While Bitcoin Surged +104%, I lost $25k in Investments

The Neighborhood Finance Guy writes about financial literacy topics: Financial Planning and Budgeting, Millennial Money Management, Investment strategies, Bitcoin and more. The goal is to help you make effective decisions and set S.M.A.R.T. + E.R. goals with your money. The information is free but the struggle is not sold separately. And, if you are into this sort of thing; the blog is PLUTUS nominated, I studied Accounting with a Specialization in Taxation, served in the U.S. Marine Corps and now work as an Auditor. I’m also big on Traveling and watching Anime.

Table of Contents

Crypto Currency craze, Bitcoins and Make Believe Money

The last five years have been phenomenal for crypto currency.

Back in the stone age of home phones and actually looking at pictures in an album, American cryptographer David Chaum conceived the first anonymous electronic money called ecash (1983) that he evolved to Digicash (1995). Crazy enough part of the concept that might have seem like science fiction is pretty much how we live today in a cashless society.

By 2009, the first decentralized cryptocurrency, Bitcoin, was created by Satoshi Nakamoto. Less than 20 years later, El Salvador became the first country to accept Bitcoin as legal tender, after the Legislative Assembly had voted 62–22. Now El Salvador plans to create the first Bitcoin City. In August 2021, Cuba followed with Resolution 215 to accept Bitcoin as legal tender. Things were looking up.

However, as of September 2021, China declared all cryptocurrency transactions illegal, completing a crackdown on cryptocurrency. And every since then, Bitcoin has gone up and doing.

So what’s the hype?

Cryptocurrency presents an opportunity for currency stability especially within areas where there are multiple nations exchanging goods and services on the micro level. If you consider South East Asia as well, as South America where extreme inflation runs rampant, crypto might be the new Euro.

Wait Before You Thrown Money into Crypto or other Investments…

If you need financial or investment assistance, I would highly recommend that you refer to a fee-only financial advisor who has a fiduciary responsibility to their clients.

Fee-only investment advisors do not earn commissions for placing trades of selling your investments as their own products or insurance. If they’re managing your portfolio, these advisors are required by law to serve in a fiduciary capacity.

This means they must always act in your best interests. If a situation arises that may present a conflict of interest, they’re required to disclose this conflict to you.

Since investments can trigger taxes, you might want to refer to a Certified public accountant. And if you don’t have a lot of money, just start with a financial plan because Bitcoin might not be your only issue.

Translation, don’t jump head first into the kiddie side of the investment pool.

Don’t Play Too Crypto or Meme Stock Games with your Wealth, You might end up broke.

Too many Americans are retiring broke.

And way too many are day trading to their own taxable detriment. It’s one thing to lose money, it takes a particular set of skills to do that dramatically by 9:45 AM on any given day. Those money gurus made sure to sell you the course and not the guarantee of any real returns.

Now back to the topic at hand, since this is how I lost over $25k in investments in 2021.

Mistake#1 – Losing $10,000 Being Too Attached to the losses

I started out 2021, over leveraged on Tech equities which included $NIO and $TSLA.

NIO, an EV company in China shoot up in 2020 from $10 to $50 in 9 months. I really thought it was a going to sustain itself but unfortunately.

My 240 NIO shares went from $12,000 to $6,000. The worst part is that Personal Capital warned me to shift my money as of January.

I also lost money on Alibaba $Baba, Baidu $BIDU and quite frankly all my global tech to the tune of $4,000.

The lesson is to learn how to let go of a losing position.

Investopedia said it best, “Dumb move. First of all, there is absolutely no guarantee that a stock will ever come back. Second of all, waiting to breakeven—the point at which profit equals losses—can seriously erode your returns. Of course, we understand the temptation to be “made whole.” But cutting your losses can be more important.“

Mistake#2 – $5,000 Opportunity Cost Mitigated Other Investments like Bitcoin

The same $10,000 if I invested in bitcoin at the beginning of the year. I would be up over 60% (see graphic #2).

Bitcoin has proven to be the most recognizable and resilient form of cryptocurrency so far. With its adoption level, it’s likely a good enough bet to get some early and see where it goes.

That $10,000 would have grown to at least $15,000 worth of bitcoin. So my “loss aversion” ended up costing me $5,000.

The lesson here, is to learn that Opportunities exist on two levels. When making a choice, you can win or lose but you are also forgoing other wins if you did something else.

Investopedia described “Opportunity cost is the potential loss from a missed opportunity—the result of choosing one alternative and forgoing another.

Mistake #3: Not doubling down $10,000 on great investments sooner to offset losses

The S&P was up almost 30% in 2021 (see graphics #3). In fact, the market hit record highs 70 times in one year.

However, my problem is that I was over-leveraged and reticent to move to other positions.

When Trump said he is building his own social media, I knew it was going to be a hit. The next day $DWAC shot up 700%. I should have double down sooner, sold losing positions and made money.

When we were up at least $15k, I should have sold and got away. However, I stayed (in fear) and watched my winnings drain back down to $5k. Still ok but not that good.

Next time, I’m going to sell quickly and convert the winning into $VOO. That’s a nice lost of $10,000 again.

So How will we pivot from these losses for 2022:

As price inflation and income stagnation hit record highs, investing your money is the only way to go. The bottom 70% of the US are supporting the economy through spending. The top 30% are injecting money through investment and getting better returns.

One segment is losing and the other segment is gaining speed.

As for me, I’m learning the ropes. Here are my take-aways:

I have to learn to pivot from losses sooner.
Secondly, I need to pick up more bitcoins.
And thirdly, I need access the opportunity costs in the long run vs the short run.

In the end, if the goal is to hit your millennial millionaire mark, you have to keep learning and accepting losses (even if they aren’t real).

Feel free to read up: