A 22-year-old man lost $80,000 in cryptocurrency : At just 22 years old, Ethan Nguonly, a skilled software engineer, embarked on his stock market journey, guided by his parents’ wisdom, even before he entered his teenage years.
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A 22-year-old man lost $80,000 in cryptocurrency: ‘I was investing with money I didn’t always have‘
At just 22 years old, Ethan Nguonly, a skilled software engineer, embarked on his stock market journey, guided by his parents’ wisdom, even before he entered his teenage years. Presently, his investment portfolio boasts nearly $135,000 across retirement and brokerage accounts, along with ownership of two houses.
Yet, amidst his successes, Nguonly confronted what he now identifies as his most significant financial misstep. Between November 2021 and June 2022, he witnessed a staggering loss of approximately $80,000 due to margin trading in the crypto market. This total encompasses both a $30,000 reduction from his initial investment and an estimated $50,000 in potential gains that remained unrealized. Margin trading involves utilizing borrowed funds to acquire assets.
Nguonly had initially committed substantial investments in cryptocurrencies, allocating around $40,000 to bitcoin and ethereum, along with a few hundred dollars in alternative coins like shiba inu and dogecoin. As bitcoin’s value soared, he made the decision to amplify his holdings with an additional $15,000, financed through margin.
For a fleeting moment, Nguonly enjoyed a $50,000 surge in value as bitcoin reached its all-time pinnacle. However, the crypto market took a sudden downturn at the close of 2021, leading to a devastating 70% plunge in bitcoin’s value by the summer of 2022.
Reflecting on this tumultuous period, Nguonly remarks, “I was investing with some money that I didn’t necessarily have. Once the crypto market kind of reversed, my losses were amplified.”
Exercising Caution in Margin Trading
Employing margin trading is a sophisticated tactic that can yield substantial gains if your investments continue to flourish. However, it magnifies losses in the event of a market downturn.
When you engage in margin trading, you’re essentially borrowing funds from a broker to invest beyond your usual capacity. This amplifies potential earnings but also heightens the risk of greater losses, as Nguonly experienced. The drastic drop in bitcoin’s value prompted a margin call, necessitating the sale of a significant portion of his holdings to cover the borrowed amount.
To turn a profit with margin trading, your investments must outperform the cost of the loan itself. This dynamic contributes to the amplification of losses should your investments depreciate. While this risk is applicable to various securities, particularly volatile assets like cryptocurrency can render you more susceptible to substantial losses, similar to Nguonly’s experience.
It’s essential to recognize that investing in cryptocurrency has always carried a degree of risk. Even during bitcoin’s surge to its all-time high in November 2021, investments remained speculative, highly volatile, and largely unregulated.
While investing is a vital component of wealth-building, it inherently entails risk. Particularly in the realm of cryptocurrency, experts advise investing only what you can afford to lose. Moreover, it’s crucial to abstain from employing investment techniques that you don’t fully comprehend, such as options trading or margin trading.
The Securities and Exchange Commission underscores the risks associated with margin accounts, cautioning, “Margin accounts can be very risky and they are not appropriate for everyone.” Both the Federal Reserve and the Financial Industry Regulatory Authority have established guidelines, including minimum deposits and borrowing limits, aimed at ensuring individuals opening margin accounts are aware of the risks and comprehend the financial commitment involved.
‘Invest Only What You Have’
In retrospect, Nguonly doesn’t necessarily regret the decision to invest in cryptocurrency. While he acknowledges he may have been overly optimistic about its continuous growth, his pivotal mistake lay in investing an excessive amount — including funds he didn’t possess outright — into these ventures.
Even without margin trading, he might have still experienced significant losses during the downturn. However, as he puts it, “by overleveraging myself … that’s why my losses were significantly amplified.”
Nguonly maintains some investments in cryptocurrency but adheres to more established tokens like bitcoin and ethereum, steering clear of the riskier altcoins.
“I still believe in cryptocurrencies as a whole,” he asserts. “However, I do think that a lot of these altcoins can be very risky, and I avoid putting any money towards them.”
The paramount lesson he gleaned from his $80,000 setback is to “only invest money you have and don’t go un-leveraged into very speculative investments,” he emphasizes.
While he still takes calculated financial risks, Nguonly discloses that his appetite for risk has waned as his investment portfolio has burgeoned. Currently, he concentrates on less speculative ventures, such as exchange-traded funds and real estate acquisitions.
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