The transition from 2017 to 2018 was a bumpy one. Even some of the most seasoned traders reflect on the year that was 2018 as one of the worst years of their life. One recalled standing at a street corner looking over their portfolio and wondering what went wrong. How in the world did their crypto net worth become what it was at that time a seeming split second removed from ATH and euphoria?
Anguish comes from euphoria’s withdrawal. It’s a withdrawal symptom just as much as any other.
Traders unilaterally felt the highs as they rose through the end of 2017. Place that in stark contrast to the people so easily disregarded as tears in the rain; those who lost so much after putting in everything and then some. Losing money through the end of 2017 in cryptocurrency seems nearly impossible unless you bought the top of every shitcoin on Upbit. Most would find it unimaginable. That’s why the problems for many who lost their money began in the few weeks starting off 2018, which is where this chapter picks up.
This was a time when even non-traders who rested far on the fringes of understanding blockchain understood how ‘trustless’ reigned as the ultimate underlying principle of the blockchain space. Not your private keys, not your cryptos became a trope that remains painfully true to this very day. Trustlessness will never go away from the space – and for good reason considering how much the general population still rely on so many intermediaries to conduct their financial business. Trusted sources pile aggregators on top of aggregators for the sake of appearing more trustworthy while those in cryptocurrency stress decentralized finance with as little trust as possible.
With that, as decentralized finance, or DeFi rises to the top via market evolution, Bitcoin remains the simple solution and the earliest precedent for why trustlessness is best.
More trust means more cost. The market will recover soon, I know it. Too many repeated those words and drove others down into the depths of financial ruin that tend to follow over-reliance on trust. This chapter aims to explore a case study of one whose life faced irreparable change in the face of the hardships that would befall them following the Bitcoin Bubble Burst. Consider it an exercise in the costs of trust and the merits of trustlessness.
Steven
Steven came from an inauspicious background in the Far East. His upbringing was comfortable but unremarkable. His family had enough capital to send him to fine schools in his home country and abroad in the United States where he remained for nearly 10 years.
He returned to South Korea, his home country, after graduating from college, which he also attended in the United States. At this point, he identified more closely with his American friends than his compatriots. Indeed, his accent and food preferences betrayed none of his distant roots. To this day he blends in seamlessly with those foreigners he calls friends; and he laments how he now must endure a social hierarchical burden at the place he works. You see, he now hA a job at an office not unlike those described in earlier chapters where there are long hours, unforgiving protocols, and a strict pecking order in which he, as a younger member of the team, lingers somewhere near the bottom.
Steven comes off as calm enough but it is a veneer. He trades cryptocurrency and has since 2017. Such a hobby or vocation precludes one from calmness regardless how their face may look. That said, crypto traders’ faces often tell the entire story by shading emotionless, catatonic, stricken with wrinkles far too advanced for one’s age. Sleepless nights abound when positions are placed – positions that always seem too high or too low, and which must always be monitored. It’ll be fine they tell themselves, it’ll pump tomorrow. The feast of cortisol all day and night takes its toll on a body. The turmoil traders suffer places them in an Olympian league of nervous endurance facilitated by heroic stomach linings. Steven is no different. His comrades in the trading community know him for what he is: one of them.
On his return to his home country, Steven had much to learn about the world. Afterall, who really is ready to tackle the challenges of a day-to-day professional life right out of college? Most addled graduates spend time shaking off the bad habits they acquired while being merely semi-productive members of society. Taking the grand leap into the economically productive, well-adjusted ranks requires some courage. It was during his time wrestling with the traditions he had acquired from the United States and those he was born into that some of his friends introduced him to cryptocurrency. Some might say it was all over for him at that very moment in May of 2017.
His friends in Kakao chatrooms urged him to take the blue pill and dive into a world of lambos and riches beyond belief. It should be noted that people in his country routinely come in at or near the global top of average weekly and daily alcohol consumption per capita. In a way, Steven was well ahead of the curve by making his first BTC purchase of $200. At the time, one Bitcoin was worth about $1,700, so his investment would have bought about 0.11 BTC. This small investment itself would offer remarkable returns in just a few months’ time had he held it and done nothing else before selling in December of the same year.
Like so many fresh crypto traders, Steven did not even bother to look up what blockchain was before first figuring out how he could buy cryptocurrency. His modest investment was made on a whim on advice from other presumably whimsical friends. With friends like that, who needs enemies?
Steven checked in on his holdings in December which, to his surprise, had increased in value by about 10x. It was a euphoric revelation that the entire world needed to know of – Bitcoin was the future and that anyone who owned cryptocurrency in that moment would become or remain astronomically wealthy. Pinpointing the cause of euphoria might be as easy as reverse engineering anguish since one begets the other.
The common themes of 2017
Steven’s personal euphoric moments felt like a drug-induced high. He aimed to maintain the high by injecting more of his hard-earned money into the market. By December, he had invested an additional $6,000 into cryptocurrency. In his own words he said that he was hooked from that moment and that he then, from that point, had really begun to invest in crypto. Sometimes the oldest laws are the best: every action has an equal and opposite reaction. It wouldn’t be easy for someone in his state of mind to see what was on the horizon.
All the conflicting reports of FOMO and FUD confused those unable to really watch what was going on, especially in Korea. Only those looking in from the outside – those without a dog in the race could see how it would end but anyone bothering to look closely from the outside wouldn’t stay outside for long. It was just too easy to get swept into the frenzy. That, in itself, however, was part of the problem: people like Steven didn’t research what they were really getting themselves into. Too many stimuli conspired against their better judgment to play the market for all of the opportunities it offered beyond just ‘some money in, a lot of money out’. Trading is hard work even in a bull market.
By Steven’s own account, he began his researches in the market through word of mouth from the friends who initially pressured him into investing in the first place. They guided him towards some Reddit communities at a time when the Reddit cryptocurrency communities were still relevant and well-informed. The means of communication in the cryptocurrency trading field tend to shift almost as quickly as the market itself. Fast changes require equally fast and wide paths of communication which Reddit, as an online community, cannot accommodate as well as others.
As an example of the slowness of Reddit compared to others at the time, Steven admits that his participation in Crypto of Korea was a turning point in his understanding of the market as he really began to ‘ramp up’ his knowledge on both the blockchain technology underlying the cryptocurrencies being traded and the trading market itself. So, by the end of Q1 2018, most power traders were exiting Reddit as a trusted source of up-to-the-minute information on the crypto scene. Even Chrissy, who had begun his advertising campaign for Crypto of Korea had moved largely away from Reddit to spend more time on twitter to promote himself as the face of the group.
After his initiation into the crypto markets in late 2017, Steven says he served as something of an oracle for uninitiated friends and family members based on his English fluency and keen ability to find the right places to get the information he needed to make the right trades. Trading cryptocurrencies well does not necessarily mean the trader is the smart one, it means that they simply know where to find the best information and the best pools of information, otherwise known as communities. We all need to belong to something.
All seemed well and good for Steven in his quest for the information that would help him make informed trades on his own behalf and the behalf of his loved ones. Our crystal-clear hindsight punishes us. We humans tend to forget the bad things in our past barring real traumas because of our fortunate ability to forget. Our minds have the ability to block out the conscious memories that may cause us continual harm while allowing the feelings associated with those memories to inform future decisions. This is a healthy progression in how humans pass from childhood into middle adulthood, procreate, and teach the progeny what to avoid. In crypto, however, the starting number and final number cannot be forgotten or even disregarded as ambiguous feelings when there are bills to pay. The charts don’t lie and won’t let you lie to yourself. Especially people like Steven, those active in online communities, may have broadcast their trades in real time only to later reveal how much they had actually lost in a trade. Being faced with the negative numbers day in and day out leads many to seek out desperate measures. Wise men do not make desperate decisions; wisdom comes from experience.
By his own admission, Steven’s research mostly amount to buying into the hype posted in online communities by less-than-reputable sources. He, like many, failed to do even basic due diligence on their picks. He says, “I didn’t look into whether there was sufficient demand in that market space or if a certain development team had actually had the ability to carry out their goal. I’m going to guess that I wasn’t the only one during the ICO boom era that just bought into every hype, hoping to catch a moon shot.” He is absolutely right: he was far from the only person to have performed that style of ‘research’. Bloomberg released a substantial study on just how much money was raised by ICO and the percentage of them that had poor returns and/or failed to see their project through to project success by mid-2018. By their estimation, around 80% of the ICO in 2017 and early 2081 were scams whose founders and teams had already exited the market with the millions they had fraudulently raised from honest yet naïve people.
Steven was not a rich man when he made his initial investments. He had only first put in about $200 on Bitcoin which went 10x by Q4 2017 while he held. Those attractive returns would tempt anyone looking for quick money to put more in, like he did. The $200 he started with presumably was a substantial sum for someone having just finished college and moving back to their home country as a mere first-year worker at a lowly office position. By the end of the year, he figured that if he could turn $200 into $2000, he could turn even greater initial investments into a fortune, so he gathered about $6,000 from saved salary earnings throughout the year up to that point.
One can presume that $6000 represented the majority of the liquid assets he owned at the time. He acquired the funds in part by working throughout the year and saving diligently, as a young economical spender should. The majority of the funds he used, however, came from a loan he took out to help his family make renovations on a building they owned and to begin making student loan payments which totaled about $40,000 for his USA university education. It must have been a substantial loan. Using the information he gathered from online communities, he estimated that he could make enough money to repay his student loans and increase his savings. He expected to turn $7,200 into $40,000+ in a matter of weeks or months. In all seriousness, such an estimation was not unrealistic considering how many coins performed through the end of 2017. He hadn’t made the connection between the wisdom of market awareness and easy gains, though.
The common themes of 2018
Steven is no outlier – he is actually the exemplar of the how the themes the 2017 Bitcoin Bubble had been manifested among tens of thousands of other investors. His story continued to exemplify the common themes of 2018, as well. So far you readers have come to understand some of the factors that led to the extreme FOMO of late 2017 culminated in the Bitcoin Bubble and the Kimchi premium. Those factors were very real hazards to the health of millions of people globally and hundreds of thousand of Korean office workers who wished to keep their job. Soon you all should begin to understand how financial ruin befell the lowly guppies in the market who dreamt dreams of wealth and mountain-side mansions.
In mid-January, the crypto market took a sudden turnaround. Some would call it a much-needed retrace, others call it the obvious next step when looking at almost any chart from the time displaying a parabolic rise, while others further still would consider it a traumatic turning point. By most estimations, most people fall into the latter category as so many had FOMOed into the market only as late as late December. Following the news would have indicated to anyone really paying attention to what was going on that the market would soon make such a move considering the Korean government was expected to FUD the market at any moment with a shut-down announcement. While they didn’t shut down all exchanges, they might as well have shut down the exchanges for a couple weeks with their announcement about regulatory changes. The announcement forced the market to dump nearly 50% over the next two weeks and began a 2-year downtrend.
Naïve and hopeful traders continued to perceive buying opportunities throughout the next few months to their folly. Steven tapped into his savings more and more to buy the dip he thought would bounce any day. He took out another loan of $15,000 to double down on the losses he had incurred in anticipation of higher highs. As his euphoria dwindled his anguish grew. The formula that had worked up to that point was to inject more funds to achieve higher highs but it wouldn’t work anymore. Luckily for him and his family, he liquidated some of his positions in order pay back his mother some of what he had taken. He made no mention of the outstanding loan balances.
The market continued to plow into his savings since the loans needed to be paid. His monthly debt obligations outweighed his earning power so his outlook was increasingly grim as the months went on. In these situations, the locus of control tends to shift several times. It has been documented how traders coped with the perpetual losses throughout 2018. He first cursed the projects that took the most from him, which had unironically taken the most from all of their investors after pulling off exit scams or simply fizzling into nothing. He cursed the madness of the people around him who shilled garbage projects. Over time he realized that they were bamboozling him to buy their bags. Even in Crypto of Korea snakes abounded with the tacit intent of taking anything they could for their own gain.
Finally, the locus of control shifted to himself. He cursed the madness that was the crypto frenzy. How could I have been taken so easily? To this day he rationalizes the many debts he incurred with his strawman XRP investments which he says were significant gains for him. I don’t actually hold XRP anymore but it holds a very special place in my heart. He sees the experience as part of him, as crypto traders do who haven’t ‘made it’ yet tend to. There is an acceptance that what happened with his losses was almost entirely under his control and that any trade a person makes is their own decision and no one else’s. The violent swings in the market aren’t under any guppy’s control, but knowing that there will be swings is what you accept as a trader.
Trustlessness
The traders from 2017 knew nothing but completely unbelievable rises. They came to expect it. Imagine their befuddlement in early 2018 upon the massive drop and their naivete buying back into a market that was doomed by all accounts. Sealing disappointment and stomach ulcers into a jaded coffin of malaise was the later revelation that so many of the ICO’s people invested in and continued to hold for some reason were mostly scams that were then or would soon be completely worthless. Imagine the tremendous shift in wealth from person to person where trust could not be found in a market whose capitalization topped one trillion dollars.
Trustlessness remains the single most important word in the industry. Throughout 2018 it would come back again and again to highlight its importance whether via personal interactions with the carpetbaggers at conferences, random scam messages on Telegram, or deciding whether to click that link some anon on biz just uploaded to their post featuring a kek meme.
The information Steven took as actionable investment advice was passed on to others in his circle who then most likely passed it on to others in other circles. There was too much trust that the anonymous avatars in Crypto of Korea who happened to be the most active in the chat could provide good advice because of their enthusiasm and the fact that no one had lynched them yet. Too many people trusted that the Russian ‘blockchain-based’ dating app’s ERC-20 token would moon because it was partnered with Google Drive (This is an exaggerated example; a mix of real things that happened meant to accentuate the turmoil that was bound to come). After all, who isn’t partnered with Google Drive? Most high school freshmen technically have an ed tech partnership with Google Drive.
New traders learned to embrace trustlessness in 2018. Cynicism flourishes now and mental health professionals will likely need to cope with the influx of depressed individuals with a flat affect and with poor eyesight from staring at charts all day.
