I once lost my entire investment in Crypto currencies and it taught me a big lesson that I will share with you today. I’m writing this in the aftermath of the FTX crypto exchange going bust on the heels of Celsius going bust in the Spring. Over the past year, millions of investors have been burned by going all in on crypto.
The sad thing is that many people got caught up in what they believed was revolutionary technology that would change the world. Of course, they would become rich in the process. The chant among Bitcoiners to those who did not own Bitcoin was “Enjoy Being Poor!”
The dramatic implosion of several important crypto exchanges and the mounting losses in the overall asset class is stunning but expected and certainly not over yet. It’s a familiar pattern for students of financial history and won’t be the last great bubble to go bust.
The Great Crypto Bubble 2020/2021
From about mid 2020 until mid 2021 we witnessed a modern day Tulip Bubble that sucked in people from all walks of life and all ages. As prices for crypto tokens soared, the FOMO crowd jumped on board with Wall Street adding financial products such as crypt futures and ETFs that would allow more conservative investors (ie. traditional investors within the existing financial system) to participate in the frenzy surrounding all things crypto.
Warren Buffett’s warning on crypto at the time proved prescient: “I can say almost with certainty that they will come to a bad ending.”
The Crypto Bubble Triangle
What I find most interesting about the Crypto Bubble is how closely it followed a pattern identified in the book Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D. Turner. Every investor needs to read this book…full stop.
Quinn and Turner have a concept called the Bubble Triangle. The 3 sides are Speculation, Marketability and Money/Credit. Marketability is the ability to easily buy and sell something in our case its crypto.
The Bubble is kicked off either by government policies and/or by the emergence of a new technology.
Over the past 2 years the number of Crypto coins and tokens have exploded into the tens of thousands…maybe more. The number of crypto exchanges and their interface with the existing financial system (ie. banks and credit card companies) has also improved and increased.
Crypto advertising is everywhere and influential podcasters and You Tubers and Tik Tokers have been pumping crypto like crazy. We even had superstar Tesla and SpaceX CEO Elon Musk pump Bitcoin. In short, unless you were living under a rock the past few years, everyone with an internet connection on Earth was bombarded with Crypto advertising and could easily set up an account on one of the many exchanges and start trading in minutes.
The next side of the Bubble Triangle is access to easy Money and Credit. From the start of the pandemic until just recently, government’s around the world were borrowing and printing money and handing it out like drunken sailors to a public that was forced to stay in lockdown and work from home. Not only were they giving money away, Central Banks also took interest rates to zero or near zero. Let the buying frenzy begin.
The trillions of dollars pumped into the global economy sent stocks soaring to heights that made the old Dot Comers blush! It sent a global real estate market that was already in bubble territory soaring to a blow off top that just went pop back in March 2022. And of course everything crypto soared to all-time highs.
The final side to the Bubble Triangle is Speculation. And we saw that in droves. An explosion of new crypto coins and tokens appeared on the scene and even joke coins like Doge Coin and Shiba Inc were soaring in value (WTF?). Non Fungible Tokens (NFTs) were selling for outrageous prices. And I still don’t really know what the hell those things are! But I know they’re pretty much worthless today.
Now we’re dealing with the fallout of the crypto bubble. Bankruptcies abound and some people have lost entire fortunes. Suicides and depression are on the rise. Marriages and families destroyed. This is the real world cost of bubbles bursting.
Crypto = Fraud 2.0
The whole push of crypto is to create a parallel financial system and achieve true freedom. Instead we find that it’s a system that operates in an unregulated fashion without traditional protections for depositors and investors. The entire crypto implosion fiasco will certainly strengthen calls for more regulation similar to the ones in the financial system.
Quadriga CX
My own story of How I Lost All My Money In Crypto goes back to the days of Quadriga CX in Canada. The most important thing about any investment that you should ask yourself is how can I cash out!
I opened a Coinbase account back in 2017 but didn’t like that I could only withdraw a maximum of $500 a month. I also thought that I would have trouble cashing out and sending that money to a Canadian Bank Account. You need to remember that the crypto industry has come a long way from those days. But those were genuine concerns of mine.
So I found a Canadian Crypto Exchange called Quadriga CX and opened an account. I transferred my Ether coins to Quadriga and let them sit. At the end of 2017 Crypto was taking off, Bitcoins was at $17k and Ether was around $1.5k or so. I just let my crypto sit. I thought I would just buy and hold, tuck it away on an exchange because I wasn’t super tech savvy to hold it in a cold storage wallet. I was worried that if I held it in a personal wallet I might get hacked.
Then one day in late 2018 or early 2019 I began seeing press reports about the CEO of Quadriga CX dying in India! I immediately tried to access my account but was locked out and left completely in the dark! Next thing I know I’m receiving letters from a class action lawsuit that is still ongoing as far as I know.
Long story short, I lost my entire investment in Ethereum. Luckily for me it was only about 1 or 2 grand.
What follows is the a condensed version of the story from Wikipedia:
Quadriga CX CEO and founder, Gerald William Cotten, died in 2018 after traveling to India. Up to C$250 million (US$190 million) in cryptocurrency owed to 115,000 customers was missing or could not be accessed because only Cotten held the password to off-line cold wallets.
In June 2020, the Ontario Securities Commission officially concluded that Quadriga was indeed a fraud and a Ponzi scheme. It stated that Gerald Cotten committed fraud by opening accounts under aliases and crediting himself with fictitious currency and crypto asset balances, which he traded with unsuspecting clients and that “What happened at Quadriga was an old-fashioned fraud wrapped in modern technology.”
Lessons Learned From the Great Crypto Crash
The first lesson for all investors in the space is to be skeptical and suspicious of any deal that seems too good to be true.
The second is to hold your crypto in a secure cold storage wallet. I use a Ledger cold storage wallet for my own small Bitcoin position.
The third major lesson here is to not hold all your eggs in one basket. Diversification is key for successful investors and that doesn’t mean being diversified across a thousand crypto currencies, tokens of NFTs. Diversification across different asset classes: stocks, bonds, real estate, cash, gold, commodities etc.
The final lesson for all investors is to educate yourself about financial history to recognize patterns such as the rise and fall of asset bubbles. History doesn’t repeat but usually rhymes because human nature and human emotions don’t seem change.
Now I’ll end this post with a warning. Despite all the sensational headlines about FTX, Celsius and the crypto industry imploding, it’s important to remember that the Crypto Bubble was only the smallest bubble to go bust wiping out a mere trillion or so. The other bubbles I mentioned are much larger and if they implode you should read Lord of the Flies.
Thanks for reading How I Lost All My Money In Crypto
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