Investment lessons from cryptocurrency

While at College I took a finance class that focused on trading. The teacher was pretty good and tried to keep it fun but pricing stock options using the Black–Scholes formula and Excel isn’t exactly a walk in the park. I had always heard the stock market could not be predicted, and derivatives were described as even less predictable than stocks (shout out to Lehman Brothers circa 2007). So I wondered why I had to learn mathematical pricing models that were incredibly complicated and not even good at predicting anything outside of a controlled, hypothetical environment.

In my opinion the best part of the class was a trading contest all of the students participated in for most of the semester. We were given fake MXN $100,000 that we “invested” in a stock market simulator, with a 20 minute delay from the real Mexican stock market. I was hooked. From this exercise I learned how stocks reacted to company announcements, public expectations, and plain old rumors. Finally I was learning something practical and most of all real.

Fast forward three years to a few months ago. I read finance news every day but gone were my days of religiously looking at the stock market performance. And then came Bitcoin. I had of course heard of Bitcoin before but it always seemed to be in negative news, focusing on how Bitcoin enabled people to do sketchy things without being traced or how it was bound to become a bubble and held no real value.

CoinDesk

Working in a tech startup I was surrounded by people who knew another side of the story. I learned Bitcoin trading was enabled by Blockchain, a new type of data base that made transactions safer than ever and supported not only Bitcoin but several cryptocurrencies (in my humble opinion, the future of banking); I learned Bitcoin was first explained in a 9-page paper by a mysterious author nobody had identified; I learned a little bit of the cryptography (Hash it out!) behind the term cryptocurrency and how mining works; and I found it all fascinating.

Right about the time I was doing all this learning, Bitcoin had a major moment. So I decided to take the plunge and buy some cryptos through the -Mexican cryotocurrency exchange Bitso. My investment was pretty modest, I only bought about USD $150 of Bitcoin and Ether, but boy was it fun! If you look for cryptocurrency news between May and September you can understand what I’m talking about. Every major news or opinion I read affected my portfolio’s value dramatically. I ended up making a 30% return in just over two months, cashed out my investment and kept the profit in the exchange.

So yes, I made a little bit of money for virtually no cost and / or work, but most importantly I learned a lot. I not only learned what that finance class I took years ago tried to teach me (when to buy / when to sell / when to ride it out), I also learned about technology, current affairs, even politics for following cryptocurrency news and managing my tiny tiny portfolio. So maybe it’s a bubble, and you probably won’t get rich doing it; but investing in cryptocurrency can teach you a lot. And hey, even if you lose that USD $100 you’ll be more interesting, won’t you?

This is a reminder to keep an open mind and try everything once.