What not to do: How I lost 95% of my cryptocurrency value in one year

Photo by NeONBRAND on Unsplash

In 2017, my girlfriend (now wife) and I moved to Tokyo as my employer wanted me to support the setup of our new Japanese office. This came with an increase in my salary that meant we could save more money. I started to think about how I could invest my newfound savings and that’s when I came across cryptocurrencies. In April 2017 after coming home from a holiday, I remember seeing the news how bitcoin had surged past $1000 but more incredible how other coins like Ethereum and Ripple had seen a rise of more than 10,000% in a short time! Previously I was aware of cryptocurrencies as I was working in the financial industry, but had never thought much of it, this was about to change.

Starting in May, I spent a dozen hours trying to understand how bitcoin works, what is a wallet, what other coins are available and most importantly how can I buy them. I got an account with Coincheck in Japan and initially bought bitcoin and a few altcoins. As I saw how the coins were rising, I next spent $8,000 on new coins via Initial Coin Offering (ICO). I as well contacted my father asking him to borrow me money, which I told him would be used to invest in cryptocurrencies and promised to double his money in less than one year. Somehow he agreed to it and by August I had invested $35,000, which was a combination of all my savings and my father's money.

By January 2018 the value had risen to over $600,000, but only a year later that amount was $30,000, $5000 below my initial investment. As the cryptocurrency market is again on the rise, I think now it’s more important than ever to share from my experience in the following sections what not to do. Not only to prevent your investment value to fall by 95% but also to prevent the emotional impact it can have on you.

Don’t invest without a plan

As 2017 came to an end, a lot of things were happening. During December and early January 2018, cryptocurrencies, especially smaller altcoins saw explosive price growth. I saw my value explode from around $50,000 to over $600,000 in maybe a month. I don’t think I really knew what to do and how to react. In the back of my mind, I knew this was unsustainable but at the same time, I couldn’t get myself to sell. I kept setting a new goal, oh let’s try to get to $200,000, next week to $400,000 and then why not a $1,000,000! My ceiling just kept rising. The issue for me was that I had literally no financial plan, no plan of how I should allocate my wealth based on my risk level and future aspirations. I had 99% of my wealth in cryptocurrencies at that time. If I had created a clear financial plan that took into account my future goals such as financial independence or buying an apartment, I wouldn’t have let myself be carried away. Additionally, if you DIY your cryptocurrency investments, then for each investment consider what are your objectives. Is it that you believe bitcoin will be the future currency of the world, then great hold on to it and ignore price movements. But if you are seeing your cryptocurrencies as investments, then really understand at what price range you want to buy and sell.

Don’t overestimate your investment skills

The reason for the sudden increase came especially from one ICO investment I made into a coin called DENT. To get you an idea, on the 4th of December the value for 1 Dent was $0.000679 by January 9th 2018 the value had risen to $0.10529. That’s around a 15,000% price increase! My investment value in DENT rose from mere thousands to around $400,000. Today my total DENT investment value has fallen to only $400. As I saw my wealth rise so did my confidence and my belief that I was good at finding low-hyped ICOs and other coins of value. In the beginning, I was a lot more careful with my investments as I couldn’t stretch my capital too much, but with the increased capital I became a lot more risk-taking and made several ICO/small coin investments without any proper research, such as Turtlecoin, Sumocoin, Yggdrash, Uptoken, Livestars and the list goes on. If you go for anything that is not Bitcoin, Ethereum and these more validated coins, then please do very careful research and be realistic about your level of knowledge. Really understand the value, roadmap, the strength of community, the economics and try not to invest too much into very high-risk coins as many may fail.

CoinMarketCap: DENT chart

Don’t overestimate cryptocurrency diversification

During the peak in early 2018, I sold around 1/3 of my DENT holdings, but not to fiat currencies, instead, I re-invested it into other cryptocurrencies. My brilliant thought was if I made sure to have many different cryptocurrencies with different functions like security, platform or utility, it will be alright. Well not exactly, when there is a bull or bear market the correlation between cryptocurrencies is above 70%. Additionally, when there is a really bad market correction, then it cleans the market of coins. This is essentially what happened with me, I had diversified into some good coins but also into a lot of high-risk ones, so when the market went down, my coins just disappeared, including the majority of my wealth.

Cointelegraph: Correlation between Bitcoin and altcoins between December 2018 and March 2019.

Don’t let emotions take over

One late Friday night I was trying to buy a coin, called Storj. I put in multiple limit orders, but others kept outbidding me. I wanted to buy it but at the same time, my girlfriend kept telling me to go to bed since we had to wake up early for our trip to Osaka. Eventually, I decided to leave the limit orders and went to bed. The next day we headed to Osaka and in the following days, I saw with pain how Storj had increased by over 200%. Instead of enjoying my weekend exploring Osaka, I ended up checking every 30minutes or so the market, getting angrier and angrier with myself and my girlfriend. Not cool.

The feeling of greed and regret in this period of time could probably be its own article. As my portfolio value increased closer to a million dollars, my girlfriend kept telling me to sell some of my cryptocurrencies, but I simply didn’t listen. My greediness blinded me, I didn’t want to regret selling at $600,000 when I could potentially make $1–2 million. On the 10th of January 2018, it all started falling down, with some coins collapsing by 50% in a few hours. Even at this price I was still well-off and could have made $350–400,000. But nope, I was driven by greed and regret, not wanting to sell after having touched so high. Also, I didn’t believe my value could fall even more. I was wrong, this was the beginning of a crypto winter which saw my value fall from over $600,000 to some point $28,000.

Don’t invest more than you are willing to lose

As mentioned all my savings had gone into cryptocurrencies and despite enjoying the risk, I also took it too far. The emotional impact on myself and others around me was really not healthy. I remember checking CoinMarketCap at least once an hour to see how the market and my portfolio was doing. My mood was often depending on my portfolio movement and I think it all came down to me investing more than I was willing to lose. A healthy mindset to cryptocurrency investing is finding the point where you would feel uncomfortable losing 50–75% of the value but not put you on an emotional rollercoaster. By investing an amount that you would be willing to lose, you will be so much more rational and relaxed about your investments and actually make a lot better decisions without the same level of emotional stress.

The present

I think the reason I’m writing this now, is that with the recent rise in cryptocurrencies I could feel a bit of that nostalgic greediness returning, but more importantly in the hope that others will learn from my mistakes. I can happily say when bitcoin started its rise to the mid $30,000s I started to cut down on my cryptocurrency allocation according to my financial plan and in the past weeks with the money made, I have been diversifying into other investment opportunities. My gratification of a quick win reaching a million dollars from investing in cryptocurrencies will likely never happen, but instead, I’m confident I will reach financial independence in the future via a slower and much safer and sound financial route.

Head of Product at Sparrow Ventures

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