Invest at your own risk; this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
This post might be a surprise for my dear readers, since I only write about single stocks, interesting sectors or the economy as a whole, mixed with learnings from books and other interesting bits and pieces.
What most of you don’t know: I was once happily trading in cryptocurrencies as well. Ever since then, I loosely follow what is happening in crypto land, and last Friday was one of these events that are so fascinating that I took a closer look. Tweets like this one appeared all over my news feed.
The background story
I have been investing in stocks for 15+ years and bought small amounts of Bitcoin, Ethereum, and some other coins a couple of years ago. Unfortunately, not enough to have life-changing gains, as some people that I personally know have made. In late 2021, I wanted to learn more about crypto, blockchain, and everything around this fascinating asset class, which is here to stay.
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Most traders/investors/speculators - call them what you want - stay on the level of centralized exchanges (CEX) such as Coinbase. Here you can buy and sell crypto by transferring real-life money, such as EUR or USD, to the exchange and then buy yourself a fraction of an asset such as Bitcoin (BTC). Given the insane price development of Bitcoin, it has a tendency to attract new money and people hoping to make quick riches.
I went a level deeper back then and also traded crypto on decentralized exchanges (DEX). These DEXs are peer-to-peer marketplaces where you can trade directly with other market participants on a chain. A chain is a decentralized digital ledger, or short-term technology that powers most cryptocurrencies. It’s called a chain, since all transactions are stored and linked together and therefore tracked. The most famous chains include Ethereum and Solana.
Long story short: I was one of these traders on DEX and made money at an unprecedented speed. Before you imagine me now writing this article from my private island while sipping a cocktail in my villa overlooking my Ferrari collection, I must tell you some more details: I only used money that I could afford to lose and treated it as a fun side activity. Most of my wealth stayed in fantastic companies/stocks because that’s where I feel at home. AND more importantly: In the following crypto winter of early 2022, I lost all the money that I had made so rapidly in the preceding weeks. As they say: you live by the sword, you die by the sword. I don’t feel bad about the losses and had tremendous fun while it was going up, and some regrets while it went down.
As our grand master Warren Buffett always said:
“You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital
I was clearly outside my circle of competence and knew it. That’s why I only invested gambled with small sums of money. Let’s be honest: Most people who say “I invest in crypto” are actually just gambling. To this day, I hold a very small amount of money in Bitcoin, and looking back at the funny coins and tokens that I purchased back then, I am happy that I don’t own them anymore. Quite a lot of them completely disappeared for good and have been replaced with newer and sometimes even sillier versions.
The fact that a token called “Fartcoin” reached a market cap of above $2 billion USD in early 2025 tells you all that you need to know.
What happened on Friday, October 10th of 2025?
The stock market has been on a roll for many weeks and has been hitting all-time highs after all-time highs. I am happy about this, and so is almost everybody else. Those who are not happy are the doomsayers, who have been predicting the next big crash for 17 years straight and haven’t been right once. These people include Robert Kiyosaki, the author of the well-received book “Rich Dad Poor Dad”.
Since this tweet from him, the S&P500 is up 68%. Case closed, the jury is dismissed.
Coming back to this eventful Friday: Stocks at an ATH, Bitcoin close to its ATH of $125,000, and the markets are ripe for a correction. Sooner or later, every market needs a correction, and usually the explanation is found after the event. The stock and crypto markets are some of these bizarre animals where the event happens first and then the story is created. In this case, it was Monsieur Trump with a new round of tariff escalation pointed at China.
The stock market fell 2.7%. To set this into perspective: On a longer horizon, you can barely see that anything happened. This is the year-to-date chart.
You might conclude: So what’s the big deal? We merely gave up some of the gains of this year, and I agree with you. The picture changes, however, if you add a large dose of leverage. Leverage means that you borrow funds (money) that you don’t own and increase the size of your position by a large magnitude.
Leverage
Leverage plays a large role in all kinds of markets, from real estate to stocks and also crypto. Nassim Taleb wrote about the turkey that expects good times forever based on his observation of history:
“Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”
A lot of traders woke up feeling like a Turkey on Friday. The role of leverage in crypto tends to be a lot higher than in other markets. If you are 2x leveraged in Bitcoin and you hold $1000 worth of Bitcoin, it means that you now control $2000 worth of Bitcoin. This is all fun as long as the markets, or in this case Bitcoin, go up, since you double your gains. Since all coins have a flipside, leverage has a nasty one, too. My hero Charlie Munger had it right, as usual:
If the asset that you are speculating in loses 10%, you are losing 20%. If it goes down 20%, you lose 40% and so on. Where it gets critical is the so-called liquidation risk. If you are 2x levered and Bitcoin drops 50%, you lose 100% of your investment. In this case, your position gets liquidated and you lose everything. It does not matter if Bitcoin goes up afterwards. You are done and out of the game. As they say: Always fight to live another day. In this case, there is no tomorrow.
You will rightfully point out that Bitcoin is unlikely to drop 50% at once, so 2x leverage should be fine. What about 3x leverage (a 33% price drop and you are out), 10x leverage (10% price drop and it’s over for you), or 50x leverage? Who in their right mind would gamble with 50x leverage, since a 2% move against you will knock you out?!
Guess what: Coinbase, the third largest crypto exchange, offered 50x leverage since September this year. The largest crypto exchange, Binance, even offers a staggering 125x leverage. You might as well play Russian Roulette.
The Blowup
All this leverage blew up a lot of traders on this eventful Friday. Debts must be paid, and so a lot of accounts and the people behind these accounts got liquidated. If one account gets liquidated, it can create a domino effect, and the price pressure continues. More and more accounts get liquidated, and the price keeps dropping, resulting in more liquidations. Especially in smaller tokens, the price action can take crazy turns. A total of $9.4 billion was wiped out in a single day.
Remember Fartcoin from before? It dropped 50% within 6 hours.
Fartcoin is, as of today, still at #128 of the largest crypto assets, and you can bet that a lot of people gambled with leverage on this brainfart. Even a mild 2x leverage position would have wiped you out. Most people chose a lot more leverage and were out within minutes. Twitter and Reddit are full of stories like these:
The Lessons
Life provides you with a never-ending string of lessons. Some are nice, some are sad, and some are very painful. This event was for a lot of people a very painful lesson. Don’t use leverage. Period.
I am not writing this article to make fun of these people. I feel a mix of “I am sorry for them” and “what were you thinking?”. This was obvious that a coin called Fartcoin or PUMP has no value. You were just playing the greater fools game: Hoping that a greater fool than yourself will offer you more money for a worthless asset than you paid for it. When the music stops playing and the light goes on, you might discover that what you thought was a wonderful thing is just a pile of worthless dirt.
There are a couple of lessons that I learned early on, and I wish to pass on to others who are at the beginning of their investment career. That’s the motivation behind this Substack: to teach people how to invest better. These lessons are:
Know what you own
Be comfortable owning this asset in 10 years
Don’t use leverage
Always go for quality
If you apply these 4 lessons, you will beat 90% of all investors, and I don’t even count the gamblers.
So what about Crypto?
Nobody knows where the price of Bitcoin will be in 10 years or even tomorrow. Bitcoin itself has no cash flows that allow you to predict what it could be worth based on the fundamentals. I know all the reasons given by pro-crypto people, and I do believe that Bitcoin is here to stay. At what price, I don’t know. Gold itself has also close to no utility and keeps going up.
What I can tell you: A lot of those coins and tokens that are hyped right now will fade and reach their inherent value: $0. This is a snapshot of the largest crypto coins and tokens from November 2021, when I was active. These are ranked by marketcap and show #11 to #31.
Out of these 21 assets:
Only one increased in value: Wrapped Bitcoin, which is more or less Bitcoin
Three kept their value stable: Binance USD, Stellar, and Bitcoin Cash
One was down 20% (Chainlink) and one 50% (Litecoin)
The rest was down at least 70%, with 7 now being basically worthless
Pick your chances: Therefore, Either buy Bitcoin or buy fantastic companies like the ones that I write about here.
