My Crypto Journey

In the last few months I’ve completely changed my mind on the “crypto” industry.

Here’s the backstory: I’m hoping it wasn’t the case for any of you reading this, but I lost some money trusting Celsius with my stablecoins. Fortunately, after the Celsius bankruptcy, I promptly removed all the crypto and stablecoins from the other centralized lending platforms that I was also using, such as Nexo, Blockfi, and Gemini.

Nexo is still up-and-running, but Gemini and Blockfi are struggling. Blockfi may be going bankrupt and Gemini paused withdrawals. Both of them use Genesis as their backbone for the lending revenue.

The FTX scam created a contagion that is rippling through the industry. See: FTX’s downfall and crypto’s Bitcoin betrayal

While the DeFi field and the so-called “decentralized” finance seem largely immune, I now feel that the current iteration of DeFi based on proof of stake tokens is also largely a scam waiting to implode. More on this below.

Here’s a general formula for how FTX was able to print money in the crypto space.  First you create a service like an exchange and add features that have actual value. So far FTX was doing well here. Although I did not use them, they quickly became second to Binance in trading volume. Then you create a token, FTT in this case, that can be used to get discounted trading fees on FTX. You also attract venture capital that is eager to get in below the retail floor price of FTT.

You then allow the FTT token to be tradable and low-and-behold, you suddenly have a token that you created out of thin air that is worth billions of dollars. The Venture Capital (VC) firms love it because they can now sell the token to retail investors who are eager to play in the big leagues. No lockup periods for VC in the crypto space when there are retail investors willing to buy the tokens from them.

Exchanges like FTX make their money by collecting fees on allowing unaccredited investors to trade unregistered securities.

FTX can and did use FTT token as collateral for actual assets like bitcoin or dollars. And, in the height of the bull run of 2021, leveraged everything up.

FTX’s method is actually better than some because they actually have a product! Some companies in the crypto space hire a great website designer and sell a token without ever developing an actual product.

The rumor is that FTX was also trading in and created a lot of paper bitcoin. People would deposit their USD and buy “bitcoin” or deposit their bitcoin and use that as collateral for interest yielding products. FTX would then move the real bitcoin to risky DeFi protocols to get as much yield as possible. As long as only a few people tried to move their Bitcoin off the exchange into self-custody, they would be fine, but with a bank run, FTX did not have all the Bitcoin they said they did. The Bitcoin denominated on your account is not actually bitcoin. It is just an IOU.


My Crypto Journey

I initially heard about bitcoin when it was trading for less than a dollar. I think I heard about it first on the original site. I thought it was interesting but would not amount to anything. I bought some at the $400-500 level and sold a little bit higher than that not too much later.

Now enter the year 2021 and by the end of that year the entire crypto industry is skyrocketing. I definitely had FOMO. So, when the crypto industry collapsed by greater than 70%, I got really excited about being able to get back in at a much better entry point than at the all time high.

At this time I was basically only buying ADA on the Cardano blockchain. I liked the “academic” and more rigorous approach of Cardano. Ethereum fees were also extremely high and Cardano and the other “3rd generation” cryptos had means to remedy that. It also did not have the huge run up in price that Bitcoin and Ethereum already had.

I consume a lot of information via podcasts and the Bankless podcast was one that initially attracted me. I soon realized that they are extremely pro-Ethereum and Solana, for some reason. I say “Solana for some reason” because Solana is infamous for shutting down frequently and requiring a centralized mechanism to get it up and running again. Bankless discusses bitcoin a little bit (mainly referencing it when they discuss when Ethereum will flip it to become the most value cryptocurrency). And for reason they seem to disdain Cardano…I still haven’t figured this one out.


Moving into Ethereum

On Bankless I learned about the Merge and the transition of Ethereum (Eth) from proof of work (PoW) to proof of stake (PoS) and all the supposed benefits of that. The Merge was a work in progress for multiple years and the joke was that it was never even going to happen. Leading up to the Merge actually happening in September 2022, the Bankless podcast was extremely bullish on Eth prices. I thought this was a great time to get in as Eth prices had plummeted to less than $1000 at one point from a high of over $4500 about a year earlier.

With a successful Merge, Ethereum looks poised to skyrocket back up into new all time highs. Guys on the show were targeting $8000 or more in the near term. Sounds like a great deal for me….where do I sign up?!

In addition to the podcast, Bankless premium members also get access to several newsletters. I wanted to fully immerse myself in crypto and web3 so started following the recommendations on the newsletters. I bought web3 Unstoppable Domains and even bought several ENS (.eth) domains.

The recommendations were to participate in the new layer 2 (L2) solutions built on top of Ethereum. These include L2’s like Optimism and Arbitrum. Remember how expensive transaction fees on Ethereum can get? The Merge does not solve that but the L2 solutions do. In order to transfer your Ethereum to a L2 you need to use a bridge. Once you bridge your tokens over then you are able to interact on a L2 with whatever DeFi protocol it is compatible with it. This bridge is essentially a smart contract for an IOU of whatever you bridged to the layer 2. Should there be an incorrectly written smart contract either on the L2 DeFi protocol you are working with or even at the bridge itself, your tokens are liable to be stolen if the smart contract error can be exploited.

This happened on the main Ethereum blockchain back in 2016. There was an exploit in a smart contract that allowed someone to siphon off Eth. This was called the DAO Hack. While considering themselves decentralized, Vitalik Buterin and the Ethereum Foundation decided to change the Ethereum code to not recognize the stolen Eth. This created two versions of Ethereum, one unadulterated and the other one with its code changed as Vitalik wanted. The changed version is the one that has the greater value today as is known as Ethereum. This all seems the opposite of decentralized to me…but I digress.

The thing with the Ethereum ecosystem is that every product has its token. This token might get you discounted trades, better yields, or access to services that you would not otherwise be able to get. Just like the scam tokens of FTT, the tokens in the Ethereum ecosystem largely seem to try and create value out of nothing.

Many times these tokens are initially given to developers of the project as well as users of it. Some groups might use tokens as a means to attract venture capital money. The Bankless newsletters walked you through what to do in order to have the best chance of getting as many of these tokens as possible. I did some of that for a couple of weeks, which involved transferring Eth back and forth to show that I was using a protocol. The hope is that I would then be eligible for these free tokens at some point in the future.

Eventually, it got so overwhelming to try and keep up with everything. I’d read the newsletters and just feel anxious that I didn’t have the time to try and get all these free tokens. And, to be honest, it just kept feeling more and more scammy. Each new newsletter would tell me about the next new DeFi project that I should participate in or the NFT that I should buy before they went up in price. How anyone with a life can keep up with it all I’ll never know! (Taxes for all this DeFi nonsense is going to be a pain too!)

Why should these tokens have any value in the first place?

Around this time I started listening to some bitcoin podcasts and went back to their discussions leading up to the Merge and learned about their thoughts on proof of stake. Finally things started clicking…


Enter Bitcoin

As scammy as the Ethereum and altcoin ecosystem feels, Bitcoin feels the exact opposite. Bitcoin is one of the few “cryptos” that can’t be considered a security. There was no Bitcoin premine. No VC backing or developers given early bitcoin tokens.

Even the 2nd largest cryptocurrency by market cap of Ethereum is technically a security and should not be freely trading if the security laws are actually followed. I didn’t know this at the time, but in July 2014 Ethereum had a premine in which about 60 million tokens were auctioned off for a total of $18.3 million dollars with another 12 million tokens reserved for early contributors and the Ethereum Foundation. At the time of the article in November 2021, this amounted to $272 billion dollars and represented 63.7% of the total supply. Insane! I always thought such scammery happened only with the smaller altcoins. Scary to think how much “value” is locked in Ethereum… The only thing going for it at the moment is that maybe it has gotten “too big to fail.” Source

I have now sold all my Ethereum and moved it into Bitcoin. I do not have the overwhelming feeling of not doing enough that I did in Ethereum land and no longer feel pressured into trying to participate in the latest DeFi. I sleep well at night knowing that I am investing in something that has a fixed supply and is truly a medium of exchange.

I differentiate “crypto” and Bitcoin. It is Bitcoin and everything else.

Not blockchain. Bitcoin.

Future blog posts will discuss the benefits of Bitcoin and to counter the FUD that the altcoin community is spreading about it.



I remember a few years ago that the dividend investing community was branching into cryptocurrencies. What is the consensus now? Did the bear market scare everyone away or is everyone all term hodlers?

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6 Responses

  1. DivHut says:

    These lines sum it all up, “I differentiate “crypto” and Bitcoin. It is Bitcoin and everything else. Not blockchain. Bitcoin.” That’s all anyone needs to know. People conflate bitcoin and crypto often and do not realize the huge difference between the two. Kudos on entering the bitcoin maxi world. Sure, you can get into other utility tokens and make a bundle but the risks of rug pulls, centralization, etc. are too great. Sleep well with your BTC knowing that it truly is an unstoppable force.
    DivHut recently posted…Dividend Income Update October 2022My Profile

    • scott says:

      Thanks, DivHut. And to top it off I will soon be running my own Bitcoin node so I can be even more self-sovereign and allow a third party’s node, like Trezor or Ledger, even being able to see my transactions.

  2. Noah says:

    Scott, same here. At the height, I had $3 Mio in crypto. I cashed out $450k, and now have $650k left. I completely lost trust in any centralized platform, be it an exchange, lending platform, etc. I now only stake my high-conviction tokens and have about $150k in DeFi. But I noticed I am sort of paranoid with DeFi as well because one of the projects I used had an audit from a top auditing firm, but then changed the code right after, resulting in issues. Anyways, I think the best is to get all in self-custody, earn staking rewards, and use only the best DeFi platforms to generate passive income. Cheers from Singapore, Noah

    • scott says:

      Hi Noah,

      I agree. Get all tokens and Bitcoin off centralized exchanges as soon as possible. I’m also a little more leery of DeFi now too, especially the DeFi that runs on Ethereum or the other proof-of-stake cryptos. Everything seems a little scammy to me. Though I do have to agree that DeFi worked much better than trusting your tokens to a custodian like FTX!

      There is too much risk in DeFi for me to take part in it now (until maybe bitcoin ends up being the base settlement layer for it). I had done all the layer 2’s on Ethereum and the smart contract risk at each step is just too great for me to sleep at night. If yields are high, then risk has to be there. How am I to know that I am not the product and perpetuating the Ponzi.

  3. Great post, I’ve been a hodler of Bitcoin and Ethereum since 2017, and looking to buy more Bitcoin if it dips down to 12K, which from what I hear may be a bottom. Long term I am very bullish on both, along with Cardono and Chainlink, and others but dont have other positions. I am currently getting yield on my ETH, but it is locked up, and I’m not a fan of that. Once I can get it ‘unlocked’ I may more some to Bitcoin, because like you, I feel there is great value in something with a very finite supply!

    • scott says:

      Hi Investmentsoup, I’m DCA’ing into Bitcoin every day now. I had been a buyer of Ethereum too, but the switch to proof-of-stake (PoS) and all the uncertainty around it being an unregistered security (at least in the US), worries me. I am not as familiar with Chainlink, but do think there is something to Cardano’s PoS system. It is significantly better designed than Ethereum’s. The fact that you have to lock up ETH (minimum of 32 ETH needed) and there is no mechanism yet in place to remove it is a red flag to me. For that reason I did my staking in the liquid staking derivatives like Lido, Stakewise, and Rocket Pool. The problem with those is that you now have Lido with such a huge percent that Ethereum, in my opinion, is no longer decentralized.

      For these reasons, I have sold all my Ethereum and moved everything into Bitcoin.

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