22-Year-Old Software Engineer Loses $80K in Crypto Due to Margin Investing

Ethan Nguonly, a 22-year-old software engineer, reportedly began his investment journey at a young age with parental guidance.

He has built a substantial financial portfolio, which includes nearly $135,000 in retirement and brokerage accounts, as well as two houses. However, Nguonly disclosed a significant financial mistake that led to an $80,000 loss in cryptocurrencies between November 2021 and June 2022. This loss was incurred while using borrowed funds, a practice known as margin investing. Notably, the loss comprised $30,000 from his original investment and an estimated $50,000 in unrealized gains.

According to a report from CNBC’s Make It, before this financial setback, Nguonly had invested approximately $40,000 in Bitcoin and Ethereum, along with smaller amounts in altcoins like Shiba Inu (SHIB) and Dogecoin (DOGE). Encouraged by Bitcoin’s rising prices, he invested an additional $15,000 on margin. Initially, he saw a gain of about $50,000 as Bitcoin reached its peak. However, the market took a downturn, and by the summer of 2022, Bitcoin’s price had plummeted by over 70%.

Nguonly told CNBC that his critical error was investing money he didn’t actually have, which led to his losses being magnified when the market reversed. Margin investing can amplify both gains and losses. When investing on margin, an individual borrows money to invest more than they could with their own funds. This can lead to increased earnings but also comes with the risk of greater losses, as Nguonly experienced when he faced a margin call due to Bitcoin’s price drop.

The CNBC article emphasizes that to profit from margin investing, the investments’ returns must exceed the borrowed funds’ cost. This becomes particularly challenging with volatile assets like cryptocurrencies, which have always been risky, even during their peak periods. CNBC say financial experts often advise against investing more than one can afford to lose, especially in speculative markets and that regulatory bodies like the Securities and Exchange Commission, the Federal Reserve, and the Financial Industry Regulatory Authority also issue warnings and rules about margin accounts, emphasizing that they are not suitable for everyone.

According to CNBC, Nguonly’s main regret is not his decision to invest in cryptocurrencies but the amount he invested, especially using money he didn’t have readily available. He continues to invest in more established cryptocurrencies like Bitcoin and Ethereum but avoids riskier altcoins. His key lesson from this experience is to invest only what one can afford and to exercise caution with speculative investments.

As per the CNBC article, Nguonly has not completely abandoned financial risks but has become more cautious as his portfolio has grown. He is now focusing on less speculative investments like exchange-traded funds and real estate.

Featured Image via Midjourney

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