’re a millionaire, you’re a millionaire, EVERYBODY’S A MILLIONAIRE!!!”

Popular news stories sprung up regarding their rapid fortunes (read here, here and here) and FOMO was RAMPANT.

Meanwhile in Old Sydney Town, a humble and unpretentious personal finance blogger had a conversation with his friend:

“So what do you think I should do about it?”

“I dunno, I mean I’ve never had any rashes there before”

OOPS, wrong conversation…

Here’s the right version:

“How much you made from Crypto?”

“About couple hundred K… in 3 weeks”.

“W.T.F!”

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My, what a big mouth you have.

And like any rational human being acting irrationally, FOMO hit this humble and unpretentious personal finance blogger as well.

For a good couple of days I couldn’t sleep very well, so eager and nervous was I of missing the great boom.

Remembering this was the time when literally EVERY Cryptocurrency was moon rocketing.

So after a very basic tutorial of how to invest in Cryptocurrency (thank you Doctor Google), I tipped an amount I was willing to lose – $2,000 into the market. After some early gains and encouragement, I tipped a further $1,000 into Crypto.

With my $3,000 stake – I was ready to conquer the world!

「im the king of the world」的圖片搜尋結果
I’m the King of the World!

Annnnnnnd here’s 4 things I learnt from investing in Cryptocurrency and why I’m still a lowly pleb…

When FOMO hits, it REALLY hits

FOMO is fearing of missing out, that is – when that idiot second cousin of yours, the one that didn’t finish high school and hasn’t held an honest job in his life, when that guy can make more money in a week than you can in a year – that’s when FOMO really hits.

The temptation of putting money into Cryptocurrency was too much to bear, especially when my friends had a “fool-proof” plan and the value of their investments were making 5 digit gains every week.

Surprisingly I’m pretty good when it comes to FOMO with traditional asset classes such as equities and real estate, but I guess with Cryptocurrency – the velocity and magnitude of the instant riches to be made, threw all rational thought out the window.

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Sunbathing level 99: Out The Window

I distinctly remember not being able to sleep one night because I was waiting for my funds to hit the Crypto-exchange – such was the state of my false euphoria.

You wait, and wait and then wait some more

The biggest issue I encountered with Crypto-investing was the timing involved.

Crypto-currency is a juxtaposition (love that word) of time-frames.

The speed at which the general market moves completely contrasts with the speed it takes to transfer funds across to an exchange or to enter into transactions.

This was a big warning sign which I missed.

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When you start making out with the fish, it’s probably time to stop drinking.

It would take days for fiat currency to arrive onto an exchange, by then the price of say Bitcoin or Ethereum would have moved substantially to when you first transferred funds across (in my case, prices moved vastly higher).

In the murky world of altcoins (alternative, smaller Cryptocurrencies) the time-frames are worse – you transact into a major crypto such as Bitcoin or Ethereum and then move those onto a smaller exchange and then use the major coins to trade for the smaller ones – similarly to before, prices fluctuate wildly from when you first identify a trade to when you can transact.

Do you buy into in a rapidly rising market, or do you have the patience to wait for the dips?

History does not repeat but it does rhyme

With all great booms there are the inevitable busts, I know this, I should have known this.

If you look at the chart below, which outlines the investment roller-coaster of a typical asset class, most people are caught in the late stage Greed and Delusional phases.

「bitcoin price vs market crash」的圖片搜尋結果

I should have known better.

I knew there would be a bust, I just didn’t expect each phase to be on steroids – for the bust to happen so quickly.

I thought I could be clever and make some quick cash – which any investment veteran will tell you is both foolish and naive.

Another lesson notched for the personal memory bank.

Early bird makes the moolah

With any investing, its the early bird which catches most of the worms. The stories and tales the media portrays of Crypto-currency millionaires are the ones which started off investing in the early days, years ago.

Years ago, ladies and gentlemen.

Image result for the 300
No… no, not that many years ago – bring it forward a bit please.

Like dog years, Crypto years is magnified multiple times, a full boom/bust cycle can last mere months but it’s the “old-timers” the ones who bought at less than 1USD and held for years, those are the ones which the media is talking about and the ones which are glorified.

Out of the people I know who invested in Cryptocurrency, the more early they’ve invested, the more they have made from the market.

Conclusion

It’s ironic that I could be caught up with FOMO in Cryptocurrency, especially when I took the time and effort to research and write the Bitcoin series in late December 2017 (read here, herehere and here).

I’ve still got $3,000 in the market – down to around $1,500 now, a 50% unrealized capital loss. I told myself that this was money I could afford to lose (this is incorrect, you can’t afford to lose any money given time and compound interest but that’s a tale for another time), but in the post-crash aftermath, reading through some Reddit and Quora posts I feel like I’ve dodged a bullet.

As for the future, the stake will probably be left in the market for the interim, I’m still a big believer in the Blockchain and you never know, maybe I’ll make those millions yet!

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9 Comments

  • Innocent Bystander

    Ultimately you ask yourself this question “Do you believe in Cryptocurrency?” If the answer is yes, then there is nothing wrong with dipping your fingers into your wallet and see what happens. It’s actually no worse than investing in pennystocks on the ASX or NASDAQ. The guys who hit the home runs were always the ones who bought in at less than 10c and sold at over $2 or $3 a few years down the track.

  • The Sharpe Millennial

    I made a similar “investment” into the big three coins back in late November and early December of 2017. I am with you in regards to placing money into cryptos is to be treated as money forgone (much like a lottery ticket). I didn’t lose so much, but I found better asset classes that provided attractive returns. Still, the technology holds inherit value, but the so called “Greater Fool Complex” is were the high prices are derived today. I was one of those fools haha. Great post!

    • The Frugal Samurai

      At least you got in and took a punt! Seriously though, you’re right – that’s all cryptoinvesting is at the moment as far as I can see, a gamble and a speculation in the (small) hope that it takes off in the future… glad to see you enjoyed the post!

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