10 Things I Learned Losing 10 Million Dollars

How to Stay Sane in a Mania

In January 2021, I was a crypto outsider day-trading a few thousand dollars of DOGE on my phone.

By January 2022, my crypto net-worth had ballooned to over $10 million dollars.

Then almost all of it disappeared.

If you want the full story, you should read Crypto Confidential. It takes you through exactly what happened in a fun fast-paced thriller of an adventure that you don’t need to know anything about crypto to enjoy.

But what I want to share today are some important lessons around money, happiness, and sanity that crystalized as I reflected on the events of the book.

1. A Lot of Wealth Is Imaginary

When you hold an asset, whether it’s crypto, stock, real estate, gold, Pokemon cards, whatever, you can always check to see what that asset is worth.

You can look at your stock trading app to see what people are buying and selling the stock for, or you can troll eBay to see what a mint-condition Dark Charizard last sold for.

Based on that data, you can add up the value of all your assets and calculate what your net worth is.

But here’s the problem: your net worth is more or less imaginary based on how easily you can actually sell your assets at their supposed value.

The NFT market has been plagued by this problem ever since it crashed in 2022. At the peak of the market in 2022, the cheapest NFT in the “Gutter Cat Gang” collection was 8.5 ETH, about $27,000.

Now the cheapest is 0.25 ETH, about $850. Ouch.

But it gets worse. Imagine you were extremely bullish on Gutter Cats and you bought 100 of them when they were 0.07 ETH. Well then you’re still up 18 ETH, right?

Probably not. There are only 120 Gutter Cats currently for sale, and only 64 sold in the last month. So if you try to list all of yours for sale, a few things will happen:

• If you list them all, you’d be doubling the supply of Cats for sale.

• Doubling the supply would bring the value of the a Cat down significantly.

• Then other people might see the market tanking and rush in to list their Cats, undercutting you and driving the price down further, which could lead to a death spiral in the price.

• On top of all that, you might have to wait weeks or months for your Cats to sell.

And if you sold them off slowly to exit it over time and not tank the market, it might take months to fully exit your position for who knows how much along the way.

Even at the peak of the market, there were only 12 sales on the day it hit 8.5. So there’s no way you could have exited for 850 ETH,

But you’re not thinking about that when you see the number on your net worth spreadsheet. You’re thinking “I have almost 1,000 ETH!” But that number only exists in your mind.

The same mistake can happen in real estate, where you see houses around you selling for crazy numbers and start to believe your house is also worth that much. Plenty of people (including me) fell victim to this in 2022.

And it can happen in companies too, where the founder of a company thinks they’re actually worth what all their shares are worth on paper, not realizing how quickly their fortune can turn. That’s what happened to the Bird founder who leveraged his shares to buy a mansion in Miami, only to have to sell it for an $11 million dollar loss when the value of Bird collapsed.

If you’re holding a highly traded stock in your Robinhood account and you don’t have too much of it, that part of your net worth is almost 100% real. You could almost instantly convert your 100 shares of GME to $2,500 or whatever it’s worth when you read this.

But if you dabble in crypto gambling, buy speculative assets, start a company, do anything where there might be some degree of liquidity concerns, you have to remember your wealth is partially imaginary.

Obviously this becomes a big problem for me in the book. But I won’t spoil too much…

2. Even if You Think You’re Immune, Money Can Still Corrupt You

There’s a point in time during the story where I’m making tens of thousands of dollars a day. I’m not pulling it out into my bank account of course (because I’m an idiot) but I’m seeing that number in my crypto wallet.

So, what do I do? I convince myself that buying a Rolex Submariner is a perfectly reasonable thing to do. Watches hold value, it cost less than I was making a day, and I just wanted one. Besides, the money was never going to stop coming in. Right?

My watch guy (yes, I briefly had a watch guy, that’s how bad I got), texted me that he had one in, and I went out and bought it that day. I didn’t think twice about spending the ~$15,000 on it.

That absolutely was not me a year or two earlier. And if you had asked me the year before what I would do if I had seen that kind of money coming in, I would have told you that I’d be saving and investing all of it. Not buying watches and doubling down.

But once things started taking off, all I could think about was how much higher it was going to go. I didn’t feel like I was being indulgent by buying a watch or going to the Gucci store. It was a drop in the bucket compared to the paper net worth and how much money I was going to make. I still felt like I was being responsible. You gotta enjoy your money a little, right?

It’s almost impossible to imagine how much your psychology around money will change once you start seeing those kinds of numbers. And no matter how much of a minimalist, smart saver and investor you think you are, you might be surprised by how quickly your attitude can change.

3. Diamond Hands are for Idiots

One of the worst mistakes you can make in a mania is buying things for the long-term when everyone else is playing a short-term game.

The big, core assets like Bitcoin and Ethereum are definitely long-term plays. You can buy and hold them and not look at them and feel pretty good about them still being relevant in 10-20 years.

But if you try to take that approach with whatever new fad pops up during the mania, you’re going to be the one left holding the bag.

The “Diamond Hands” meme was one of the most harmful ideologies you could have adopted during the last crypto cycle. When everyone is trying to get rich as quickly as possible, the best way to make sure no one else sells before you do is to convince them that everyone is going to hold onto this asset forever. They’re going to ride it to the moon.

But the reality is that in a speculative mania, you’re playing a giant game of chicken to see how long you can ride it before it collapses. You have to recognize this is true, even if the project behind the token is a fundamentally good one.

Unfortunately, not having diamond hands can lead to some really nasty consequences too, which I also discuss in the book.

4. What Goes Up Fast Goes Down Fast

This is not just a crypto lesson, it applies to all areas of making money.

The faster the value of something, or the revenue from it, goes up, the faster it can go down too.

The shitcoin that goes up 1,000% overnight might drop 90% the next night.

The website that shoots to the front page of Google overnight might disappear next week.

The Amazon dropshipping opportunity you find and make a ton of money on can be quickly cannibalized by another entrepreneur.

Even the faster you try to learn a language the faster you’ll forget it.

Value and income have a certain invisible “durability” measure.

Buying land and building a parking lot in the middle of Austin is slow, expensive, competitive, but once you have it and it’s making money, it will probably perform for a very long time. It’s durable.

Hacking your way into Twitter followers with engagement bait and algorithm optimizations could build you an audience very quickly, but they’ll jump to the next engagement hacker without thinking twice about it. It’s highly fragile.

Almost everyone who falls for the “passive income” trap eventually realizes this. Yes you can quickly build a business and yes you can make money from it, but that money will go away SHOCKINGLY fast, especially once you stop working on it.

And then you’ll be back to square one and wish you had worked on something more durable in the first place.

You’ll be shocked at how quickly some of the stories in the book turned south. Projects that had hundreds of millions, even billions of dollars in them, could disappear almost overnight. If you tried to put money into them with a long-term investor mindset, you would have gotten cooked.

5. Automate Your Decision Making

No matter how smart and rational you think you are, if you start seeing huge dollar amounts attached to something you speculated on, you will get very stupid very fast.

You can’t hope that you’ll make the right decision in that moment. You have to have already made the right decision earlier, before the wave of euphoric success has crashed over you.

Whatever bad impulsive behavior you’re trying to avoid, whether it’s holding a shitcoin too long or not eating desert, the more you can prevent yourself from being able to act impulsively, the better.

One modest version of this is “automatic escalation,” where you can automatically increase the amount that’s deducted from your salary and put into your 401k each year, or with each raise. You won’t notice the small biweekly hit to your income, but over twenty or thirty years it will turn into a significant chunk of change.

There was one way I chose to automate my decision making around selling crypto in the book, and it ended up having a bigger impact than almost anything else I did. If I hadn’t made that one seemingly small choice, I would have been much stupider with my money.

6. Looking at Charts Won’t Make Them Go Up

You’re probably thinking “Yeah, duh,” but you’d be surprised by how quickly you forget this fact once you’re in the maelstrom.

And this doesn’t just apply to crypto. Looking at your Stripe dashboard won’t make your business grow. Looking at the scale won’t make you lose weight. You need to check these things occasionally to make sure you’re on the right track, but if you find yourself constantly looking at some metric, it usually means:

1. Too much is riding on that chart’s short-term performance

2. You haven’t sufficiently automated your decision making

Sometimes you’re constantly looking at a chart because you’ve over-invested in a speculative asset. In fact this is probably the best sign you’re over-invested. If it suddenly dropping 10-20% is going to stress you out because you need this one to work, you’re taking on way too much risk.

In the same vein, if you need your business to double its revenue overnight, you’re probably taking too much risk with it and don’t have a sufficiently long-term view.

Other times you’re constantly looking at the chart because you’re trying to decide what to do. If that’s the case, then you haven’t sufficiently automated your decision making, and you need to create better rules for yourself. You should never be looking at a price to decide what to do. You should already have your decisions made about what you will do at different prices.

Remember that when you find yourself constantly checking some metric, it means there’s a deeper problem you need to address. I wish I had known that earlier, because constant chart-checking definitely led to some of the worst consequences in the story.

7. Cash Flow Feels Better than Wealth

As I mentioned before, there were some periods of insane income during the events of the book.

And during that time, I felt like I was rich. Money felt like it was falling from the sky.

But when the market crashed and the crypto income stopped, I was terrified. I felt awful not having that income anymore.

It was keeping me up at night, making me neurotic, there were periods where I thought I should give up on this writing goal and go find a job.

Here’s the insane thing though: my net worth was actually higher once the income stopped, and over the last two years while I was feeling that terror, my net worth hasn’t changed much.

I felt the poorest when I was actually the wealthiest, purely because I didn’t see new money coming in.

That is INCREDIBLY STRANGE. But it explains why people have such a hard time enjoying the fruits of their hard work and living off their savings and investments. Having wealth does not feel as good or secure as seeing more money come in.

I feel okay about it now, but it’s taken nearly two years to deprogram that relationship. And it was surprisingly brutal to work through it. So it’s another thing to be wary of if you chase making enough money for early retirement or even just being able to take some time off work.

Even if you have enough money to not need to be worried in the short term, you still will be if you don’t see cash coming in.

8. You’ll Never Hit “The Number”

My friend Khe Hy talks about this extensively. And he should know, he walked away from a $2 million a year salary on Wall Street.

It’s easy to make a spreadsheet where you look at what you currently spend, figure out how much you need to have saved and invested (The Number) to deduct that amount every year until you die, and then try to save up that much so you can quit your job and live off of it.

But it very, very rarely works out like that.

You might get close to The Number, then decide you actually want a better lifestyle and keep grinding (the money is “too damn good”).

You might get close to The Number, then find your lifestyle has gotten more expensive along the way and you need to increase it.

You also might run into unforeseen obstacles along the way and never get close to it!

I had one goal when the story in the book started, and once I hit it, I immediately increased the goal. Then I increased it again when I hit the next goal.

It wasn’t until something very unexpected happened that I realized I’d completely abandoned the original reasonable goal for a completely unreasonable one.

9. Don’t Get Too Good at the Wrong Thing

One of the realizations that helped me step out of crypto world and get back to writing was that I was getting good at the wrong thing.

I imagined five, ten, twenty years in the future, and asked myself how I would feel if I never became an extremely successful crypto investor or programmer.

And the truth was, I wouldn’t care. That skillset was near meaningless to me, it was just a means to an end.

But when I imagined not being a successful author that far in the future, I realized I would be filled with regret.

This is how success can become a curse. If you get really good at the wrong thing and you’re making a bunch of money from it, people are telling you how smart and capable and accomplished you are, you might start to think that it is the thing. And then you wake up one day and realize you were duped.

Obviously you probably need to get good at something you’re less thrilled about to put food on the table and get your career started. But don’t forget that it’s merely a tool for the work you really want to do later. Deprioritize it as soon as you can.

10. Life is Surprisingly Short

We have a very limited time on earth to go after our dream work. And while you should absolutely make sure you can afford to chase it before you do, once you can chase it you’re robbing yourself of future joy by not getting after it.

This is why the inflation of The Number or getting Too Good at the Wrong Thing is so sad. If you’re already 30 and have, say, 60 years left, another year spent chasing The Number is 1.6% of your life. If you’re 50, it’s 2.5% of your life.

If you want to commit to a career which requires a long time to get rolling, like writing or music or building a business, waiting isn’t going to shorten the startup time.

You’re going to have to spend those 2, 5, 10 years getting it going eventually. Start before it’s too late.

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Before you go, don’t forget to order Crypto Confidential if you haven’t yet! If you’ve ever enjoyed a piece of my writing, I know you’re going to absolutely love the book.