I Lost $250,0000 From Investing In Cryptocurrency — Here Are 4 Things I Learned

Cryptocurrency has been controversial from the onset given that it’s a form of currency you can’t ever lay your hands on, and because it tends to fluctuate wildly in value.

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Despite that, many investors have tried their hand at investing in cryptocurrency, especially when it appears on the upswing. Not everyone is so lucky, however. Sandy Clarin*, an investor from California, invested big in crypto and lost big, too. 

Read on to find out what lessons she learned in the process.

Taking a Leap

Clarin had started paying attention to cryptocurrency investing in 2017 when a client attained billionaire status investing in Bitcoin. In June 2020, she began researching Bitcoin and blockchain in earnest. She started by dabbling with a few Bitcoin investing apps, and then eventually moved a retirement account over to Bitcoin entirely.

That retirement account, Bitcoin IRA, is insured against fraud, though it’s subject to the same whims 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, 506c, stocks, funds, annuities, life insurance, gold, bonds and personal lending. She eventually decided to invest in a company called BlockFi, a digital asset lender, in 2021. 

“I bought Bitcoin with 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,” she said.

Bitcoin is not an infinite source of coin, however, she explained. It “halves” every four years or so, cutting the supply in half and potentially increasing in value. 

“So when the miners find it, then it’s just basically holding gold and they’re not going to be able to mine anymore. So theoretically it increases in value.”

While she knew that Bitcoin could just as easily decrease in value, she said, “The market was going bananas and so was cryptocurrency.”

BlockFi was doing great at the time she was investing. Unfortunately, she didn’t learn that they were in “financial despair” in time to get her crypto out. 

FTX Contributes to BlockFi’s Downfall

BlockFi had been collaborating with the cryptocurrency exchange FTX.

“If you’ve heard of anything in crypto, you’ve probably heard of FTX’s complete disaster,” she said.

The company was ultimately accused of defrauding customers and its founder, Sam Bankman-Fried, went to jail 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 around $250,000 — and went into Chapter 11 bankruptcy.

“It was a horrific moment for our family for sure. My husband was like, what did you do?” she said.

In addition, the value of the coin dropped by about half, and now it is tied up in courts. She has no idea when, or if, she will see those coins again.

While she has also lost more than $1,000 dollars just trading on Coinbase, nothing was as significant as this loss.

Keep a Toe in Crypto

Despite all this, she said, “I’m still a believer in Bitcoin — though not all of crypto. It’s an asset unless you cash it out.”

She still holds out hope that she may see some of her Bitcoin from BlockFi when the lawsuit plays out, and as far as she’s concerned, Bitcoin will eventually increase in value again.

Hold Your Own Keys

Another lesson she learned the hard way is to hold onto your crypto keys. 

“So you purchase your crypto on an exchange, through a coinbase or some other one 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 Bitcoin on the BlockFi exchange. That was the dumbest thing I’ve done because I can take those seven Bitcoin and put them on a little USB key and then it’s not on their network so they can’t freeze it,” she said.

She added, “You have to understand how to hold your own 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 trail of every transaction that happens. But sometimes cashing out your crypto, as in her situation with BlockFi, is tricky.

Avoid Altcoins

Another tip Clarin had is to be cautious about “altcoins,” a term that means “alternative coins.” Coins such as 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 cryptocurrency, it’s smarter to have used disposable money on a trading scenario.”

In hindsight, with such a large amount of money, she wishes she’d kept it in stablecoin, which, while only earning 1%, would have kept her coin secured. 

Focus On Hard Assets, Not Soft

For those who want to invest but aren’t sure about the instability of cryptocurrency, she recommended “more hard assets, not soft assets.”

She doesn’t find the stock market to be much more reliable than crypto, and envisions, if she should get her money back, investing it in something more tangible, like real estate or dividend-earning investments like annuities.

It’s best to educate yourself or seek financial advice before you sink a lot of money into cryptocurrency.

*Sandy Clarin is not her real name.

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This article originally appeared on GOBankingRates.com: I Lost $250,0000 From Investing In Cryptocurrency — Here Are 4 Things I Learned

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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