Life

I Lost Half a Million Pounds Trading Bitcoin

Bad trade after bad trade, all my money went down the drain.
KC
illustrated by Kim Cowie
May 13, 2021, 8:00am
Bitcoin debt
Image: Kim Cowie
A collection of stories about getting into – and out of – debt.

I didn’t consider myself a gambling addict, but I did get pulled in too far.

At its peak, I lost what would have been worth around $700,000 (about £495,000) in Bitcoin, after gambling on cryptocurrency derivatives to recoup my losses. 

At the time, Bitcoin was everywhere. It was 2017 and people were chatting about cryptocurrency at work, while major newspapers published pieces with exciting headlines, proclaiming that the cryptocurrency was making everyone “hilariously rich”. In less than 12 months, the price soared from under $1,000 in January to around $20,000 by the end of the year. 

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I came across the cryptocurrency after my wife and I saw a Netflix documentary called Banking on Bitcoin in 2017. It explained how a mysterious, anonymous person – or persons – named Satoshi Nakamoto had created Bitcoin during the 2008 global financial crisis. They said they wanted to fight back against the bloated banking system that the governments had propped up. 

The mystery around Satoshi was intriguing. Plus, the gains could be huge. I wanted in – and in December 2017, I started buying Bitcoin and other cryptocurrencies in tranches with an initial deposit of around $50,000 (just over £35,000). This was mine and my wife’s savings, but we didn’t want to miss out on what seemed to be a sure thing. The price, including our initial investment, just kept going up.

But after the 2017 boom peaked, Bitcoin went into freefall, losing 90 percent of its value in 2018. It didn’t take long for me to panic and begin searching for any way to recoup my ballooning losses. 

Around this time, some offshore cryptocurrency exchanges started offering their users the ability to trade Bitcoin derivatives, allowing them to bet on Bitcoin’s future price. Some of these exchanges even let users “leverage” their portfolio up to 100 times, meaning traders – even inexperienced ones like me – could take out high-risk, high-reward positions that could net them a lot of Bitcoin. 

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I didn’t understand derivatives, leverage or the world of options trading but some people seemed to be making millions. They said it was easy and the exchanges’ advertising made it seem risk-free. I had to try it.

I moved my Bitcoin to Deribit, which is based in Panama. This exchange allowed me to speculate on the future price of Bitcoin, using the Bitcoin I’d deposited as capital. Exchanges like Deribit are largely unregulated and to help them avoid certain regulations, they don’t let users deposit dollars or any other traditional currency – only Bitcoin.

Much of this was new to me, but the Bitcoin and cryptocurrency trading community was keen to help. I connected with a former Wall Street trader I found via a trading tips group on Telegram. He shared his trade entries detailing when to buy, sell and how much to bet, which you could copy.

But after I made a few thousand dollars following his trades, he stopped giving away his examples for free and began charging. It seemed easy, though, and I thought I could do it myself. 

Things went well at first. I made one highly leveraged trade betting that Bitcoin’s price would rise – and it did. This netted me a couple of Bitcoin, worth over $20,000 (just over £14,000) at the time.   

When you win big once, you think you can do it again. I took on more risks and while I sometimes won, I soon lost everything I had left from my 2017 investment. One highly leveraged bet on a short-term Bitcoin price move wiped me out. A combination of bad trades and inexperience saw me lose another $25,000 (almost £18,000). I was in a spiral and felt I couldn’t get out.

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To try to recoup my losses, I put together what I called a “repair plan”, making a series of deposits that added up to around $100,000 (close to £71,000) – on top of the $75,000 I’d already lost. I used part of my salary of $50,000 per year (plus bonuses) and borrowed from friends and family with the misguided belief that I could walk away if I could score just one big win. I borrowed $25,000 from friends, who still don't know what it was for, as well as a further $20,000 from my brother.

While I have been able to repay what I borrowed from friends, I haven’t yet repaid my brother, who believes I am managing his assets on exchanges. I thought I was bound to win on one of these occurrences. But it all disappeared, bad trade after bad trade.

In total, I have paid almost 11 Bitcoin on fees and leverage losses to Deribit and Binance. That would have been worth just over $700,000 at Bitcoin’s April peak of almost $65,000 per bitcoin. 

I’ve asked the exchanges I used to block my account to prevent me from losing more, which they initially didn’t do. Attempts to speak with Deribit about my situation were met with disinterest, scorn, and disdain.

Ultimately, the kind of trading I was doing was just gambling. Exchanges feel no obligation to protect their customers. I finally stopped in late 2020, when they did block my accounts. By the end of 2020, I had lost around $175,000 (just over £123,800) in deposits since first buying Bitcoin in late 2017. 

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Losing a life-changing amount of money over two years has brought me a positive view. The value of things is different to me now. When I have money to spare, I don’t gamble anymore. I want to invest in talented people; to do something positive.

I’ve decided any money I will have beyond what I need is better spent on helping creative talents, instead of trying to enrich myself with Bitcoin.

I fear this current bull market – which has seen Bitcoin’s price soar to more than three times its 2017 high, in what many market experts see as an unsustainable bubble – will lead to more people falling down the same rabbit hole I did, with the same crippling debt and regrets over lost fortunes. 

Bitcoin is an exciting new technology but exchanges are using crypto markets like a casino. In the end, the house always wins. 

In a statement to VICE, Binance said: “As a leading exchange, Binance takes responsible trading seriously and is committed to educating and informing users on the risks of trading. We also offer users the means to prevent trading addiction by setting trading limits and self-exclusion tools.”

Deribit told VICE: “We recognize this issue and believe the solution is technical protections on a platform level in combination with investor education enabling clients to trade responsibly. As our product range consists of more complex and higher risk products we believe in the importance of client education and we will continue focusing on expanding our efforts.”

As told to @BillyBambrough