Software Engineer Discloses $80,000 Loss in Crypto Investments
Ethan Nguonly, a 22-year-old software engineer, began his investment journey at a young age with guidance from his parents. He has built a substantial financial portfolio, including retirement and brokerage accounts worth nearly $135,000, as well as two houses. However, Nguonly recently revealed a significant financial mistake that resulted in an $80,000 loss in cryptocurrencies between November 2021 and June 2022. This loss occurred while he was engaging in margin investing, using borrowed funds. The loss consisted of $30,000 from his initial investment and an estimated $50,000 in unrealized gains.
The Risk of Margin Investing in Cryptocurrencies
Prior to this setback, Nguonly had invested around $40,000 in Bitcoin and Ethereum, as well as smaller amounts in altcoins like Shiba Inu (SHIB) and Dogecoin (DOGE). Motivated by Bitcoin’s rising prices, he invested an additional $15,000 on margin. Initially, he saw a gain of approximately $50,000 as Bitcoin reached its peak. However, when the market took a downturn and Bitcoin’s price dropped by over 70% in the summer of 2022, Nguonly faced significant losses.
Nguonly admitted that his critical mistake was investing money he didn’t actually have, which amplified his losses when the market reversed. Margin investing involves borrowing money to invest more than one can afford with their own funds. While it can result in increased earnings, it also carries the risk of greater losses, as Nguonly experienced when he faced a margin call due to Bitcoin’s price drop.
The Challenges and Risks of Margin Investing
According to CNBC, for margin investing to be profitable, the returns on the investments must surpass the cost of the borrowed funds. This becomes particularly challenging with volatile assets like cryptocurrencies, which have always been risky, even during peak periods. Financial experts often advise against investing more than one can afford to lose, especially in speculative markets. Regulatory bodies like the Securities and Exchange Commission, the Federal Reserve, and the Financial Industry Regulatory Authority also issue warnings and rules about margin accounts, emphasizing that they are not suitable for everyone.
Lessons Learned and Future Investments
Nguonly’s main regret, as stated in the CNBC article, is not his decision to invest in cryptocurrencies but the amount he invested, particularly using money that wasn’t readily available. He continues to invest in more established cryptocurrencies like Bitcoin and Ethereum but avoids riskier altcoins. His key lesson from this experience is to invest only what one can afford and to exercise caution with speculative investments.
While Nguonly hasn’t completely shied away from financial risks, he has become more cautious as his portfolio has grown. He now focuses on less speculative investments like exchange-traded funds and real estate.
Hot Take
Margin investing in cryptocurrencies can be a high-risk strategy, as demonstrated by Ethan Nguonly’s $80,000 loss. It emphasizes the importance of investing only what you can afford to lose and exercising caution with speculative assets like altcoins. While margin investing can amplify gains, it also magnifies losses, especially in volatile markets. It is crucial to understand the risks involved and to consider less speculative investment options like established cryptocurrencies and other asset classes. Nguonly’s experience serves as a valuable lesson for crypto enthusiasts to approach investments with prudence and to prioritize financial stability over the allure of quick gains.
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