Brad Hart lost $20,000 overnight.
Like other crypto investors, Hart took a permanent loss when cryptocurrency lending platform Celsius Network went down earlier this summer.
“I was under the impression they were a stable lending platform that charged one price to lenders and another to borrowers,” says entrepreneur and investor Brad Hart. “They gave a spread to investors I thought was reasonable.”
Hart has been investing in cryptocurrency for the last decade and says if he had known the kind of risks Celsius was taking, he wouldn’t have invested his money with the lending platform.
Hart’s experience is a prime example of the risks that come with cryptocurrency. Even seasoned investors have lost big amounts of money this year. That’s why experts say it’s important to only invest in crypto 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 more than one million customers that offered yields as high as 18% to investors who were willing to loan their crypto on the platform. As cryptocurrency prices slid in June, the firm spiraled into a liquidity crisis, announcing that it was freezing withdrawals “due to extreme market conditions.”
The announcement sent Celsius into a full meltdown and within a few weeks, it filed for Chapter 11 bankruptcy. Celsius is now on pace to run out of cash by October and owes its users around $4.7 billion, according to its bankruptcy filing. Celsius did not respond to NextAdvisor’s request for comment.
Here’s what Hart learned from the experience, along with his advice for anyone who’s considering investing in crypto:
How Hart Started Investing in Crypto
Hart’s introduction to cryptocurrency was in 2009 — the year bitcoin was created. He invested about $2,000 a year in crypto from 2010 to 2015, and kept his eye on crypto’s rapidly diversifying market.
By 2015, Hart had purchased a substanial amount of ethereum, along with litecoin and bitcoin. With such a sizable portfolio, Hart followed expert advice and kept his coins on cold wallets like Ledger and Trezor. A cold wallet, otherwise known as a hardware wallet or cold storage, is a physical device that keeps your crypto completely offline.
Hart moved to dollar cost averaging his crypto from 2015 to 2017, ramping up his investment to about $10,000 a year. He developed a bucket strategy for his investing — a safety bucket, risk bucket, and growth bucket.
“In the growth bucket, I invested in stocks,” Hart says. “In the risk bucket was mostly crypto. At one point, the crypto had grown so much that it was a huge portion of my net worth. I realized I needed to sell some of it because it was also a huge amount of my net worth, and I felt unbalanced risk-wise.”
Hart bought on centralized exchanges and moved the crypto to cold wallets. He also fully funded his Roth IRAs annually, amassing $80,000 in stocks and index funds. Hart sold some ethereum and bought a house in 2021 for $490,000.
Celsius Crash and Getting Locked Out
In 2021, companies like Celsius started offering high returns for investing in crypto on their platform.
Celsius allowed investors to deposit cryptocurrency into the Celsius app, and the company then loaned their crypto out to retail and institutional borrowers. Every Monday, customers would receive a payment from the revenue Celsius gained from those loans. Celsius advertised that 80% of its revenue went to users, and it offered 3% to 18% returns for investors. Celsius’ rates varied depending on the currency and other factors — about 3% to 8% on bitcoin, 4% to 7% on ether, 9% to 11% on tether, and so forth.
The high returns convinced Hart to loan $96,000 worth of bitcoin to Celsius, along with some other smaller altcoins. He had no idea how Celsius leveraged itself for its lending platform, so when the firm started to go belly up, he realized he “took too much risk, and it blew up for everyone.” Celsius paid Hart back for 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 get access to it and probably never will,” Hart says. “The crazy thing is, they were willing to make loans, and I was OK with these loans because they were pretty cheap. They should have known better, but everybody should have known better.”
In mid-April 2022, the platform started to showed signs of trouble when it began holding non-accredited investors’ coins in custody, and investors could no longer add new assets or earn rewards. Things took a turn for the worse in the following months.
Roughly $300 billion was wiped from the crypto market in May after stablecoin TerraUST (UST) and its sister coin LUNA collapsed. And by mid-June, Celsius had frozen its withdrawals, swaps, and transfers in the midst of a crypto market crash, and the company said the assets of 1.7 million users would remain frozen indefinitely.
When Celsius started showing signs of trouble, Hart tried to get his investment back. Hart could see Celsius selling the crypto in his account to satisfy his loan, but he couldn’t move money in or out of the platform. He tried contacting Celsius multiple times and sent multiple emails but never got a response.
“I realized l had a good run and should sell what I had invested, but I got busy and just didn’t,” Hart says. “I’m not devastated, but it does suck.”
A Seasoned Crypto Investor’s Advice
The sudden and rapid collapse of Celsius was a reminder of how risky the crypto industry can be. Unlike the traditional stock market, there aren’t robust federally mandated protections in place for crypto investors. It’s still unclear if any investors will get their money back from Celsius, and Hart is still locked out of his account.
Hart has written off the losses but doesn’t want the same thing to happen to other investors, especially those who are just starting to invest in crypto. Here’s Hart’s advice on navigating the volatile crypto market:
Don’t Risk Money You Can’t Afford to Lose
Crypto should be in your risk bucket 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 talked to. Hart suggests picking out a few coins that you believe have long-term utility and value, and investing only what you’re OK losing. Since many crypto projects are new and speculative in nature, the money you put in should be categorized as risky investing, which means it is 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 crypto on trusted, popular exchanges and then moving your coins to a cold wallet where you own the keys. You should also spread crypto out between multiple cold wallets if you have a lot of money invested, he says. Based on our own research at NextAdvisor and input from the experts, these are the best crypto wallets for long-term investors.
Consider splitting up the cold wallet seed phrases and never keeping them in the same places. Hart says the seed phrases, which are a series of words generated by your crypto wallet, should only be written on paper and stored in a safe place because it functions like a password. “You never want to have that seed phrase seen by anybody or ever stored on any digital device,” he says.
Consider Dollar-Cost Averaging Your Crypto Investments
For crypto investors, volatility is a fact of life. But there’s an old strategy for these new investments that can help shield you from the ups and downs.
Hart says dollar-cost averaging, a classic investing strategy in which you make regular investments throughout the year, can be a safer way to invest in crypto.
Dollar-cost averaging, like any strategy, is only going to be a good one if your investment increases in value over time. Crypto is still a new, highly speculative asset, so it’s difficult to know if it will be a profitable investment in the future. Most experts suggest sticking to bitcoin and ethereum — the two most valuable and commonly held cryptocurrencies — when dollar-cost averaging crypto, unless you’re OK with more risk.
A sudden blip in your crypto investing, like what Hart experienced with Celsius, can leave you feeling burned and hesitant. That’s why it’s important to develop a long-term investing strategy that balances risk and security, so you’ll be better equipped to stay the course when setbacks arise.