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Bitcoin The Almighty Buck Businesses Technology

As Value of Cryptocurrencies Falls, a Lot of New and Risk-Taking Investors Are Suffering Immensely (nytimes.com) 559

After the latest round of big price drops, many cryptocurrencies have given back all of the enormous gains they experienced last winter. The value of all outstanding digital tokens has fallen by about $600 billion, or 75 percent, since the peak in January, according to data from the website coinmarketcap.com. The New York Times: The virtual currency markets have been through booms and busts before -- and recovered to boom again. But this bust could have a more lasting impact on the technology's adoption because of the sheer number of ordinary people who invested in digital tokens over the last year, and who are likely to associate cryptocurrencies with financial ruin for a very long time. [...] By many metrics, more people put money into virtual currencies last fall and winter than in all of the preceding nine or so years. Coinbase, the largest cryptocurrency brokerage in the United States, doubled its number of customers between October and March. The start-up Square began allowing the users of its mobile app, Square Cash, to buy Bitcoin last November.

[...] Kim Hyon-jeong, a 45-year-old teacher and mother of one who lives on the outskirts of Seoul, said she put about 100 million won, or $90,000, into cryptocurrencies last fall. She drew on savings, an insurance policy and a $25,000 loan. Her investments are now down about 90 percent. "I thought that cryptocurrencies would be the one and only breakthrough for ordinary hardworking people like us," she said. "I thought my family and I could escape hardship and live more comfortably, but it turned out to be the other way around."

[...] In the United States, Charles Herman, a 29-year-old small-business owner in Charleston, S.C., became obsessed with virtual currencies in September. He said he now felt that he had wasted 10 months of his life trying to play the markets. While he is essentially back to the $4,000 he put in, he has soured on the revolutionary promises that virtual currency fanatics made for the technology last year and has resumed investing his money in real estate. "I guess I thought we were 'sticking it to the man' when I got on board," Mr. Herman said. "But I think 'the man' had already caught on, and had an exit strategy."

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As Value of Cryptocurrencies Falls, a Lot of New and Risk-Taking Investors Are Suffering Immensely

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  • by magzteel ( 5013587 ) on Wednesday August 22, 2018 @12:04AM (#57171732)

    Those two anecdotes are stories of people hoping to magically get rich quick. The outcome is unsurprising.

    • by bkmoore ( 1910118 ) on Wednesday August 22, 2018 @12:14AM (#57171776)
      In the words of Warren Buffett, it's called "the greater fool business model" and it's the belief that a greater fool will come along and pay you more than you paid.
      • That's basically the business model of internet startups. Build something, then hope that one of the big players actually thinks it has value and buys it before funding runs out because you have exactly zero idea how to monetize it.

    • by Thundercat007 ( 1105151 ) on Wednesday August 22, 2018 @12:15AM (#57171780)
      It really was, especially with articles that were headlined "we have no idea why it's going up" and "people are mortgaging their homes to get into the act" and "75% of coins are held by like 5 people". Once those articles hit the street, the ponzie scheme was complete. They sold, dumped their coins and walked away probably billionaires
    • In fewer words:

      Duh.
    • by Joce640k ( 829181 ) on Wednesday August 22, 2018 @02:18AM (#57172138) Homepage

      I want to know where the hundreds of people who used to post here about how Bitcoin had no limits, that every last Bitcoin would soon be worth a million bucks went to. They've been embarrassingly silent lately.

      Come back! We want to say "told you so!".

      Seriously, where are they now?

      • by AmiMoJo ( 196126 )

        Reddit support groups telling each other to HODL until the values goes back up enough to afford that lambo.

      • by jythie ( 914043 )
        I am sure they will reappear next time the price goes up a little to tell us all how as 16 year olds they were buying ferraris and dating supermodels.
        • I am sure they will reappear next time the price goes up a little to tell us all how as 16 year olds they were buying ferraris and dating supermodels.

          That was before they invested in bitcoin. Now they're sacking at Walmart.

      • by 110010001000 ( 697113 ) on Wednesday August 22, 2018 @06:39AM (#57172862) Homepage Journal
        They are still here, now posting about Tesla stock.
    • Risk-Taking Investors take risks. News at 11.

    • by EvilSS ( 557649 )
      And if the first one invested in the fall of 2017, then it would have worked had she sold at the peak in January. But she bought into the hype and instead of being rational about it she held on and now it's gone.
  • by arglebargle_xiv ( 2212710 ) on Wednesday August 22, 2018 @12:04AM (#57171734)
    It should begin with:

    Surprising Exactly Nobody...

    Well, OK, surprising the poor suckers who bought into this high-tech reinvention of the classic pump-and-dump I guess, but no-one else.

  • But wait! (Score:5, Insightful)

    by msauve ( 701917 ) on Wednesday August 22, 2018 @12:13AM (#57171774)
    Have you heard about investing in tulip bulbs?
  • Pumps piss for them. I would just settle for getting my eight bitcoins back.

    • by VMaN ( 164134 )

      ooooh, is this one of those facebooky "please ask me about what I'm referring to"?

  • A sucker I mean. This should be a lesson for the next round of "get rich quick" vaporware.
  • by misnohmer ( 1636461 ) on Wednesday August 22, 2018 @12:18AM (#57171796)

    Whether stock market or a casino, gambling is taking high risks so nobody should be surprised if they lose their shirt. If you buy into something that returns significantly more than what you can borrow money at, of course it's high risk (or else the bank lending you money would buy those same investments instead of lending you money).

    • If you buy into something that returns significantly more than what you can borrow money at, of course it's high risk (or else the bank lending you money would buy those same investments instead of lending you money).

      But if it's a bubble based on speculation on something that has no inherent worth, it's no longer a risk - it's a certainty.

      • Not true. There is plenty of money to be made on speculation bubbles, just like in a casino, it is not impossible possible to win, just unlikely.

  • by asackett ( 161377 ) on Wednesday August 22, 2018 @12:34AM (#57171850) Homepage

    I kinda hate jumping onto the bandwagon, but investing in anything on the basis of "someone dumber than me will buy it for more than I paid" always leads to the greatest number of people learning the hard way that they're the dumber someones.

    Tuition can be wickedly expensive in the school of hard knocks.

    • Re: (Score:3, Insightful)

      Comment removed based on user account deletion
      • Yes, I am. Stock markets also "experience corrections." Every three to seven years, on average.

      • by swillden ( 191260 ) <shawn-ds@willden.org> on Wednesday August 22, 2018 @07:49AM (#57173118) Journal

        but investing in anything on the basis of "someone dumber than me will buy it for more than I paid" always leads to the greatest number of people learning the hard way that they're the dumber someones.

        You are aware that is how the stockmarkets work, right?

        No, it is not.

        When you invest in stocks, you're buying a share of a (hopefully) productive company which is making and selling stuff, contributing to the economy and thereby generating profits for you. Some of those companies distribute your share of those profits in the form of dividends, others plow the profits into growth or stock repurchase plans, increasing the value of the shares you hold. Either way, you're buying a chunk of an enterprise you expect to be productive and therefore give you a positive return.

        Sure, stock markets have ups and downs, sometimes running values above their realistic levels, and then correcting back downward, but over time and over a broad enough portfolio of stocks, you can absolutely expect positive returns on your investment. Not because you can sell to people dumber than you, but because you're buying pieces of real, productive enterprises that generate real value.

        Cryptocurrencies are not the same. To the extent that cryptocurrencies are currencies, they're like "investing" in any other currency -- speculating on the relative strengths of different segments of the overall economy, which are wildly unpredictable and provide no engine of long-term predictable gains like that of healthy companies. Trading in "real" currencies takes two forms: arbitrage which attempts to profit from short-term changes and serves to provide liquidity for currency exchanges while smoothing out spurious differences, and hedging, which helps to limit the effects of currency swings on companies that trade in multiple currencies. No on "invests" in currencies by buying and holding (well, other than central banks, which do it for reasons other than generating profits), because there's no reason to believe that will work.

        The reason people have "invested" in cryptocurrencies is because they have not been behaving like currencies. But there's also no real growth engine behind them beyond pure speculation: buying on the basis that "someone dumber than me will buy it for more than I paid". There was one reason to expect the continual increase in cryptocurrency values: the fact that most of them (especially BTC) have a hard upper limit on the number of coins that can be created. But the problem with that "hard upper limit" is that there is no limit on the number of cryptocurrencies that can be created. Not only that, but they don't actually work well as currencies, for numerous reasons.

    • Tuition can be wickedly expensive in the school of hard knocks.

      Speaking of tuition, I read somewhere that a lot of college kids were taking out cash advances on credit cards to try and make money off of bitcoin. To the point where credit card companies revised their cash advance policies to specifically forbid such a practice (not that they can stop it from a practical perspective). So there were a lot of dumb kids who probably already had crushing student loan debt who now have crushing credit card debt as well.

  • by Trogre ( 513942 ) on Wednesday August 22, 2018 @12:38AM (#57171856) Homepage

    It's not all bad.

    All these crypto-miners have fostered better GPUs, and have driven demand for more generating capacity in the power grid. And now that it's over, the rest of us can use these for useful purposes.

    So thank you, early adopters. Sorry that the inevitable happened to your wasted energy.

    • by thegarbz ( 1787294 ) on Wednesday August 22, 2018 @03:10AM (#57172314)

      and have driven demand for more generating capacity in the power grid.

      Yes by consuming the same energy as the industry, commercial and residential activities of a nation with 18million people at a time where emisisons and energy waste is considered critical, all the while bolstering the startup of decommissioned dirty power while the world is being screwed.

      This planet is fucked. I just hope Elon builds the rocket in time.

    • I'm not so sure this has put more money into the pockets of AMD or Nvidia, instead just about about all of the money seems to have gone into the pockets of AIB board partners, wholesalers and consumer facing retailers. Companies who make highly complex computer hardware like GPUs tend to not make much more than exactly what they think they can sell due to months long lead times and the cost of over-producing. The high end semiconductor industry has absolutely gone in for so-called lean manufacturing in the
  • by Richard_at_work ( 517087 ) on Wednesday August 22, 2018 @12:45AM (#57171868)

    "I thought that cryptocurrencies would be the one and only breakthrough for ordinary hardworking people like us,"

    And yet you were throwing debt at what was essentially a "get rich quick" scheme? That's not ordinary nor hardworking, that's just idiocy.

    • by Kjella ( 173770 )

      And yet you were throwing debt at what was essentially a "get rich quick" scheme? That's not ordinary nor hardworking, that's just idiocy.

      It's an ordinary - as in, nobody of significance - hard working guy thinking a Nigerian prince will give him millions and millions of dollars. You'd be surprised how many people suddenly go off on a tangent and think this is it, I've struck gold when in reality they're the scam victim or they're the fall guy in some money laundering / drug smuggling / pyramid scheme. I mean one thing is whether or not crypto-currencies have a market, another thing is to believe this is like free money for everybody. After t

  • I am curious... (Score:5, Interesting)

    by PseudoThink ( 576121 ) on Wednesday August 22, 2018 @12:52AM (#57171884)
    How does the currently bearish press resemble (or not) that after the previous Bitcoin bubble, or the one before that? Also, to those who enjoy citing tulip mania [wikipedia.org], how many bubbles did tulip mania go through before it crashed, and what as the approximate peak market cap of each bubble?
    • Some analyses of the size of the bubble have been performed:

      https://www.moneyweb.co.za/news-fast-news/bitcoin-the-biggest-bubble-in-history-is-popping/

      I'm not aware of any comparisons of the nature of the press surrounding it though. That is quite an interesting question.

  • by Anonymous Coward on Wednesday August 22, 2018 @01:03AM (#57171906)

    Transaction times and transaction fees are awful and not at all competitive with credit (let alone cash), and there is no clear way to address either problem. In fact, it looks like both problems will only get worse as bitcoin becomes more popular. Until both problems are solved, bitcoin is worthless as a currency because it can't be used like other currencies can.

    • FUD.

      Transaction times are faster than ACH or credit transfer and fees are laughably low. You can even send without a fee, but it might take a bit longer then.

      • Re: (Score:2, Informative)

        by Anonymous Coward

        This just is not true at all. You can send without a fee, in which case your transaction will never be processed. Therefore actually, you can't. Here in NZ, I can transfer between banks essentially instantly and it costs nothing. I'm not sure how Bitcoin is cheaper or faster.

      • by gweihir ( 88907 )

        Interbank-transfers are actually massively cheaper than bitcoin transfers and have assured low execution times. For example, a SEPA transfer of unlimited (!) volume costs around 25 cent for the end-customer.

  • by Anonymous Coward on Wednesday August 22, 2018 @01:05AM (#57171912)

    in the last 47 years of my life. It always comes down to this. once the mass media hype starts and ordinary people are dragged into the next financial get rich quick scheme in the masses, it is better to get out if you are into something.
    The pattern is usually that you get lots of press reports, that you should invest, that this thing is a totally new economy which works differently, that you are stupid if you do not invest. Once those reports crawl up, you can expect a crash between the next three months and a year.
    I have seen this with the dot bomb bust, with the housing bubble etc... and the patterns 1929 were exactly the same, when Kennedy went out of the stock market 1928 because he got stock advices from people working on the street.
    Also the bomb cycle always is the same, it starts to go down, the financial press and others are screaming hold... then it recovers slightly everyone is yelling it just was a hickup and then it goes down again everyone screams you have to hold and then over and over again with a few upwards pumps along the road. The people screaming hold, usually are the ones connected to the big investors selling big time to get out while everyone thinks they can recover.

    • by Kokuyo ( 549451 )

      I agree with you, which makes the post directly after yours so hilarious!

    • Why does one of the best analysis of the whole mess come from an AC? You have a faint idea how many are actually going to read this now? Log in next time!

      Because this is spot on. The hallmark of a bubble-bust is usually when mass media reporting starts dragging in the uninformed who think they could get a share of the cake. From then on, it's a cycle of greed, fear and greed until the inevitable bubble-popping.

      I dare say that you can even go so far as to kill any market that way, simply by hyping it in the

  • Don't believe short sellers FUD.

  • by Ranger ( 1783 ) on Wednesday August 22, 2018 @01:29AM (#57171962) Homepage
    Well, more reasonable prices anyway. I built my first PC from scratch last year, rather assembled. When I shopped for graphics cards I could not find what I wanted at a decent price thanks to the cryptocurrency miners. I ended up after much searching online buying a decent next lower tier graphics card at a good price. The card wasn't what I wanted but good enough.

    At the rate the miners were going they were actually putting out as much carbon dioxide as a small country, not good. Let's hope for our sakes that crypto currencies won't created another bubble for our wallet's sake and our environment's.
  • bubble (Score:4, Insightful)

    by matushorvath ( 972424 ) on Wednesday August 22, 2018 @01:47AM (#57172004)

    Whenever taxi drivers start giving you investment tips, it's a bubble.

  • by ayesnymous ( 3665205 ) on Wednesday August 22, 2018 @01:50AM (#57172010)
    Coincidentally that was when Wall Street approved and began Bitcoin futures trading.
  • I owned a considerable amount of bitcoins which I had mined a few years before. When the price jumped to $19 000 in December 2017, I judged that this speculative madness couldn't continue any longer and decided to turn my BTC into cash. Turns out I was right.
  • by Solandri ( 704621 ) on Wednesday August 22, 2018 @02:39AM (#57172232)
    Unless you're shorting, the maximum you can lose is your initial investment. Which makes investing a dirt-simple risk proposition, since you automatically know before you invest your money exactly what's the maximum you could lose (all of it). So the amount these people have lost and are suffering is precisely measurable, and was precisely measurable before they ever invested.

    If you borrow money to invest (loans or leveraging), or short stocks (where the maximum gain is the value of the stock, while the maximum loss is potentially infinite - the inverse of buying stock) without understanding the risks involved, it's your own fault.

    I've bailed out friends and family members with loans - basically invested in them. But it's never affected me financially if they don't pay me back because I made each loan assuming they wouldn't pay me back and I would take a 100% loss. If they do end up paying me back, that's a bonus.
  • by Opportunist ( 166417 ) on Wednesday August 22, 2018 @03:03AM (#57172296)

    People joining pyramid game late are taking heavy losses while those at the top cash out.

  • Ponzi schemes are built on the greed of their victims.

    It's not rocket science, but some people are just too dumb to ever learn even when it's spelt out in the simplest terms.

  • I got out at the top (Score:4, Interesting)

    by captbollocks ( 779475 ) on Wednesday August 22, 2018 @03:47AM (#57172382)

    What really scared me was the number of people that were throwing big money in at the top. Some of these people were very smart people and they basically dropped $30-50k.

    They don't talk about Bitcoin so much anymore, and I don't ask.

    • by GeekWithAKnife ( 2717871 ) on Wednesday August 22, 2018 @04:47AM (#57172528)

      FOMO'ing and buying the top is something that happens in all markets. It is false to say this is because bitcoin is a scam and all that usual FUD.

      The problem is not crypto. It's people. The same trading errors they make in FX or stocks are repeated in crypto.

      Trading is not hard logically. It is challenging emotionally. Most people are afraid to buy when the price is low "what if it goes to 0??" and they then fear they won't "make a killing" as the price increases. With money on the line they fail to make good decisions based on compelling risk/reward calculations.

      They can be really smart but if they never traded before, never had skin in the game then they're just noobs. Noobs do noob things and when there's money on the line they lose it.

      Why people cannot bring themselves to paper trade for a year or so is beyond me. You do not need to lose money. Write $100k on a piece of paper. Risk no more than $2k loss on any one trade. Write your trades down, calculate fees. Write entries & exits. See if over a period of 1 year you can keep your $100k - most people cannot.

      What makes people think they can just sink $50k into something at random, no really knowing what it is they are buying, if the market is trending and expect to make large gains in a short period of time is simply beyond me.

      Trading is about taking other people's money. It's not nice and it's not fair. No one forced anyone to play the game.

      To address your post directly; it's not scary, it's one of the signs it's time to cash out and this ALWAYS happens when a market turns parabolic. That steep rising curve that looks like a sheer cliff drop...too many people that don't know what they are doing buy there.

      They will talk about bitcoin soon enough...when the next bull cycle starts.
  • So where are they guys on /. who were advocating buying in February, March, and April, stating that BTC was worth north of $100,000?

    Did they cash out? Are they still buying now? What are their outlooks for the currency now?

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