Opinion: My ill-fated dip in the cesspool of cryptocurrency

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Representations of the Bitcoin cryptocurrency in Paris on March 9.Benoît Tessier/Reuters

Rob Csernyik is a 2022 Michener-Deacon Fellow and a contributing columnist for The Globe and Mail.

When Bitcoin hit an all-time high of nearly $74,000 on March 14, pushing the cryptocurrency market to a dizzying $2.8 trillion, I wasn't in the cheering section. Months earlier, I had started cashing out my meager cryptocurrency and related holdings to make about $20 in profit.

For some investors, recent rebounds in cryptocurrency valuations suggest a return to the unbridled optimism that characterized much of the last decade. It's a reason to hold on or buy more. But for others (millennials, including me, with limited funds to allocate) it's an escape hatch we should take advantage of.

The new territory to explore? Not unheard of, just sleepier: the stronger foundation of blue-chip stocks or exchange-traded funds, particularly those with attractive dividend payouts.

In May 2020, with fewer places to spend my money due to COVID-19 lockdowns and falling stock prices, I opened a self-managed investment account. It hasn't turned into a huge savings, but it's now worth several thousand dollars.

I am not alone. The same calendar year I started, Canadians opened more than 2.3 million new DIY investment accounts, according to Investor Economics, a financial services research firm. This was almost three times the number of openings in 2019.

bitcoin ownership was also increasing: 13 per cent of Canadians by 2021, up from 5 per cent in previous years, according to the Bank of Canada. Crypto mining stocks and exchange-traded funds (ETFs), which Canada had before the United States, made it easy to buy cryptocurrencies as a currency without opening a separate wallet.

It was easy to get carried away with the excitement and feeling that if I didn't invest in cryptocurrencies, I was missing out. I directed my savings towards it and, like my fellow emerging DIY investors, encountered a steep learning curve. Going into it, I knew the days of massive returns reaped by cryptocurrency pioneers were over, but I treated them as interchangeable with high-risk stocks.

But I gave them too much space in my portfolio. Prices changed faster than the news cycles could keep up and I became accustomed to seeing outsized gains. They made me hungry for more. After the cryptocurrency crash in spring 2022, related holdings in my portfolio failed. I saw my performance falling below what I was comfortable with.

Having spent the last few years grimacing at my portfolio has led me to reconsider my risk appetite. For me, this was mainly a review of how cryptocurrencies fit together. In hindsight, I can see how investing similar dollar amounts in better-chosen stocks or ETFs would have helped me achieve more modest but still reasonable growth goals without the risk of cryptocurrencies.

So when I saw my Bitcoin investment finally turning positive again, I pressed sell. My gains were small, but I was able to reallocate the funds toward something chosen more carefully, rather than taking it out of the headlines because everyone else seemed to be buying it.

A turning point came while listening to an investor ask for a freelance story he was working on. An executive at Goldman Sachs Wealth Management was asked his opinion on the new Bitcoin ETFs that were recently approved for marketing in the United States.

He was blunt: investors should not invest in CRYPTOCURRENCIES or crypto ETFs as part of their investment portfolios. It was as speculative as gambling in a Las Vegas casino. That I had been considering “investments” in my cryptocurrency allocations in the classical sense suddenly seemed naive to me.

It's true that this is ultimately a personal decision. Some people like to speculate and have enough wealth that they don't have to worry about losses. But a lot of DIY people, including me, are not in that category. We cannot afford to be. I'm not a big gambler, and growing my portfolio to contribute to a down payment on a property or help with retirement requires a more considered approach.

I promised, after hearing the executive's comments, to intensify my divestment and reallocate more selectively. When the opportunity came to sell my share of Ether for a profit, I passed it up. The same goes for a handful of crypto mining stocks.

I feel more positive and confident about my investments since making this pivot, even if my portfolio hasn't grown significantly since then. I also pay less attention to the constant headlines about them. That's why I barely notice some of the headlines about Bitcoin sell-offs undercutting some of the most recent record gains.

There are enough horror stories about ordinary people betting big on cryptocurrencies and losing their savings or selling their holdings at a loss because they fear things will only get worse. If the possibility of breaking even or making a small profit appears, save yourself.

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