Cryptocurrency investing can seem somewhat like the Wild West at times – and in many ways, it is. To give you the starting edge, we’ve made a list of eight cryptocurrency tips in the form of mistakes you should be looking out for, and how to avoid them.
Falling Prey To Phishing
Phishing scams are a dime a dozen these days, and most of us probably think we can navigate past them easily enough, but attackers desperately want your crypto, and all it takes is one mistake.
Just take a look at this Google result. While it should be Bittrex.com, this phishing ad appeared on Google as Bittrex.ltd, while others showed as “Bitlrex” or a number of combinations. If you’re clicking through in a hurry they may well catch you out.
How to avoid: keep the version of the site you know to be legitimate in your bookmarks, and only ever visit it through this link, not Google. Be wary of any emails claiming to be from the exchange and always make sure any links in an email direct to the legitimate site, as well as checking the email addresses they come from – phishing emails will often be incorrectly spelled or come from a domain not officially associated with the organisation in question.
Not staying safe online and securing your crypto properly can quickly cost you everything.
- Use unique, strong passwords for each site, especially between emails and exchanges. Use a password manager such as LastPass to simplify this process (use this link to sign up for 1 month of free Premium).
- Set up two-factor authentication on all your exchanges and emails.
- Move your crypto off exchanges if you don’t plan to trade it for some time. Put it into a wallet instead; in order of security: Hardware wallets, paper wallets, desktop wallets, and least recommended, web wallets.
- Make sure your PC is secure; run regular virus and anti-malware scans.
- Use a VPN to stay safer and more anonymous online. ExpressVPN is our personal pick.
Not Thinking in Satoshis
It’s easy enough to keep thinking in Dollars, Pounds, Euros (so-called “fiat” money), or whichever other currency you may use back home, but when you’re trading cryptocurrency it’s also worth thinking in Bitcoin – or whichever main trading pair you are using. In Bitcoin’s case, it is divisible to 8 decimal places, down to what’s known as a Satoshi, after its inventor, Satoshi Nakamoto.
Why though? Firstly, this is mainly dependent on if you really believe in the long-term success of a given coin, as you will want to be accumulating as much of it as possible. Think of it this way, if you buy a bag of altcoins for 0.1 BTC, worth roughly $600, and the value of those alts shrinks by 20% in BTC, while BTC increases in value by 30%, in Dollar terms you may look like you’re actually sitting at a profit, at $660. However, if you had simply stayed in BTC, you would be up to $780. If you now sell your altcoins back to BTC, you’d only be holding 0.08 BTC, having lost 0.02, while still believing you’re in the positive Dollar-wise.
This isn’t to say you should ignore the fiat values, they’re equally – if not more – important, and are what we buy our daily bread in, but just don’t neglect those crypto pairings.
Fear-of-missing-out. It’s in us all, you see something climbing sky high, and think it’s time to jump on the train and ride it all the way to lambo town. Unfortunately, this can often be hugely risky, as there is no guarantee this positive price movement will continue much further. Instead, you may be forced to cut your losses and sell, or be left with heavy bags of a coin you had no interest in holding. Tying up your money in a coin you don’t want it in or straight up losing money are two mistakes no one wants to make.
How to avoid: do your own research and only invest in coins that you believe have a future. While jumping on a bandwagon can go right from time to time, it will more likely take a big chunk out of your pocket, which leads me into the next point.
Pump ‘n’ dumps
As the old saying goes, if it seems too good to be true, it’s probably a pump ‘n’ dump. This is a scheme whereby a coin is rapidly inflated in price by a coordinated group of “pumpers”, who intend to push the price up to a much higher value, at which point they “dump” and sell their coins to people at the highest point, causing the price to crash back down, often to its level prior to the pump action. Easiest to do with coins with low volume, which is why you often see this practice with unknown coins or coins deemed “dead”.
How to avoid: don’t FOMO buy, and as I said before, do your research before you jump in.
Listening To The Shills
“Shills” are essentially just people pushing their own agenda – or coin(s) of choice in this case – and nothing makes people push their own agenda more than when their money is at stake. It pays to be a sceptic in crypto, because once you start reading crypto-related groups you’re going to be seeing a lot of people with very little to no credibility telling everyone how “X” coin is the next big thing and guaranteed to make everyone a millionaire. That’s not to say that it can’t be true from time to time, but just be careful that you don’t see a certain coin being spoken about by everyone and jump right in. While not always, shills and pump ‘n’ dumps can also be connected; numerous shills temporarily raise the profile of a coin to attract new buyers, and then dump on them at the peak.
How to avoid: if you keep hearing about a particular coin, don’t necessarily ignore it, but once again, do your own research and find out if it’s the real deal. Nobody knows what the next best cryptocurrency to invest in is, but with a little due diligence you can at least eliminate the guaranteed losers.
This doesn’t really need much explanation, but several crypto schemes have appeared which promise 1%+ daily returns on your investments, and somehow keep attracting investors. Imagine, invest $1000 today, with 1% compounded daily interest (where you reinvest your earnings), you would have $50 million in 3 years. As nice as that sounds, it doesn’t seem too likely that a company could keep that up for long.
These kind of returns are simply unsustainable for any longer period of time. It is true that you can come out on top with a profit if you get in and out in time, but the entire model of these systems are built on the idea of fresh capital being fed into the system by new users. Eventually, the new users will run dry, capital will run out, and many people will lose a lot of money.
Bitpetite users seem to have been some of the victims to such a scam, with the site being shut down, social media accounts deleted, and the owners going radio silent.
The biggest crash and burn in crypto was of course BitConnect, which promised 1% daily returns on what people “invested”, and ran on for almost two years, reaching a peak price of just over $500 per coin. In January 2018 it finally suffered a major crash as the legal ramifications of running such a platform made itself known in the form of a cease-and-desist letter from the Texas Securities Board and North Carolina Secretary of State Securities Division, after which the price quickly spiralled into a free fall, and at the time of writing is sitting at a measly $0.45. While the BitConnect team seem to have gotten away with this so far (though legal action appears to be mounting), many investors lost out on huge sums of money in the process.
How to avoid: stay away from anything promising you unbelievable returns.
“I haven’t lost until I’ve sold”
Well, you haven’t realised your loss. Just because you haven’t yet booked the loss, doesn’t mean you haven’t actually made one.
It’s easy to have this mindset when you think that the market is bound to recover back to your initial investment cost and rally from there, but it doesn’t always happen, and you also have to take into account the opportunity cost of having been tied into that position.
Think of it this way – if you had bought Bitcoin at its previous high of just under $20k, would you be happy to still be holding it now, at $6k? Of course not, you might even be swearing to never put a cent into crypto ever again. At the same time, if you had taken a 10% loss, sold, and simply waited, you would have been able to rebuy far more BTC for the same money, and potentially even have managed to make even more by trading some of the swings that have taken place over the last few months.
How to avoid: This isn’t to say that it’s that easy. None of us are fortune tellers, but it can be a good idea to know when to cut your losses and be patient. For complete beginners we recommend at first investing just a small amount into the market so you can get a feel and truly understand the high level of volatility that exists in crypto, and then think about investing more when you know what kinds of losses you are comfortable with accepting – for short or long term. Of course, if you feel you’ve found the next Facebook or Google, and don’t intend to sell the coins for a few years, you can switch off and forget – we absolutely don’t recommend active trading for everyone (although learning some technical analysis can’t hurt), but it can be a good idea to keep an eye on the overall state of the market, and not to become disillusioned with a false sense of where you stand – a loss is a loss. If you have some skills to offer you could also look into freelance websites that pay in bitcoin or other cryptocurrency. This way you can earn some crypto relatively risk-free (besides your time), so you have a little skin in the game to make your first trades.
There you have it, eight mistakes you want to avoid at all costs. In summary, secure yourself online, be sceptical of everyone (including us), ignore the shills, don’t get caught up in a Ponzi scheme, and don’t jump on a bandwagon unless you’ve done your own research!