Well that’s life…. Easy come, easy go. If the money’s easy to make, it’s easy to lose. This is NOT another “do / do not invest in Bitcoin article”. This is a story of the things I learned while losing money in bitcoin so you don’t make the same mistakes I did.
I bought $2,000 of Bitcoin at around $19/Bitcoin back in May 2011 (before the first bitcoin bubble burst). I had about 102.93 bitcoins. I was going to use that $2k towards getting braces but got so excited by bitcoin I just threw $2k of my $4k braces money into the currency. There were fanatic supporters and journalists talking about how Bitcoin was the future and how they’re going to invest their life savings into it and how wonderful and utopian bitcoin’s future was (that may be true, but not without problems). The choice was mine, the dream of cashing out big where mine, the inability to understand how emotions impact bubbles was mine. The fault of my fall was mine. So I bought into the dream of making money by having money instead of working for it without being prepared for the wild ride.
Personal Rule: Do not run away from personal responsibility. Do not try to hide your flaws from yourself.
Lesson Learned #1: You are often times your own enemy. Be careful with blaming others because many times you are your own problem.
Lesson Learned #2: Be careful taking advice from others. Especially if others are showing you only the positive (or only negative) aspects. Failing to find well rounded opinions on a topic does not mean they do not exist. It means there’s probably a mass delusion on it’s way.
I bought in during May, so the graph was just climbing up and up. Bitcoin values started going towards $30/bitcoin and since I bought in at around $19/bitcoin I knew I was already a rich person. But when should sell them for a profit? The problem was I thought the bitcoin graph would keep going up for a lot longer. I literally never realized that it could come crashing down on me so quickly. I became delusional and started dreaming of how wonderful it would be to have some free money flow in from somewhere. I can finally get bow leg surgery, get braces, and work on one of my startups (in that order). I was actually considering putting my entire life savings into Bitcoin but convinced myself out of it. Wise men have told me “there’s what you know you don’t know and what you don’t know you don’t know” and “never risk something you aren’t willing to let go of”. The only amount I was willing to let go of to learn a lesson was $2k so $2k it was.
Aaaaaaand then the first bitcoin crash started around June. It happened right as I was refreshing the page looking at the value and wondering if I should sell my coins and get out before values start heading down. I was literally watching the first bitcoin bubble pop. I bought in towards that very top spike in the graph above and I quickly cashed out on that first fall. I actually saved myself and made $37 in profit. A very close call. However the next day bitcoin started recovering. I didn’t want to miss out… I figured I was going to wait for Bitcoin to hit bottom and start increasing in value again, buy back into Bitcoin and outsmart everyone. The problem is, EVERYONE else was thinking the same thing too. This is called herd mentality and it’s generally what causes bubbles. Everyone thinking they’re going to outsmart everyone else.
Lesson Learned #3: Never FOLLOW the “I need to get in on this quick or I’ll miss out” herd mentality. Chances are you have already missed out. This “throw money at it or else you’ll miss out” has already destroyed the Microsoft brand. MS Kin, MS Games for Windows Live, MS Origami, MS Vista, MS Expo, Windows Slate, Windows Mobile, Windows Phone 7, Silverlight, Live.com, Bing, MS Cardspace, MS Vine, and so on… All desperate attempts to catch up and not miss out on a profitable market. It didn’t work for them and it generally won’t work for you.
Lesson Learned #4: The chart does not always go up, it will come down eventually. Be careful not to be the one that goes down with it. Nothing just keeps getting bigger. It will eventually deflate.
Lesson Learned #5: When you invest in something, you are NOT making money off of that product/company/currency existing. You are making money from the growth of that product/company/currency. When the growth stops so does your profit, and when the value starts shrinking you are losing money. Remember, nothing grows forever. Neither the universe, nor people, nor species, nor resources, nor currencies, nor businesses, nor countries, nor religions. It’s a mathematical rule of the universe.
Lesson Learned #5: Heard mentality 101: Whatever you are thinking, others are thinking too. If you think you’re going to outsmart everyone and sell at a certain time, don’t be surprised to wake up on that day and realize everyone was planning on selling on that day too.
I put my $2,037 bought back into bitcoin the next day and waited. A few days later…. MtGox had that security breech… Oh snap. What the graph above doesn’t show is an extremely fast crash due to MtGox going down / being hacked. Within a few hours prices went down to $0.02 (that’s 2 cents USD) per bitcoin, then MtGox reversed a whole bunch of transactions and everyone was pissed but bitcoin recovered to $5 per bitcoin and stayed there for a while. I got scared, I’d never taken a risk with my savings before. I was stupid. I didn’t know about finances or bubbles or investing. I just wanted out (so did everyone else), I wasn’t thinking logically or about the long term (neither was everyone else), I didn’t realize bitcoin would or could recover in the future and that I should just hang in there for the long term (so did everyone else). I sold off my bitcoins at around $5/bitcoin to “cut my losses” (so did everyone else) and ended up escaping with $500 of my original $2,000. Again, this was the first bitcoin crash, we didn’t know if bitcoin was going to recover after this.
Lesson Learned #6: Invest for the long term, don’t make minute to minute adjustments because that’s exactly what the rest of the market is doing.
Lesson Learned #7: Making money is often a game of patience and persistence.
Lesson Learned #8: Separate money from emotion.
Lesson Learned: #9: Do NOT make decisions when you are in a mental state of irrationality. Go for a walk, calm down, meditate, wait for the hormones and adrenaline to subside, wait a few days if you have to.
I went through the motions and just accepted that $1,500 was gone and it was a lesson in bitcoins and bubbles. I considered it the cost of a real-world college course in economic bubbles and called it a day. However, little by little bitcoin DID recover. Massive fluctuations in the currency have occurred since I left. I though I learned my lesson by getting burned, leaving, and vowing never to return to Bitcoin but I though too soon. Bitcoin surpassed the original price that I bought in at and went even higher. Bitcoin had another lesson for me….
“*slap* You should have invested in me for the long term, Chris Norstrom, *slap* had you kept your original bitcoins they would be worth over $100 Grand or more *slap*” – Bitcoin, mopping the floor with me.
Yes, it’s now the end of November 2013 and 1 bitcoin sells for about $1,250. Had I kept all 102.93 bitcoins they would be worth about $128,662 USD. ….. …. …. -_-…:( My money problems would have been temporarily solved, along with my bowed leg and teeth problems, and I could have pursue a passionate hobby for a while.
But you know what… I’m not angry. Because at the very beginning of this journey I only risked the amount of money I was willing to let go of. $2k. And I only lost $1.5k anyway. Life goes on. I am a bit saddened by missing out on $100 grand (anyone would be). I could of really used that $100k to make my life better (anyone could have). But then again… I think of what my parents went through and I feel a bit better.
Lessons Learned #10: My $1.5k sacrifice is nothing compared to others’. My parents lost their life savings ($10k) when trying to escape communist Bulgaria the first time, both were jailed (dad for 3 years), and afterwords kept under scrutiny. They tried again 10 years later, had me to make themselves look like they were settling down and not going to try to escape anymore, snuck through the border out of Bulgaria using a method my father used to help another friend out, and finally made it to a refugee camp where they we lived for 6 months. Because my father had the prison paperwork proving he was a political prisoner for 3 years (literally called “capitalist enemies of Bulgaria” in a newspaper article) we were lucky and granted priority refugee status into the USA. Others were not so lucky, they were in limbo, waiting for 3 even 6 or more years to be accepted and allowed to legally come to the USA. In 1990 they finally made it here with nothing but a 4 year old me, 2 suitcases of cloths, and about $100. Fast forward 23 years and we have a home, cars, and somewhat of a future.
Damn… sometimes you need to remind yourself that your problems and losses really aren’t as big of a deal as you’re making them out to be. Time heals pains, people move on.
The one thing troubling me is that I would have made a profit of $126,000 (before taxes) by doing absolutely nothing. The idea that I can make money by doing nothing sounds very… incorrect, unfair, and illogical to me. While someone on the other side of planet earth will work themselves to death all day and earn less than $1. Pardon my potty mouth but… Modern society is really fucked up.
Anyway until I’m wise and educated enough to know about the risks and rewards of investing (making money off of someone else’s growth), I’ve decided to earn my money by working for it the old fashion way. My inventions. My current money making project is my online store for my inventions (ToDoCal Squareless Calendar, Magnet Pens, Six Sided Status Door Hanger) over at DayOnePP.com My next lesson: risking $6k on calendars that I’m really bad a selling.
UPDATE: Oh snap, the fight’s not over! I just found the very first 0.02 bitcoins I was given when Bitcoin first came out. They were worth only a penny or two back in 2011 but are now worth about $38. I deposited them into MtGox and am going to try to slowly earn back my $1.5k I lost. I’m not going to invest any more money into Bitcoin but I think trying to slowly grow $38 in bitcoins is going to be fun.
I’ve seen people put up donation pages to help them buy PS3s or a House and random strangers donated. So I figured what do I have to lose in asking the following: Are you a bitcoin billionaire? Have a fraction of a bitcoin to spare? Help a designer out and send them my way: 15XeyenVEmfYsL2wBF3PrTZhRtMCbvQ2DR
Thanks for reading and remember, be very careful getting into Bitcoin, it could be right or wrong for you, and do NOT risk any money that you haven’t mentally let go of. Because chances are you’re going to lose your money with this next bubble if you buy in now.