Losses when trading with bitcoins



When investing in bitcoins can you lose any more than the total amount of currency with which you invested?

Gentlemen, I see my original question has caused a bit of debate. I have been asked by someone to be more specific as the question seems to be causing some confusion. Let me give an example. If I invest 500 US dollars into buying bitcoins; let's say this is not money loaned, but my own money from my own personal savings account; let's also say that I do not trade or buy anything with these bitcoins. This is purely a financial investment with the hope of gaining a return one day of say, 600 US dollars; is it possible (maybe even likely?) that I could lose not just the 500 dollars invested, but also more than this, say 520, 550 or 600 dollars? You experts, please take account of all possible scenarios, fees and other hidden costs when answering my question. Thanks!

S. Robinson

Posted 2016-01-26T23:35:00.347

Reputation: 39

2It would appear that people are interpreting your question in different ways. Could you please clarify? – Murch – 2016-01-27T23:59:10.430

hello leverage anyone? thats how. – angelitto – 2016-01-29T06:20:38.160



Yes, absolutely. Here's just one example of how this can happen:

  1. You invest Bitcoins worth $100 in some kind of high interest scheme.

  2. You cash out of the scheme and get Bitcoins worth $200.

  3. You invest those Bitcoins.

  4. You lose them.

  5. The high interest scheme turns out to be a Ponzi scheme. You are sued to clawback the $100 value of the Bitcoins that were fraudulently paid to you.

  6. You lose that suit and now owe $100 on top of the $100 you invested.

Another example would be if you unknowingly withdraw funds from an exchange that's insolvent, then reinvest and lose those funds. If the exchange declares bankruptcy, your withdrawal could be ruled a preferential transfer and you would have to repay it.

David Schwartz

Posted 2016-01-26T23:35:00.347

Reputation: 48 957

I took investing in Bitcoin as "buying Bitcoin", not investing bitcoins into another thing. – Murch – 2016-01-27T23:58:34.473

1@Murch See my second paragraph. That doesn't require you to do any more than buy Bitcoins, withdraw them, then hold them. If they drop in price and your withdrawal is deemed a preferential transfer, you're again going to lose more than you invested. – David Schwartz – 2016-01-28T07:50:57.943


No you cannot lose money that you do not invest. The only exception to this rule is if you are trading on an exchange that offers the ability to short the market. (take a loan)

Mark S.

Posted 2016-01-26T23:35:00.347

Reputation: 2 540

1Even then, I don't think you can lose more than the balance on your account, otherwise the exchange would be giving you a loan which would seem a very risky business practice. – Murch – 2016-01-27T10:26:04.680

This is a dangerously false thing to say. What if you invest in something that turns out to be a Ponzi scheme, reinvest and lose those profits, and they're later clawed back in a legal proceeding? That's just one example of ways you can lose more than you invest.

– David Schwartz – 2016-01-27T18:42:19.573

My interpretation of the question was that the OP wants to purchase and hold bitcoin as an investment, not invest in a "scheme" as you so elegantly worded it. – Mark S. – 2016-01-27T19:58:23.753

@MarkS. The answer is still dangerously wrong. With that interpretation, my example is invalid, but its logic still applies. See my answer for another example that applies if you just buy Bitcoins, hold them, withdraw them, hold them, they drop in value, and the withdrawal is deemed a preferential transfer and reversed. – David Schwartz – 2016-01-28T07:52:26.900


The answer is No.

You are purchasing something with that USD 500.

You now own an amount of coins. The number is the based on the current exchange rate of USD to Bitcoin minus the transaction fee.

If the value of bitcoin goes down to zero, your "investment" is worth zero.

end of.


Posted 2016-01-26T23:35:00.347

Reputation: 179


If Bitcoin's value against the dollar dropped to $0 after you purchased Bitcoin, you would only lose the total amount you initially used to buy the Bitcoin ($500 in your example).


Posted 2016-01-26T23:35:00.347

Reputation: 44

Right, but you're not considering other scenarios. For example, suppose he buys $500 worth of bitcoins. Then suppose he sells them for $500 and uses that to buy bitcoins. Then say the price drops to $100 and his $500 withdrawal is deemed a preferential transfer and clawed back. Now he has $100 worth of bitcoins and owes $500, giving him a $900 loss on his $500 investment. – David Schwartz – 2017-12-16T16:20:33.540

@DavidSchwartz, you're correct in theory although preferential transfer, from my understanding, is only applicable for values of $600 or greater so it doesn't apply in this case example. As he did ask to consider all scenarios, you make really great point overall albeit quite esoteric and infinitesimally unlikely. Also his $400 "loss" on the value of his bitcoin is an unrealized capital loss so technically not a loss if not sold; but I concur you are correct in principle. – Dr.Plastics – 2017-12-19T01:23:20.383

I don't think they're either esoteric or infinitesimally unlikely consider how the "institutions" involved. We don't know which exchanges are insolvent, if any. We don't know which sites are Ponzi schemes. The risk of claw backs and other liability is very, very real. – David Schwartz – 2017-12-19T03:41:45.743


Yes for example you can buy 1$ worth of coin, the price doubles, market site collapses

you lost $2 worth of coin

Anlhord Smithson

Posted 2016-01-26T23:35:00.347

Reputation: 149

2So if you were going to claim a $2 loss on a $1 investment the irs might not agree with this analysis – Mark S. – 2016-01-30T23:47:43.547