brad hart lost $20,000 overnight.
Like other crypto investors, Hart suffered a permanent loss when crypto lending platform Celsius Network went offline earlier this summer.
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“I was under the impression that they were a stable lending platform that charged lenders one price and borrowers another,” says entrepreneur and investor Brad Hart. “They gave investors a margin that I thought was reasonable.”
hart has been investing in cryptocurrencies for the past decade and says if he had known the kind of risks celsius was taking, he would not have invested his money in the lending platform.
hart’s experience is a prime example of the risks that come with cryptocurrencies. even seasoned investors have lost large amounts of money this year. That’s why experts say it’s important to only invest in cryptocurrency what you can afford to lose, even if you’ve been investing for a long time.
celsius was known as an experimental cryptocurrency bank with over a million customers offering returns of up to 18% to investors who were willing to lend their crypto on the platform. As cryptocurrency prices fell in June, the company spiraled into a liquidity crisis, announcing it would freeze withdrawals “due to extreme market conditions.”
The announcement sent celsius into a complete meltdown, and within a few weeks, it filed for chapter 11 bankruptcy. celsius is now on track to run out of cash by October and owes its users about $4.7 billion, according to your bankruptcy filing. celsius did not respond to nextadvisor’s request for comment.
here is what hart learned from the experience, along with his advice for anyone considering investing in crypto:
how hart started investing in cryptocurrencies
hart’s introduction to cryptocurrencies was in 2009, the year bitcoin was created. he invested about $2,000 a year in cryptocurrencies between 2010 and 2015, keeping an eye on the rapidly diversifying cryptocurrency market.
By 2015, Hart had bought a substantial amount of Ethereum, along with Litecoin and Bitcoin. With such a sizeable portfolio, Hart followed the advice of experts and kept his coins in cold wallets like Ledger and Trezor. A cold wallet, also known as a hardware wallet or cold storage, is a physical device that keeps your crypto completely offline.
hart went to dollar cost averaging his crypto from 2015 to 2017, increasing his investment to around $10,000 a year. developed a cube strategy for your investment: a security cube, a risk cube, and a growth cube.
“In the growth group, I invested in stocks,” Hart says. “in the risk bucket there was mostly crypto. at one point, crypto had grown so large that it was a large part of my net worth. I realized I needed to sell some of it because it was also a lot of my net worth, and I felt out of balance risk-wise.”
hart bought on centralized exchanges and moved crypto to cold wallets. He also fully funded his Roth IRAs annually, amassing $80,000 in stocks and index funds. hart sold ethereum and bought a house in 2021 for $490,000.
Celsius drop and crash
In 2021, companies like celsius started offering high returns for investing in cryptocurrencies on their platform.
celsius allowed investors to deposit cryptocurrency into the celsius app, and the company then lent its cryptocurrency to retail and institutional borrowers. Every Monday, clients would receive a payment from the proceeds earned from those loans. celsius announced that 80% of its revenue went to users and offered between 3% and 18% returns for investors. celsius rates varied by currency and other factors: around 3%-8% in bitcoin, 4%-7% in ether, 9%-11% in tether, etc.
The high yields convinced Hart to lend $96,000 worth of bitcoin to Celsius, along with a few other smaller altcoins. He had no idea how Celsius was leveraged for his lending platform, so when the venture began to fail, he realized he “took too much risk and blew up for everyone.” celsius paid Hart back most of the loan, but he lost $20,000 of his initial investment.
“What I had left after the loan was paid off is still in the account. I can’t access it and I probably never will,” says Hart. “The crazy thing is that they were willing to make loans, and I agreed to these loans because they were quite cheap. They should have known better, but everyone should have known better.”
In mid-April 2022, the platform began to show signs of trouble when it began holding the coins of non-accredited investors in escrow, and investors were no longer able to add new assets or earn rewards. things got worse in the following months.
Roughly $300 billion was removed from the cryptocurrency market in May after the stablecoin terraust (ust) and its sister coin luna crashed. And in mid-June, celsius froze its withdrawals, trades and transfers amid a cryptocurrency market crash, with the company saying the assets of 1.7 million users would remain frozen indefinitely.
when celsius began to show signs of trouble, hart tried to recoup his investment. hart could see celsius selling the crypto in his account to pay off his loan, but he couldn’t move any money on or off the platform. he tried to contact celsius several times and sent several emails but never got a response.
“I realized I was on a hot streak and I should sell what I had invested, but I went to work and just didn’t do it,” Hart says. “I’m not devastated, but it sucks.”
advice from an experienced crypto investor
Celsius’ sudden and rapid collapse was a reminder of how risky the cryptocurrency industry can be. Unlike the traditional stock market, there are no strict federally mandated protections for cryptocurrency investors. It’s still unclear if any investors will get their money back from Celsius, and Hart still can’t access his account.
hart has written off losses, but he doesn’t want the same thing to happen to other investors, especially those just starting out in crypto. here’s hart’s advice on how to navigate the volatile cryptocurrency market:
don’t risk money you can’t afford to lose
Cryptocurrencies should be in your risk pool when it comes to investing and make up no more than 5% of your overall portfolio, according to hart and dozens of other experts we’ve spoken to. Hart suggests picking a few coins that you think have long-term utility and value, and investing only what’s okay to lose. Since many crypto projects are new and speculative in nature, the money you invest should be classified as a risk investment, meaning high risk and high reward.
“In 1998, the internet was where blockchain technology is now,” says hart. “Google was a year or two old, Amazon was four years old, and Facebook didn’t exist yet.”
get familiar with crypto wallets
hart recommends buying cryptocurrencies on popular and trusted exchanges and then moving your coins to a cold wallet where you hold the keys. you should also spread crypto among several cold wallets if you have a lot of money invested, he says. Based on our own research at nextadvisor and input from experts, these are the best crypto wallets for long-term investors.
Consider splitting the cold wallet seed phrases and never keeping them in the same places. Hart says that the seed phrases, which are a series of words generated by your crypto wallet, should only be written down on paper and stored in a secure place because it works like a password. “You never want that opening sentence to be seen by anyone or stored on any digital device,” he says.
Consider the dollar cost averaging your crypto investments
For crypto investors, volatility is a fact of life. But there is an old strategy for these new investments that can help protect you from the ups and downs.
hart says that dollar cost averaging, a classic investment strategy where you make regular investments throughout the year, can be a safer way to invest in cryptocurrencies.
Dollar cost averaging, like any strategy, will only be good if the value of your investment increases over time. Crypto is still a new and highly speculative asset, so it’s hard to tell if it will be a profitable investment in the future. Most experts suggest sticking to bitcoin and ethereum, the two most valuable and common cryptocurrencies, when averaging the dollar cost of cryptocurrencies, unless you’re okay with higher risk.
A sudden bump in your cryptocurrency investment, like what Hart experienced with degrees Celsius, can leave you feeling burnt out and wavering. That’s why it’s important to develop a long-term investment strategy that balances risk and safety, so you’re better equipped to stay the course when setbacks strike.
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