“He knew I had all my money in there and he was just like, ‘I’ve seen this before with the dot-com bubble crash, and I don’t want to see you lose thousands of dollars,’ ” McGurn told CNN Business.
“I was lucky,” McGurn said. “I don’t think I’m the norm at all.”
Now, on the heels of their first major sell-off, some are swearing off crypto investing for good, while others are determined to hold on, confident in its promise.
“I don’t want to panic out of something I just ventured into,” said Akshaya Parthasarathy, a 24-year-old living in Chennai, India.
New money rushes in
The mood only got more frenzied from there. Dogecoin, a cryptocurrency inspired by an internet meme featuring a shiba inu dog, began skyrocketing in April, ultimately hitting an all-time high of nearly 74 cents last month. That attracted even more speculative investors, some of whom placed additional bets on spinoffs that have no practical use and are known in the crypto community as “shitcoins.”
After reading success stories online or hearing them from friends, new traders “didn’t want to miss out,” said Lisa Kramer, a professor of finance at the University of Toronto who studies investor behavior.
But some crypto fans remain devout. In fact, small investors in bitcoin — defined as those holding between $37 and $37,000 — increased their holdings from nearly 4.8% to more than 5% of total supply during the recent sell-off, “suggesting increased interest as prices [declined],” according to data from researcher Glassnode.
According to Kramer, there’s a term in academia that can help explain this phenomenon: the “disposition effect.” Research shows that investors feel pain associated with portfolio losses more acutely than gains, and tend to fixate on the price at which they bought an asset. That often serves as a roadblock to offloading poor investments.
“This tendency to hold on to the poorly performing securities can end up continuing to cost the investor,” Kramer said. “Investors often make decisions based on gut instinct, but that can really lead them astray.”
Many crypto investors say they’re still involved because they believe in the technology. Parthasarathy, who recently left her job to pursue a master’s in data science, used to be a crypto skeptic, but was intrigued by all the action surrounding dogecoin and started reading up online.
She ended up investing a small amount in ethereum, as well as hedera hashgraph and polygon, two tokens popular on Reddit’s main cryptocurrency forum. Before long, she was checking the WazirX app used to trade crypto in India “almost every five minutes.”
And though Parthasarathy admits the past few weeks have been gut-wrenching, she plans to stay invested.
“I’m seeing it as a long term thing, and I’m going to keep putting more money into it,” she said, adding that she only invested what she’d be willing to lose.
Rebecca Robinson, a 28-year-old student in San Diego who works part-time as a line cook, lost a few hundred dollars after Musk sent the market into a tailspin. She’s still putting 10% of her paychecks into crypto, including ethereum and the smaller coins cardano and algorand.
“People treat the coins like they’re sports teams,” she said. “If you have a lot of people who [say], ‘Yeah we believe in this coin!’ they’re not going to sell when it drops, and that’s cool.”
But she’s no longer relying on margin trading, which allows investors to borrow funds so they can make even bigger bets.
“Never again,” Robinson said. “It’s too scary.”
McGurn, who started trading crypto in late 2020, is also thinking about investing differently following the market’s recent collapse, even though he narrowly got out before losing money.
“It was kind of a wake-up call for me,” he said. “It’s good to have a little bit in speculative investments, but I can’t risk my life on this.”
“It’s just stupid,” he said. “I’m never going to have as much invested in crypto again.”