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I Lost $250,000 Investing in Cryptocurrency — Here Are 4 Things I Learned
Cryptocurrency has been controversial from the beginning given that it is a form of currency that you can never get your hands on and because its value tends to fluctuate wildly.
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Despite this, many investors have tried their luck by investing in cryptocurrencyespecially when the market seems to be going up. But not everyone is so lucky. Sandy Clarin*, a California investor, has invested heavily in cryptocurrencies and has also suffered big losses.
Read on to find out what lessons she learned during the process.
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Clarin first became interested in cryptocurrency investing in 2017 when a client reached billionaire status by investing in Bitcoin. In June 2020, she began doing some serious research into Bitcoin and blockchain. She started by dabbling with a few Bitcoin investing apps, and eventually moved a retirement account entirely to Bitcoin.
This retirement account, Bitcoin IRA, is insured against fraud, although it is subject to the same market vagaries as any other retirement account.
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The BlockFi Disaster
Clarin and her husband are no strangers to investing: They have numerous investments in rental properties, 506cs, stocks, funds, annuities, life insurance, gold, bonds, and personal loans. She eventually 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. This is called interest farming. So instead of earning interest on your money, the interest on your coins and the coins themselves increase in value,” she said.
However, bitcoin is not an infinite source of money, she explained. It “halves” about every four years, reducing the supply by half and potentially increasing its value.
“So when miners find it, it’s just gold and they can’t mine it anymore. So in theory, its value increases.”
Even though she knew that Bitcoin’s value could just as easily decline, she said, “The market was going crazy, and so was cryptocurrency.”
BlockFi was doing well at the time she was investing. Unfortunately, she didn’t learn they were in “financial desperation” in time to get her crypto out.
FTX Contributes to BlockFi’s Downfall
BlockFi has partnered with cryptocurrency exchange FTX.
“If you’ve heard anything about cryptocurrency, you’ve probably heard about the complete disaster that is FTX,” she said.
The story continues
The company was eventually accused of defrauding its customers and its founder, Sam Bankman-Fried, was jailed for fraud.
When things went south between BlockFi and FTX in October 2021, BlockFi froze everyone’s assets — including Clarin’s Bitcoin, valued at around $250,000 — and filed for Chapter 11 bankruptcy.
“It was a horrible time for our family, for sure. My husband asked me, ‘What did you do?'” she said.
Additionally, the coin’s value has dropped by half and she is now stuck in court. She doesn’t know when, or if, she will see those coins again.
Although she also lost over $1,000 just trading on Coinbase, nothing was as significant as that loss.
Keep an eye on crypto
Despite all this, she said: “I still believe in Bitcoin, but not in all cryptocurrencies. It’s an asset, unless you cash it out.”
She still holds out hope that she will be able to get some of her Bitcoin back from BlockFi when the lawsuit is over, and as far as she is concerned, the value of Bitcoin will eventually increase again.
Keep your own keys
Another lesson she learned the hard way was to guard her crypto keys.
“So you buy your cryptocurrencies on an exchange, through Coinbase or another exchange like BlockFi, and then you have the asset. But you don’t have to leave your asset on that exchange. So my biggest mistake was leaving seven Bitcoins on the BlockFi exchange. That was the dumbest thing I’ve ever done because I can take those seven Bitcoins and put them on a little USB drive, and then they’re not on their network, so they can’t freeze them,” she said.
She added: “You have to understand how to hold your own coins, because you can’t have 100% trust in the networks that are out there.”
The one positive about blockchain technology that makes cryptocurrencies work is that there is a digital record of every transaction that occurs. But sometimes cashing out your cryptocurrencies, like in his situation with BlockFi, is tricky.
Avoid Altcoins
Clarin also advises being wary of “altcoins,” a term that means “alternative currencies.” Currencies like Dogecoin fall into this category, which she called “a stupid, made-up thing.”
In general, she urged caution: “You can win a lot or lose a lot. And with cryptocurrencies, it’s wiser to have used available money in a trading scenario.”
In hindsight, with such a large sum of money, she would have liked to keep it in stablecoin, which, while only earning 1%, would have made her currency more secure.
Focus on tangible assets, not intangible assets
For those who want to invest but are unsure about the instability of cryptocurrencies, she recommends “more physical assets, not intangible assets.”
She doesn’t find the stock market to be much more reliable than cryptocurrency and, if she were to get her money back, she’s considering investing it in something more tangible, like real estate or dividend-paying 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 was originally published on GOBankingRates.com: I Lost $250,000 Investing in Cryptocurrency — Here Are 4 Things I Learned