The people who won big at crypto – and those who didn’t

My running mates, Amy and Michele, have fallen head over heels in love – with cryptocurrency. As they extolled the virtues of Dogecoin during a recent run, I stood there shaking my head, at times mocking them and wagging my finger. But by the time I got home, I was downloading the Robinhood app and putting $200 into my account. Listening to the women talk about the tens of thousands of dollars some people have made trading cryptos, I felt like a sailor enticed by singing sirens.

“It starts with $200 and an hour later, you’re going to be all in,” Michele warned me. “And three hours later you’re in panic mode. It’s quite a roller coaster, but I’m glad you’re on board.”

I told her the prospect was exciting, but really, it reminded me of those chocolate bunnies – delicious, but hollow. The thing is, I like chocolate.

I’m far from the only one. The cryptocurrency market has hit $2 trillion, prompting some comparisons between cryptos and gold.

But it’s hard to know how much money people have truly made on that market. I went to high school with a software developer who first waded into crypto waters in 2011, when Bitcoin was worth less than $1 a coin. He didn’t invest until it was trading at $10,000 because he feared the software bugs. His holdings are now worth “six figures,” but he knows he could have made a lot more. He, in turn, knows a doctor who kept throwing some of her disposable income into cryptocurrencies, without paying much attention to it. She now has $100m and a penthouse on Central Park East.

“That’s not from her medical practice,” my developer friend said. “It’s all from her crypto.”

For most people, the gains are not quite as spectacular. Tom Tierney, a 64-year-old investor in Punta Gordo, Florida, sold some property in Costa Rica in 2018 and found himself with about $75,000 in cash to invest. He put $35,000 into five cryptocurrencies. It’s now worth more than $150,000.

“Some didn’t perform, some did,” he said. “I don’t think people should invest in it if they are not willing to be in it for the long term.”

Cryptocurrencies can be volatile. Bitcoin was at $56,000 a coin a few days ago. It dropped to $46,000 by the time Tierney and I spoke, and by the following morning, it was at $36,000. Some micromanage their cryptocurrencies, buying and selling all day long, every time they tick up or down. But Tierney does things his own way.

“I’m a hippie,” he said. “I was living on a sailboat. I didn’t have a lot of things to buy. I had a simple life, and so I just put all that money into crypto on a whim.” Now, he plans to hold it for 10 or 15 years. It’s a risky bet, but as he pointed out, nothing ventured, nothing gained.

Stephen Saracco, an American construction professional living in Hungary, said he bought one Bitcoin back in 2017 when it was just $1,000 and a handful of Ether (another cryptocurrency) when they were worth about $100. This year, Bitcoin hit a peak of $50,000, and Ether is currently trading at about $3,200. Saracco knows someone else who bought 1000 Ether at around the same time, and that investment is now worth more than $3m.

There is more to trading cryptos than good instincts and a little bit of luck. Saracco says he helped a man build a “mining farm,” where he set up 2,000 computers in a warehouse that mine cryptocurrency for him.

“I thought he was nuts. That was when Bitcoin was selling for about $2,000 each,” Saracco said. “He will never have to work again.”

When I asked what he meant by “mining coins”, Saracco was incredulous.

“Really?” he asked. “Mining is done by solving complex math equations. The solution contributes to verifying the blockchain and distributes it. In return, the miner gets a portion of a Bitcoin.”

With math equation-based blockchain at its core and endless fluctuations, it can be very hard to understand cryptocurrencies. Grasping the concept, however, doesn’t necessarily make you a believer. “I understand it very well, and I think it’s a lot of hooey,” said a friend who used to run a large money management firm.

Trent Porter, a certified financial planner in Durango, Colorado, said the only thing people need to understand about cryptocurrency is that it’s not investing. It’s speculating.

“Own a stock and you get the dividend. Own real estate, you get the rent. The only thing you get with cryptocurrency is the hope that someone else will pay more for that hope than you did,” he said.

Because cryptocurrency is purely speculative and incredibly volatile, don’t invest any more than you can afford to lose, he said. Or, as Jim Kinney, an advisor in Bridgewater, New Jersey, put it: “Does anyone think for a moment that the world’s governments will sit back and let any geek with a computer create a currency? When I walk into a store and see a lawn mower I want to buy with a price tag that reads ‘2.5 Bitcoin’ or ‘32 Dogecoin’ –  then I will believe.”

The massive price swings don’t help. The virtual coins appreciated 1,318% in 2017, then fell 72.6% in 2018, before gaining 87.2% and 302.8% in 2019 and 2020.  Recently, Bitcoin values dropped 20% over a two-day period, falling from $65,000 per coin down to around $50,000.  Ether, another prominent altcoin, as all cryptocurrencies aside from Bitcoin are known, lost $400bn over the same two-day period in May.

When I reached out to my running mates this morning, Michele texted, “We are now in the negative.”

She had invested $4,500 and was ahead $800 when she was talking up Dogecoin earlier this week, but her investment had dropped, and she was now down $300. Amy, who’d put $2,500 into Ether, was down $400.

“But I’m not worried, because it’s going to bounce back,” Michele said. Amy chimed in, “It’ll bounce back, but I think it’s going to take some time.”

How do you know that? I asked, knowing their depth of experience was about two weeks.

“Because we have crypto faith,” Michele said. “You gotta believe!”

And why not? If kids can have Santa, adults can have crypto and all the promises of riches it will bring. This must have been how the prospectors felt as they made their way across the continent with glint in their eyes to California, where the sun shone bright and the sands were littered with gold.