Top Binary Options Broker 2020!
Perfect For Beginners and Middle-Leveled Traders!
Free Education How To Trade!
Free Demo Account!
Big Sign-up Bonus!
Good Choice For Experienced Traders!
The 3 Types of Cryptocurrency Traders that are Kicking Your Ass
For an investor to outperform the market, someone else must underperform. That is a simple arithmetic fact.
In a fair and regulated environment, investors have equal access to information. Winners and losers are determined by whoever can make a better prediction.
But cryptocurrency is the wild, wild west. Market participants don’t play fair and they can profit at the expense of others.
Here are the three types of traders that are kicking your ass
Under Rule 10b5–1, the SEC defines insider trading as “any securities transaction made when the person behind the trade is aware of nonpublic material information.” Insider trading is illegal in almost all traditional markets. In a research paper published in 2020, Qin Lei found empirical evidence that insiders were able to consistently beat the stock market.
Over the last year, we’ve seen many high-profile cases of insider trading in the cryptocurrency market.
Coinbase — The Bitcoin Cash Incident
On December 19, 2020, Coinbase tweeted it would add Bitcoin Cash to its exchange. But before the announcement was made public, both the trading volume and the price of Bitcoin Cash suspiciously surged.
On March 1, Coinbase was hit with a class action lawsuit. The full court document is available here.
South Korea Financial Supervisory Service (FSS)
Even regulators are being investigated for insider trading. Korean FSS officials knew ahead of time that new cryptocurrency trading restrictions would be put in place. Yet, they still made trades before the announcement.
The chief of the FSS, Choi Hyung-sik, confirmed on Jan. 18 that trading violations had occurred. Despite being caught red-handed, another FSS official responded that there was technically “no code of ethics or conduct for virtual currencies and therefore difficult to issue any punishment.”
The examples mentioned above are just a few high-profile cases. Insider trading runs rampant in the cryptocurrency space. Very often, prices and trading volumes will pump right before an exchange announces a new coin.
To many, insider trading is no longer a surprise but rather something that “just happens” in an unregulated market.
A whale is simply a colloquial way to describe an investor who is able to manipulate markets by mobilizing large amounts of capital.
Most crypto investors treat whales like the boogeyman. They’ve never had a personal encounter, but swear that whales are responsible for large market swings everywhere.
Here are a few techniques whales use to manipulate price.
Whales intentionally push the price down in order to trigger stop-loss orders. Then they turn around and buy coins from these stop-loss orders for cheap and wait for the market to recover.
This strategy works well for coins with low trading volumes and small order books. With enough coins, whales can push down the price by introducing a slew of market-price sell orders.
To show how this works, let’s imagine a scenario:
- There is a coin trading at $150
- There are 10 BTC of buy orders between $110 and $150
- There are 10 BTC of buy orders between $90 and $110
The goal is to drive the price down past $100, which may be a psychological breaking point for some people and therefore a likely place for stop-losses.
One can do this by:
- Placing a market sell order totaling 10 BTC, to drive the price down from $150 to $110
- Keeping the sell pressure on, as investors naturally start selling their holdings.
- Watching people’s stop-losses go off at $100 without their knowledge. This drives the price down further.
- Buying up all the stop-loss orders at $90 and under.
- Waiting for the market to recover before selling the coins.
This is another form of market manipulation, but one that only exchanges can pull off.
Let’s see how this works on Bitmex for BTC.
- A trader puts up $100 as margin for a 100x leveraged long position of $10,000.
- The bankruptcy price is set at $9,900 which is the market price minus the margin.
- However, Bitmex forces a liquidation if the price falls to $9,950, just $50 (0.5%) from the initial entry price.
- When the market price reaches the liquidation price, Bitmex forces a sell at the bankruptcy price ($9,900).
- At liquidation, investors lose their entire margin and pay the high fee at the 100x leveraged rate.
The price just has move slightly in the wrong direction to trigger a liquidation. When liquidations happen, the investor loses their entire margin and pays a big fat fee.
Because exchanges know exactly what prices will trigger these liquidations, they have both the capability and financial incentive to engineer price movements using bots.
To be clear, there is no evidence implicating Bitmex. But it is suspicious that low volume trading periods are followed by a furious uptick in volume. When this happens, liquidation tears through leveraged positions, leaving traders with nothing other than a fistful of trading fees.
BitmexRekt tweets these liquidations in real time. You can follow them here.
Another common strategy whales use to manipulate the market is called spoofing. It means to bid or offer with intent to cancel before the orders are filled. The goal of spoofing is to send false signals to investors.
Here’s an example of using this strategy to profit:
- A spoofer places a large buy order right underneath a smaller buy order with the intention of sending a bullish signal to the market.
- After filling a few trades, *poof*, the spoofer cancels the entire buy order.
- When the price starts to rise, the spoofer starts to sell his coins.
This also works in the opposite direction. By placing large sell orders, spoofers can send bearish signals and lure investors into selling their cryptocurrencies at a discount.
The last strategy we’ll cover is wash trading. In a wash trade, an investor takes both buy and sell positions. This may be done in order to:
Usually wash trading is extremely hard to prove, as washed trades look very similar to real trades.
On July 27, however, Bitfinex unknowingly baited wash traders during the Bitcoin (BTC) fork to Bitcoin Cash (BCH). At the time of the fork, all BTC holders were to receive BCH commensurate with the amount of BTC they held.
To accommodate for BTC held in margin positions at the time, Bitfinex had to finesse the numbers. To quote the announcement:
BCH will be distributed to settled bitcoin wallet balances as of the UTC timestamp of the first forking block, which is expected to occur on August 1st, 2020.
The token distribution methodology will be:
– All BTC wallet balances will receive BCH
– Margin longs in BTC/USD and margin shorts in XXX/BTC will not receive BCH
– Margin shorts in BTC/USD and margin longs in XXX/BTC will not pay BCH
– BTC Lenders will receive BCH
Due to the net amount of BTC committed in margin positions at the time of the fork, the above methodology may result in Bitfinex seeing a surplus or deficit of BCH. As such, we will be resolving this discrepancy in the form of a socialized distribution coefficient. For example, currently, there are more longs than shorts on the platform, causing a distribution coefficient of
1.091 (Meaning that for each qualifying BTC a user will receive 1.091 BCH). The actual coefficient will be calculated at the moment of the distribution.
These rules turned out to be game-able. Because Bitfinex did not charge BCH to open short positions leading up to the split, one could simply purchase 10 BTC and short 10 BTC. This way, you could collect free BCH without any exposure to BTC price volatility. If BTC drops, the shorts cancel out any loss. If BTC soars, the profits cancel out the short positions.
On July 27, there were more longs than shorts on the platform and the distribution coefficient was 1.091.
However, on August 1, the distribution coefficient moved to 0.7757.
Leading up to the fork, an enormous amount of short positions were created. And instead of prices going down, which is what usually happens when shorts increase so dramatically, prices actually went up.
To make matters even more dubious, shorts dropped by 24,000 on a single tick right after the fork.
The manipulation here was so obvious that even Bitfinex had to acknowledge it. They issued an official statement about the wash trading here.
Pump & Dump Group Executives
So we’ve talked about insider traders and whales.
The final type of traders we’re going to talk about are the pump & dump group executives.
Pump & dump (P&D) is a form of market manipulation that involves purchasing a cheap asset, artificially inflating its price, and then dumping the asset a higher price.
The cryptocurrency market is rife with such groups. Here are just a few:
- Big Pump Signal (82,184 members)
- VIP Signal Strategy (24,138 members)
- PumpKing Community (11,124 members)
- Crypto4Pumps (13,954 members)
- AltTheWay (8,350 members)
Here’s how Pump & Dumps work
- P&D executives find a coin that is easy to manipulate and easy to sell. I.e. A coin with a strong community, advertising potential, small order book, and low trading volume.
- Executives secretly accumulate the coin over time while trying not to affect the price.
- These executives spread their pump signals to their inner circle members who pay upwards of $300 for the privilege of hearing early signals.
- The first wave of pumpers start shilling on signal groups. They tell gullible investors that a pump is about to happen because of “new website updates”, or “new partnership announcements”, generally whatever angle they can spin.
- As the price rises, the P&D executives start dumping their coins.
- Once the executives are spent, they spread the signal to their paid members to begin dumping the coin.
- The price starts falling and like a game of soggy cookie, the slowest players lose.
The reason I single out P&D executives is because they are the only ones that consistently profit. They have the most control and the highest amount of influence.So much so that members are willing to pay $300 for the privilege of being used as pawns. The buyers in signal groups are even worse off. They are falsely led into buying into a promising, undervalued coin, without any knowledge that it will soon be dumped.
So you’re telling me the game is rigged and I’m boned, what should I do?
The simple answer is to stop actively trading. The more you try to time the market, the more you open yourself up to opportunities of getting screwed over.
Speculative trading is a zero-sum game. In order for investors to outperform the market, they require others to underperform the market. In an unfair market, the average investor will more likely lose to people who have an unfair advantage and are gaming the market.
This is why I genuinely believe the average investor should just index the entire market. If you’re in it for the technology and the long-term growth, why bother speculating at all? Just hold a small piece of the entire cryptocurrency market. Indices has been proven to beat 95% professional traders in equity markets over a 15 year-period.
This is why I built HodlBot. It’s an easy way to diversify across the top 20 cryptocurrencies by market cap. It indexes 87% of the entire cryptocurrency market. Every week, your portfolio automatically rebalance so you’re always tracking the top 20 coins. It helps you get some quiet sleep while active traders lie awake, staring at their phones. You can read more about it here.
The best thing about a total market index is that it can guarantee market performance. Active trading, on the other hand, cannot.
I don’t meant to spread FUD by pointing out all the different ways traders are ripping investors off. I just want investors to know what exactly free and unregulated markets really mean.We’re not protected by the SEC or any other sanctioning bodies. While this comes with unbridled freedom and breathing room for rapid innovation, it also means all foul play is fair play.
It’s a brave new world out there filled with all kinds of splendor and danger. If you’re going to take your chances, please make sure you’re prepared.
About the Author
I’m the founder of HodlBot.
We automatically diversify and rebalance your cryptocurrency portfolio into the top 20 coins by market cap.Think of it as a long-term crypto-index that you can DIY on your own exchange account.
Combine HodlBot with dollar-cost averaging, to kick ass even in a bear market.
To get started all you need is a
- Binance Account
- $200 in any cryptocurrency
You can check it out here.
If you want to know how HodlBot indexes the market and completes rebalancing, check out the blog I wrote here.
Understanding the Different Types of Cryptocurrency
There was a time when you could count the number and types of cryptocurrency on one hand. Today that is no longer possible. The crypto market has grown, grown and grown some more!
In this article, I will explain the three main types of cryptocurrency: Bitcoin, altcoins, and tokens. By the end of this guide, you’ll know:
- What the top types of cryptocurrency are
- How many types of cryptocurrency are there
- The differences between them
- And the pros and cons of each
Before learning about the top types of cryptocurrency, it’s important to understand what cryptocurrency is. If you already feel comfortable with your knowledge in this area, please feel free to skip the next section — scroll down to “The Three Main Types of Cryptocurrency”!
Sound good? Let’s get started!
Table of Contents
What Is a Cryptocurrency?
The prefix crypto- stands for “cryptography,” which is a technology that keeps information safe and hidden from attackers. You may have heard of cryptography in history class — it was used to send and receive secret messages by the Allied Forces in World War II.
In present day, computer technicians put cryptography to use in many different ways. One of those ways is cryptocurrency!
Decryptionary.com defines cryptocurrency as “an electronic money created with technology controlling its creation and protecting transactions, while hiding the identities of its users.” For now, you can forget about how types of cryptocurrency are created, and instead focus on what it does.
Thanks to cryptocurrency, people no longer need to trust banks to handle their money and private information (that’s the same for credit card companies, too).
We don’t need banks to process our transactions anymore. Instead, transactions in cryptocurrency are processed on the blockchain. The blockchain is a shared database.
It is shared because it is run by lots of different people and companies, instead of just one company, like the banks are. This way, nobody has power over the transactions or the cryptocurrencies involved, and you don’t need to trust one single company (like a bank) to handle your money.
If this is the first time you’ve heard about blockchain technology, you should check out my other guide on Blockchain Explained!
Anyway, let’s move on to the three main types of cryptocurrencies.
The Three Main Types of Cryptocurrency
The blockchain brings together the three main types of cryptocurrency. Bitcoin was the first blockchain (skip to the Bitcoin section for more information on how it started and what it does).
After Bitcoin, many new blockchains were created — these are called altcoins. NEO, Litecoin and Cardano are solid examples of altcoins. Finally, I must introduce you to tokens/dApps — the third main type of cryptocurrencies. Examples of these include Civic (CVC), BitDegree (BDG), and WePower (WPR).
So, let’s get into it!
A Bit of History
In 2008, the idea of Bitcoin was revealed. Someone named Satoshi Nakamoto published the whitepaper online. However, it was later revealed that Satoshi Nakamoto was not this person’s real name. Even today, no one knows the real name of the creator of Bitcoin!
At the time, nobody knew that Bitcoin would become what it is today. Nobody knew that it would be the start of a huge technological movement… but it was. It was the beginning of cryptocurrencies — the beginning of a new era.
You probably know what happened next. Several years passed in which the primary use of Bitcoin was to trade goods and services on the dark web. Ever heard of Silk Road? Yeah, that’s what I’m talking about.
In 2020-14, Bitcoin grew a lot. Then, it slowed down a bit. But in 2020, the market for Bitcoin went up, up and further up. This time, it went a lot further.
In December 2020, Bitcoin reached a price of $20,000 per Bitcoin. So, anyone holding 50 Bitcoins or more became a millionaire. In January 2020, 50 Bitcoins would have cost you just $10,000. That’s a profit of $990,000! Crazy, right?!
What It Is
It is a digital currency that you can send to other people. This may be as a gift, for services or for a product. You get the idea — it’s just like the money we use in our bank accounts (USD, EUR, etc.). But it’s digital; it isn’t physical.
However, that isn’t all that makes it different. It’s also decentralized, meaning it doesn’t rely on a bank or third party to handle it — which I explained earlier in my definition of a cryptocurrency.
With Bitcoin, each transaction happens directly between users — it’s called a peer-to-peer network. This is all possible thanks to the blockchain. Bitcoin introduced blockchain technology to allow users to send and receive Bitcoin without using a third party.
Because you don’t need a third party, you don’t need to identify yourself. You can make payments without revealing who you are etc.
How It Works
When someone sends Bitcoin, the transaction is verified and then stored on the blockchain (the shared database). The information on the blockchain is encrypted — everyone can see it but only the owner of each Bitcoin can decrypt it. Each owner of Bitcoin is given a ‘private key’, and this private key is how they decrypt their Bitcoin.
But, if the banks don’t verify/process the transactions, then who does?
Remember when I told you that blockchains are run by lots of different people and companies instead of one single company/person? Well, the people and companies that run the blockchain do it using computer power. They run special software on a computer that processes transactions on the blockchain.
A quick tip: The computers used to run the software are called ‘nodes’.
Running this software uses a lot of electricity, though. So, how do the people and companies running the nodes pay for their electricity bills? Welcome to mining…
The nodes are rewarded for verifying transactions — they’re rewarded with new Bitcoin. This is how new Bitcoins are created. You can compare it to gold mining, in which the miners are rewarded with Gold. In Bitcoin mining, the nodes are the miners — they mine for new Bitcoin.
When a new block of transactions is sent to the blockchain, the miners/nodes will verify the block using an algorithm called PoW (Proof of Work). In PoW, the first miner to verify the block is rewarded with new coins. There are other algorithms used in other blockchains, but we’ll get to that in the next section.
(Remember that if you want to learn more about blockchain technology, you can read our Blockchain Explained guide.)
Next, we have altcoins. Right now, there are more than a thousand altcoins in existence! But don’t let that number scare you — the majority of altcoins are just alternate versions of Bitcoin with minor changes. That’s how they got the name ‘altcoins’.
It’s important to understand, though, that not all altcoins are just alternate versions of Bitcoin. There are some that are very, very different from Bitcoin and have very different goals/purposes.
Some altcoins use different algorithms for Bitcoin. For example, Factom is an altcoin that uses PoS (Proof of Stake). In PoS, there are no miners. Instead, there are stakers.
Stakers are people that verify transactions for rewards, just like miners. But instead of racing to verify a block before anyone else does, they are selected one by one to take their turn. This uses much less electricity because they aren’t thousands of miners using their electricity to try and verify the same block. Instead, there is just one ‘staker’ per block.
Do you see? Not all altcoins are super similar to Bitcoin.
In fact, Ethereum and NEO are examples of altcoins that are super, super different from Bitcoin. You know that Bitcoin is used as a digital currency, right? Well, Ethereum and NEO were not designed to be used as a digital currency. Instead, they were designed as huge platforms for building apps on a blockchain.
That’s right — on Ethereum and NEO, you can actually build your own applications. This is the most common way that new cryptocurrencies are created; they are made on blockchains that allow app building, like Ethereum and NEO.
This is all possible because Ethereum introduced new technology to the crypto world when it launched in 2020. This technology is called a smart contract. A smart contract can automatically execute transactions when certain things happen.
These ‘things’ (also called conditions) are written into the smart contract when it is created. For example, a condition could be something like “WHEN Peter sends 120 Ether into the smart contract, THEN John’s house will be sent to Peter”.
Because of smart contracts, no third party is needed. Bitcoin means there is no third party needed in direct payments, but smart contracts mean there is no third party needed in lots of things — like the sale of a house, the sale of electricity or the sale of stock on the stock market.
Of course, you can’t actually put electricity into a smart contract, can you? So, instead, you put a token into the smart contract that legally represents the electricity. This is one of the best things about smart contracts on Ethereum and NEO etc. — you can tokenize real things and put them on the blockchain.
Tokens (for dApps)
The third main type of cryptocurrency is a token — the same kind we’ve just been talking about! Out of the three main types of cryptocurrency, these are the ones I find most interesting. Compared to the other two main types of cryptocurrency, they are completely unique in the fact that they do not have their own blockchain.
They are used on dApps (decentralized applications); these are the apps I told you about that can be built on blockchains like Ethereum and NEO. The dApps are built to use smart contracts, which is why they use tokens.
Their tokens don’t have to represent a physical thing like electricity or a house, though. They can instead be used to purchase things on the dApp. Either that or they can be used to get certain advantages — things like discounted fees and voting fees.
Tokens always have a price that they can be sold for, which is why some people buy them. Some people buy tokens to sell them later for a higher price, instead of buying them to use them on the dApp.
Because dApps are built on other blockchains (like Ethereum and NEO), a token transaction is still verified by the nodes on the Ethereum or NEO blockchain. This means the transaction fee is still paid with Ether or NEO, and not with the token.
So, to make a transaction on a dApp (i.e. to use a token), you must have some Ether or NEO (or whichever altcoin the dApp is built on) to pay for the transaction fees.
A quick tip: To pronounce dApp correctly, say “dee-app”.
The Top Cryptocurrencies
So, we’ve now covered the different types of cryptocurrency.
In this section, I will cover the top cryptocurrencies. I’ll go over four of the top cryptocurrencies and write a short list of pros and cons that come with each one.
So, let’s take a look!
As we’ve already covered Bitcoin, I won’t repeat myself. So, I’ll skip the Bitcoin description and jump straight into the pros and cons of Bitcoin.
- There will only ever be 21 million Bitcoins. Most of these Bitcoins already have been mined by users. There are currently around 17 million Bitcoins, so there are around 4 million left to be mined. This low limit for Bitcoin is good for the price — if a lot of people want Bitcoin but there aren’t many Bitcoins available, the people that want Bitcoin will pay more for it. That would make the price go up!
- Bitcoin is easier to liquidate than rival cryptocurrency types. This means it is easier to convert Bitcoin into cash. That’s right — because Bitcoin is so popular, it is easier to exchange your Bitcoin for fiat currency like USD and EUR. Also, Bitcoin is on almost every crypto exchange on the internet. This means the trading volume is super high! In fact, it’s the highest of all cryptocurrencies.
- More stores accept Bitcoin than other cryptocurrency types. You are able to buy just about any item using Bitcoin through the hundreds of online sellers that accept the cryptocurrency. This is another way you can liquidate your Bitcoin — rather than convert it back into cash, you can just spend it like you would with cash.
- Bitcoin is the biggest cryptocurrency. Bitcoin was the first crypto, and it is the biggest. It currently dominates over 40% of the market, which is huge! Many people believe that Bitcoin will always be the biggest (but you should remember that’s just an opinion and that no one actually knows what will happen).
- Bitcoin fluctuates a lot. This means the price of Bitcoin changes a lot every day. In fact, the Mt. Gox collapse actually caused Bitcoin’s price to fall 50% below what it was the day before. Some investors like fluctuations, but the people who lose money because of fluctuations, definitely do not like them.
- Bitcoin may be replaced by a better cryptocurrency. As we mentioned in the section on altcoins, there are hundreds of variations on Bitcoin in existence today. Bitcoin is almost 10 years old now. Any of these newer coins could eventually replace Bitcoin — they are newer and further advanced.
- People still use Bitcoin for a crime. The reputation of Bitcoin is improving since its early days on Silk Road, but it’s still not perfect. We only hear of a few people being prosecuted for using Bitcoin illegally, but there are probably a lot more people that use it illegally and don’t get caught. These include things like scams and avoiding taxes.
In contrast to Bitcoin, Ethereum is a platform that allows people to build dApps, tokens and smart contracts. Its currency is called Ether (ETH).
Earlier, we looked at how important smart contracts were and how many possibilities they unlocked for the future. Now, let’s look at the main pros and cons for Ethereum:
- Users of dApps built on Ethereum will always need Ether. They need Ether to pay for transaction fees on the dApps because the dApps run on the Ethereum blockchain. So, just like the peanut butter jelly sandwich, Ether will never go out of style!
- Many new projects are being built on Ethereum. Most of these projects will take years to develop, however, a lot of them could be huge when they are completed.
- Speed. Ethereum can process transactions in a matter of seconds, whereas Bitcoin’s transactions take upwards of 10 minutes.
- There are many more Ether coins than there are Bitcoins. Earlier, we talked about how part of Bitcoin’s value comes from the fact that there is a limited supply. This is not the case with Ethereum — there are almost 100,000,000 Ether coins at the moment and they will never stop being created. However, the rate at which they are being produced will slow down greatly, so it isn’t much of a problem in my opinion.
Basically, Ripple is a blockchain that is designed to be used by banks to make their payments faster. It is known as the banker’s coin, and there are many partnerships with global banks currently being worked on.
- Big, well-respected companies (like global banks) are trusting Ripple. Huge financial organizations (such as banks and governments) have partnered with Ripple. Many more are yet to partner but have plans to. So, as an alternative to fiat currency, Ripple may be the best option for you within the world of finance. Because it is working with governments, the power it has to be widespread could be the reason it succeeds.
- Unlike other cryptocurrencies, Ripple isn’t decentralized. Instead, it is centralized. The company behind Ripple (called Ripple Labs) owns most of the Ripple tokens (XRP). So, if they wanted to, they could sell all of their tokens and the price of XRP would go down a lot. This is extremely unlikely because they wouldn’t want to sell all of their tokens. But, I have to make a point about it because it is still possible.
Litecoin is a fork of Bitcoin! So, basically, the blockchain of Litecoin used to be a part of Bitcoin’s blockchain, but it split when the Litecoin update was offered. So, it’s very similar but it has different features to Bitcoin. It was created to improve upon what Bitcoin had created.
Litecoin has been in the news a lot lately because it will be the first cryptocurrency to use the Lightning Network. The Lightning Network solves a lot of issues for cryptocurrencies, such as scalability — using the Lighting Network, Litecoin will be able to process many more transactions per second.
- Litecoin is both faster and much cheaper than Bitcoin. Litecoin transactions take seconds, like Ethereum transactions. Bitcoin transactions take upwards of 10 minutes.
Also, Bitcoin transactions can be costly, which makes them pointless for sending small amounts. As Litecoin transactions are much cheaper, Litecoin is a lot better for micropayments (small payments), which is why it is called “Lite” coin.
- Litecoin is still only a slight improvement in Bitcoin. If Bitcoin can improve so that it can scale and offer cheaper & faster transactions, there might not be much need for Litecoin.
For more information on Litecoin, its position in the market and its pros and cons, read our Litecoin Price Prediction guide.
After reading this guide, you should be much more familiar with the most popular cryptocurrencies and the different types of cryptocurrency that exist. You know how they are different from one another, and you understand some of the pros and cons of each.
This puts you in a much better position to start doing further research and making your own opinion on each of them.
So now that you’ve read this guide, what do you think about the top cryptocurrencies and the different types of cryptocurrency? Which is your favorite? Let me know!
Cryptocurrency Investment Strategy 2020: Don’t Make These 50 Common Mistakes
Anyone can make big profits from investing in cryptocurrency in 2020. You just have to invest at the right time — like in December 2020, when no one could lose.
But investing at the right time requires luck. Only those who improve their cryptocurrency investment strategy every day, one mistake after another, consistently crush the masses.
Only the most skilled and disciplined investors are running away with big profits over time, while dreamers and noobs end up hodling useless coins.
This is why I have curated the ultimate cryptocurrency investment strategy: a list of common mistakes to avoid when investing in the crazy crypto world.
We’ll start with basic mistakes and progressively move to more advanced ones. So if you are an experienced investor, make sure to read until the end.
Let’s get started!
1. You Don’t Know the Basics
If you’re beginning, you’re likely eager to trade. I get it, really.
But don’t rush it. Take a little bit of time to develop a basic cryptocurrency trading strategy and to educate yourself.
Do you know the basics of blockchain technology and Bitcoin? Do you know what circulating vs total supply means? Do you understand what inflation is? Do you know about exchanges , wallets , private keys , and public keys ?
If you can’t answer these basic questions, you’ll be in trouble quick enough. Take some time to prepare yourself, it’s essential.
To learn the basics, navigate our website – there are tons of cool resources to get started.
2. You Don’t Take Action
Every day, potential investors miss out on cryptocurrency investing because they aren’t confident about how to get started.
Even experienced investors miss on new tools or cryptocurrencies that could bring significant profits simply from not staying active.
Why? Because they’re afraid to make mistakes. The first step is taking action, so don’t hesitate to dive right in.
Action will result in experience, and experience will result in better decision making. In fact, the experience is all about learning from the mistakes you make.
If you feel ready to make your first investment, then go for it. Even only $10, on any exchange you want, with any payment method you like.
You can’t imagine the difference a small step will make versus not taking action.
This is where your experience will start, and you will feel the highs and lows of investing – it’s a wild ride.
3. You Don’t Understand the Technology
What makes Bitcoin and many cryptocurrencies innovative is their underlying technology. But if you don’t understand the foundations of the technology, the road will be risky.
You don’t want to rely on others’ ‘knowledge’ to make your investment decisions. Until you can judge these projects for yourself, you will be missing out on big opportunities.
After all, the creators of Bitcoin and its first adopters were all techies.
To avoid this, find educational sources you trust, take the time to learn, and most importantly, enjoy the journey of learning.
Once you understand block rewards , consensus algorithms, premining , and all the fancy jargon, you will be an improved, independent investor.
Blockchain technology is continuously advancing, so keep up with it the best you can.
4. You Ignore Fees
Now that you’ve taken action, take your time and find the right exchange with the best fees.
When people start trading, they make lots of trades a day hoping to earn small profits. While this is nice in theory, fees are killing them. Even if they are low, it all adds up.
Do your research before you trade. To become a successful investor, you need to start taking good habits right now.
5. You Overtrade
Some investors, mostly beginners, want to make 20 trades a day. This is dangerous.
Ultimately, many of them lose from fees or because they make bad trades a mistake and then trade more to recover their losses. Only to dig a deeper and deeper hole for themselves.
The reality is that there aren’t 20 good trading opportunities in a day. Trading too much leads to poor decision making.
6. You Don’t Understand Tax Implications
Overtrading also increases your tax liabilities.
At least in the United States and Canada. Most people think that they only owe taxes on profits that were sold back to USD/CAD, when in fact, you owe taxes on every single trade you make – even crypto to crypto.
The IRS and CRA view every trade as a realized gain or loss. Put simply, if you buy Ether with Bitcoin, they consider this a taxable event on a realized gain or loss. They assume that you sold Ethereum to USD, then purchased Bitcoin with USD, even though this is not what happened.
Ignoring both tax implications and exchange fees will severely impact your overall cryptocurrency investment strategy.
Tax implications, in addition to accumulated fees and bad trades, is another reason why you should not overtrade.
7. You Invest Your Life Savings
Rule number one of investing; don’t invest more than you can afford to lose.
You should go into this ready to lose whatever you put in. Ultimately, as the price swings up and down, you should remain calm and still be living a healthy life with room for regular spending.
I’ve heard countless horror stories of people investing greedily with their entire life savings or borrowing large sums of money. This is a HUGE mistake.
Funny enough, even if you hit it big, your greed will likely win you over. For example, if you invest $50,000 and at one point have $150,000, then your mind will rationalize and normalize these winnings to feel less significant than they are.
The next thing you know, the market drops, and you are back at break even, or at a loss.
8. You Think Cryptocurrencies are Shares
Take your time to educate yourself and understand what you’re investing in.
Cryptocurrencies are not shares like stocks. You have no ownership in the company and receive no dividends.
If a company issues a cryptocurrency, then it is very possible for the company to profit or get acquired, with no benefit to you. A company can be doing very well, yet their coin can drop.
The only exception here may be security tokens which can grant ownership to their investors. But even then, it’s up to the guidelines of the offering.
Cryptocurrencies are a different game.
9. You Chase Cheap Coins
Don’t chase cheap coins with dreams of lambos and private jets.
Lots of uneducated investors in the crypto space buy low priced cryptocurrencies because they think there is a higher chance of big returns.
If presented with one coin priced at $0.01 and another at $75, they blindly purchase the $0.01 coin because they think it’s easier for a coin to go from $0.01 to $0.02, rather than from $75 to $150.
This is a common trap.
There are lots of factors that affect a coin’s price, including two important ones: the circulating supply and the real world value of the coin.
More often than not, a cheap coin has a huge supply of coins, which dilutes the price of each coin. If the supply is massive and there is little real-world value, then the coin priced at $0.01 is not undervalued and should be priced that low.
A better factor to consider when looking for coins with growth potential is the market capitalization of the coin. The ‘market cap’ is calculated as [current price * circulating supply] and is often a better (although not perfect) indicator of a coin’s valuation by investors.
If you want to find the next gem coin, look for coins that have a low market cap.
Low market cap coins have more potential for growth, but they also come with a lot more risk (failure, illiquidity , etc.)
Ultimately, you should stay away from those coins if you’re still at a beginner level, and pick your next investments based on their potential real-world value.
10. You Think You Must Always Be Right
I hate to tell you this, but get over yourself. You’re not always right. And it’s okay.
Investing is a game of speculation which involves some amount of luck – even for professional investors. To be a winner in this space, you only need to be right a certain percent of the time.
For example, if you 2x your investment 55% of the time, then you can afford to lose 45% of the time as you will make money in the long run.
11. You Make Sloppy Mistakes
Hold your horses, buddy! Take your time when transferring your money.
Don’t rush, and make sure the sending and receiving addresses are correct. Never type an address. Just copy and paste them. This way you avoid any chance of typos. And hey, it’s faster!
After you copy and paste it, always verify the first two characters and the last three characters match your address.
12. You Don’t Diversify Your Portfolio
Your cryptocurrency investment strategy must involve diversification.
While it may be tempting, don’t put all your eggs in one basket. Every experienced investor hedges , or protects his/her risk by investing in multiple assets.
You might notice some coins correlate where when one goes up, the other goes down. If this is the case and you like both coins’ futures, then invest in both. Your investment will be much safer.
My recommendation: own a minimum of 5 cryptocurrencies.
13. You Over Diversify Your Portfolio
Be sure to pick a number of coins that you can keep track of. This means keeping up with news and price action.
My recommendation: invest in a maximum of 10 cryptocurrencies at a time.
14. You Don’t Do Your Own Research (DYOR)
Research a coin before you invest in it.
So many people invest based off of hype. They see other investors on Twitter or Facebook talking about a coin, see the coin’s price rising, and then buy off of impulse. This often ends badly.
Do your own research.
When researching a project, you should be able to answer the following:
- What is the mission of the project?
- Who are the core team members? Have they worked together before or have past success?
- When is the mainnet expected to launch?
If you can answer these, then it’s a good start.
Don’t be afraid to miss out on investment; there will always be more to come.
15. You Research Poorly
Once you understand WHAT you should research, then next is starting the research.
The process will be time-consuming if you’re just starting. But the more you research, the better you’ll become at it.
Here are a few basics to get started:
- Have a look at each coin’s BitcoinTalk.org announcements thread and website.
- Search on the internet to see if there are reviews on the coin or mentions of it being a scam. If you see lots of talk about it being a scam on Google or Reddit , then it’s worth digging deeper into that to understand the reasoning.
- Check on the economics of the coin such as its market cap , trading volume , price history, and total versus circulating supply .
- Cross-reference opinions from industry experts. Never trust one single opinion.
16. You Don’t Keep Up to Date with your Investments
As you come to own 5, 6, 7, or more coins, the amount of responsibility on your shoulders increases.
Be sure you keep up to date with all of their developments and price action.
- Follow them on social and through their blog
- Join their communication channels (Telegram, Discord)
- Bookmark their websites and Bitcointalk threads
17. You Don’t Have a Plan that you Stick With
Lots of folks let the market highs get to their head. Once their portfolio hits an all-time high , they only want to go higher.
On the other hand, as a coin drops in price, they hold until 0 because they are stubborn about their investments.
The best way to avoid these situations is to set a target, stick with it, and don’t be greedy.
So, when you enter a position, be sure to write down your plan.
18. You Don’t Take Your Profits
If you want your cryptocurrency investment strategy to profit, you have to sell and accumulate profits eventually.
Learn from others mistakes. At the end of 2020, during the big boom of cryptocurrencies, lots of investors became rich IF they sold for profits. On the other hand, many had theoretical profits but overheld into this bear market .
Now, they are stuck holding at a loss, waiting for the next bull run .
Remember: you don’t profit until you sell back to realize your gains.
19. You Don’t Cut Your Losses
Being stubborn is easy. But at the end of the day, the market moves despite how you feel.
Don’t hold a coin you no longer believe in.
You should always ask yourself: “if I had not bought this coin, would I buy this coin right now?”
Be honest with yourself. It’s okay for things to change.
Additionally, if you planned to cut losses at 15%, then do it, no matter how you feel at the time. Don’t rationalize that it will rise – cut your losses and trust the plan.
20. You Buy High
I bet that when Bitcoin was at $15,000 or $20,000, your friends and family were asking you about cryptocurrencies.
That’s because there is a natural tendency for people to follow trends. But those who profit are those who entered the trend early.
DO NOT buy high, especially when a coin is close to its all-time high .
After all, why buy Bitcoin at $20,000 when you can buy it at $3,500? Buying high may be the right decision in some cases, but is a mistake more often than not.
21. You Don’t HODL Hard Enough
On the flip side, lots of investors are impatient and ‘cut their losses’ early because of emotions.
The cryptocurrency market is made of cycles, where prices rise and fall drastically.
If you buy high, then you will need to wait out an entire new market cycle to end up with profits – meaning a new bear , then bull run – which can be well over a year of waiting.
Remember: if you still believe in the project, then your best bet is to be patient and hold strong, even if the price is dropping fast.
22. You’re a Math Noob
Any successful investor needs to understand the basic maths behind trading. If you don’t understand the real implications of a 20% drop, it’s time to learn.
Here are some examples of math-related confusions:
- If an asset drops 50% in price, it does not need to raise 50% to break even again. In reality, it needs to raise 100%.
Think about it: if you purchase a coin for $100 and it drops to $50, it needs to double (+100%) in price from $50 to hit $100 again. If it only goes back up 50%, then you will have $75 – still at a loss.
- The difference between an 80% loss and a 95% loss is extremely significant. To break even after an 80% loss, the price needs to bounce back 5x. To come back from a 95% loss, you’re looking at 20x.
Every 10% drop, makes a bigger and bigger difference.
23. You Don’t Use 2FA
The crypto world is the wild west. Full of opportunities, but extremely dangerous.
One crucial step when working on your cryptocurrency investment strategy is to reinforce the security of your cryptocurrencies.
Enabling 2FA on every sensitive website is the most important habit you need to adopt to increase the security of your accounts.
2FA, or two-factor authentication, is another layer of security upon login. Most cryptocurrency exchanges , wallets , and services offer to enable 2FA.
To enable 2FA, you will need to download an app on your phone – either Authy or Google Authenticator, and sync it with the exchange or wallet via a QR code . It’s super simple.
Next time you go to log in to the exchange/wallet, you will be required to enter your username, password, and the passcode that the 2FA app shows. The passcode changes every 30 seconds, so for someone to hack your account, they will need your phone as well.
24. You Leave Your Coins on Exchanges
One of the most famous mottos in the crypto industry is “if you don’t control your keys, then you don’t control your coins.”
Exchange are huge targets for hackers and are always at risk. When you leave coins on an exchange, the exchange controls your coins. You are trusting the exchange’s security measures and not your own.
Do yourself a favor – keep your coins in a personal wallet.
25. You Don’t Own a Hardware Wallet
I will be straight up: if you’ve invested more than $500 in cryptocurrencies, then hardware wallets are a smart investment.
They are disconnected from the internet, which means that hackers can only obtain your funds if they steal your physical device and also know the passphrase to access it. This makes security a much easier task.
If you have large amounts of money, say over $5,000, then it may be worth buying two. The second can act as a copy to the first one, in case you lose it.
26. You Don’t Know Best Security Practices
Both the wallets and websites you choose to use hold sensitive personal information – do your best to keep it safe!
If someone compromises your accounts, then you can say goodbye to all of your funds. Take security seriously, and learn from those who have learned the hard way.
When using a wallet, hardware or desktop, be sure to:
- Avoid using Public Wifi
- Avoid using unsecured software/extensions
- Use strong passwords
One more important tip: do NOT use your daily email address when you navigate the crypto space. Use a separate one dedicated to your cryptocurrency investments.
27. You Don’t Back Up Your Sensitive Information
Always back up both 2FA and wallet data.
If you lose access to your computer and haven’t backed up your private keys , seeds or passphrases , then you won’t be able to access your coins anymore.
Same for exchanges: you’ll be locked out of your accounts if you lost your phone and haven’t kept a safe copy of the 2FA keys.
Wallets and exchanges will often guide you through the process, so make sure to read and follow their instructions carefully.
For 2FA, I recommend you backup your keys so when you get a new phone, you can recover all of your accounts to log in. Do not forget to do this, as it will be a huge pain and time sink if you forget!
28. You Fall for Scams
Be careful out there. There are scammers in the crypto space, and they become smarter over time.
While I know you are not a gullible old lady, here are some trusted ways to avoid scams:
- Double check the URLs you’re clicking on. A URL can be embedded in the text. What if you click on a sensitive link – like a wallet – and end up on a different URL? If you don’t believe me, click on www.google.com and see what happens. You can check the URL embedded in a link by right-clicking on it, copying the URL address, and pasting the URL in a new tab. But DO NOT press enter.
- Triple check the domains you land on. You might see some surprises. For example, you may land on coiinbase.com instead of coinbase.com. And believe me, these websites are set to steal your money.
- Avoid ‘easy money’ opportunities. Each time you’re offered to get rich online, there is a hidden scam. This includes Ponzi schemes such as the famous Bitconnect case. Remember: Great opportunities aren’t offered to you on a plate.
- Ask questions to Google and communities. Type [“Website” + Scams] or [“Website” + Review] on Google, and you should know soon enough.
29. You Don’t Find a Reliable Community to Learn With
Online communities will be handy when you experience any difficulty in the cryptocurrency space.
Whether you struggle to use an exchange or have a question about the fundamental value of Bitcoin – or anything else, surrounding yourself with like-minded people is essential.
These communities can also provide you with a consistent flow of cryptocurrency sentiment to keep a pulse on the industry.
There are great Facebook groups, like Cryptocurrency Investing and Crypto Coin Trader. If you’re not on Facebook, then you can search on Reddit, BitcoinTalk, and Uptrennd.
30. You follow shills
Shill is a common word for someone who is compensated or has a financial incentive to spread the good word about a coin, even if it is terrible.
I won’t name anyone in particular, but lots of influencers, bloggers, and YouTubers have been guilty of promoting horrible cryptocurrencies – sometimes even scams – because of their own, selfish intentions.
Whether they’ve been paid to review a cryptocurrency or have other incentives (they own a lot of coins, they know the owners, etc.), you will be the one paying the price if you follow their advice blindly.
31. And crowds
Well-known shills tend to cause crowds to follow their footsteps. If they are influencers with thousands of followers, then you will see groups of individuals talking about a coin in unison.
This can result in Facebook threads, Twitter threads, and Bitcointalk threads being created with everyone shilling one coin as a crowd.
Do not follow them blindly. Hear the noise, but do your own research about the coin.
- If you find out the coin is indeed promising, I’m sorry for you because – you likely missed the opportunity.
- On the other hand, if you believe there’s nothing new under the sun, stay confident, because the coin’s price will surely drop soon.
Take a cryptocurrency called ICON as one example. Lots of people bought in, and there was a lot of traction on major forums and social media outlets.
12 months later, after the crowd hype phased away, the price was down by
Follow this advice: when everyone’s talking about a cryptocurrency, it’s time to sell it.
32. You Enter Positions You Can’t Exit
If you hold a coin, but no one wants to buy it, then you are in an illiquid market.
Liquidity refers to the amount of ease with which an asset can be bought or sold in a market. You can check how liquid a coin is by checking its trade volumes on CoinMarketCap.
Liquidity is essential in cryptocurrency:
- What if you think cryptocurrency is going to collapse?
- What if you think one cryptocurrency is going to skyrocket and you need funds to get in?
- What if you need money for a personal situation?
For any of those scenarios, you’ll need to be able to sell off your position quickly. If the coin you need to sell has low liquidity, you might have to sell it at a lower price to find buyers.
Even worse: if your cryptocurrencies are illiquid, you might have to say goodbye to your money for good.
The less liquid a cryptocurrency, the riskier it is.
If you’re a beginner, don’t even waste your time considering buying a cryptocurrency that has a low daily trading volume.
33. You FOMO
FOMO , or fear of missing out, is a common behavior in the crypto space.
FOMO is when investors feel they are going to miss out on something big, and as a result, will immaturely buy an asset to hop on the bandwagon.
Examples of such persuasion can be project owners or investors tweeting things like: “Huge announcement released next week” or “Big partnership with a major bank to be announced soon.”
Many shills will also take advantage of FOMO by explaining to their audience that a particular cryptocurrency is the next big thing, how the price is soaring, and if they don’t get in now, then they will regret it forever. They persuade investors to buy irrationally – hence FOMO.
Ignore the noise, analyze facts. Your investment decisions should be based on logic, and NOT on emotion.
34. You Fall for FUD
Contrary to FOMO, FUD is short for fear, uncertainty, and doubt. The goal of FUD is to get you to sell, not buy.
So, if the shiller(s) wants to buy into a coin at a lower price, he will start spreading bad news about security vulnerabilities, hackings, team changes, or anything else to cause people to panic sell and lose faith in the project.
Once again – use logic. Understand their motives and don’t act on impulse.
35. You Panic Sell
Besides FUD, another simple reason people sell is that the price drops quickly. But it doesn’t mean it is going to drop more.
Don’t sell in a rush. Have a cup of coffee, discuss with your friends who also invest in cryptocurrencies.
All in all, “control your emotions” and think your decision twice. Don’t forget this is a volatile market and you should be ready to stomach significant losses.
36. You Fall for Media Propaganda
Major news sites will sometimes release very negative, and often, threatening news.
The news may be about a country banning the use of cryptocurrencies, or about how Wall Street doesn’t want to get in. Deceiving headlines are the foundation for propaganda.
A lot of these news articles are intended to generate clicks, controversies, and sometimes even FUD . It’s often very exaggerated.
One more style of content that can negatively persuade you is sponsored content. Websites and media you trust will promote a product not because they use it and like it, but because they’ve been paid to promote it.
Sponsored content is fine as long as it is clearly noted that the content is paid for. Many times, sponsored content looks just like non-sponsored content, which can be deceiving.
The most effective change you can make to improve your long term cryptocurrency investment strategy is to read these articles – not just the headlines – and cross-reference opinions. Stay calm and remain skeptical at all times.
37. You Are Emotionally Attached to Your Coins
Many investors become attached to their investments at an emotional level. They put lots of faith into their investments, and hate the thought of selling before the next pump.
I have met several crypto investors who have been down 95% on an investment. They read that the project has been abandoned by the team or delisted from exchanges, but they still won’t sell because they irrationally believe it will come back.
This goes along with our personal biases we mentioned earlier – humans don’t want to admit they are wrong.
Don’t get emotionally attached to your coins. Always invest based on logic.
38. You Lack Patience
Be patient – because the sophisticated, wealthy investors are.
You may feel desperate to find the next big investment opportunity, but “ whales ” have enough capital to sit on the sidelines for two or more years waiting for the right time to strike. They can easily stay in a bear market, with losses, for years.
In other words, wealthy investors can afford to be in losses for multiple years to shake out weak HODLers. If you lack the patience and knowledge of this, then you will always be buying on the wrong side of the market.
If you are patient enough to wait even an entire year to buy in a bear run or HODL until the next bull run, then you will benefit greatly.
39. You Don’t Stay Clear Headed
Remember to stay calm and relax.
You should have invested an amount you are comfortable losing, so have fun with it. Don’t let the negative press or big news sway you.
If you do let negativity get to you, then you are more likely to make poor decisions.
Disconnect from crypto from time to time to stay clear-headed.
40. You Don’t Understand the Market Dynamics
Bitcoin only makes up about 40-50% of the market’s liquidity . There are thousands of altcoins, and they work in correlation with Bitcoin.
Not understanding these correlations can lead to poor and costly investment decisions. Those who make money trading crypto understand these dynamics like the back of their hand.
There are three situations for how Bitcoin and altcoins affect one another:
The whole market crashes. In such a case, Bitcoin will often be more resilient than the other coins. We witnessed this firsthand in 2020: Altcoins dropped
95%, while Bitcoin dropped
All of these time frames can be viewed using coinmarketcap.com. Take your time and look at different historical time frames to help you better predict the future market!
Takeaway: if you think the market is ready for a bull run, then add more altcoins to your portfolio. On the other hand, if you believe the market is going down, sell your altcoins for Bitcoin, or even better, for fiat or stablecoins .
41. You Ignore Airdrops
Airdrops are free money with little to no effort.
Many times, new projects will airdrop their token as a marketing strategy to raise awareness.
You might need to register on their website to claim the airdropped tokens, but sometimes, you have to do nothing at all.
Check out AirdropAlert to be on top of every airdrop opportunity.
42. You Don’t Prepare For Forks
Hard forks are similar to airdrops from an investor’s standpoint – free money! Most investors I know miss out on these opportunities, which can turn out to be quite lucrative.
Bitcoin Cash is an example of a hard fork of Bitcoin, where all Bitcoin holders received 1 Bitcoin Cash for each Bitcoin in their wallet. Bitcoin Cash trades for well over $100 or $200, so these coins you can get for free, aren’t cheap.
Just make sure the wallet you are using support the fork. Simple as that!
Use CoinsCalendar and search for the category ‘hard forks’ to stay up to date.
43. You Don’t Use the Best Tools Available
The cryptocurrency industry is full of creative and hardworking people who offer some handy products and services.
Top Binary Options Broker 2020!
Perfect For Beginners and Middle-Leveled Traders!
Free Education How To Trade!
Free Demo Account!
Big Sign-up Bonus!
Good Choice For Experienced Traders!
Don’t rely on only yourself, use all the tools at your disposal to craft the best cryptocurrency investment strategy and make better decisions.
44. You Hold USDT
Tether , or USDT , is a stablecoin that is pegged to the value of $1. Each Tether is supposed to be backed by one USD in a bank.
There are two dangers to holding USDT:
- They’ve had a shady past. Many believe that not every Tether is backed by a single USD, which means that if you want to redeem $1,000 USDT for USD, then you’re $1,000 USDT is meaningless.
- Transfers cost a lot. Second, most people don’t know this, but just to withdraw USDT from an exchange costs several dollars. If you want to transfer funds to another exchange, it is often less expensive (but more time-consuming) to trade back to a cryptocurrency before withdrawing.
While it’s okay to enter USDT positions for short-term trades, don’t hold it for too long.
45. You Don’t Buy the Rumor
There’s a popular narrative that says, “buy the rumor, sell the news.”
Often, cryptocurrency projects launch their coin before a final product is made. Rumors can spread around the community about when their product will be complete, which companies will partner with them, and which exchanges the cryptocurrency will be listed on.
Usually, these rumors create lots of hype. The hype can grow to be so strong that when the real news is released, the price drops.
One example is the Verge project, which at one time had rumors spread by John McAfee and other prominent figures, discussing partnerships and innovations. The price was skyrocketing on rumors, and some made the best decisions of their lives by getting in early.
46. You Buy the News
On the other hand, when the news comes out, do not buy it – it’s likely too late. This is when those who bought the rumor will take their profits.
When the time came for real news to be released about Verge, the price dropped drastically – well over 80%
So, instead of just buying coins at the time the news is released, take some risk. Buy the rumor, wait for the bubble to grow, and sell when the news comes out.
You’ll thank me later.
47. You Don’t Understand How to Read a Trading Chart
Once you understand some basic dynamics such as supply and demand, then you should start learning how to read trading charts, also known as technical analysis.
Technical analysis is a science which helps you better predict the future by analyzing historical market data. You’ll gain a feel for when markets are about to turn, or if assets aren’t priced properly.
For some, it’s super helpful and core to many people’s cryptocurrency investment strategy.
BabyPips is a popular place to start learning technical analysis, and it applies to all markets, not only crypto.
Knowing how to read charts can give you an advantage over those who don’t – and it can be quite lucrative.
48. You Don’t Prepare for Bull Markets
Do you believe the market is dead and the entire crypto industry will vanish away just because Bitcoin drops 40%? Of course not. These cycles happen, so don’t be afraid to go against the crowd.
If you sold when you were in profits, then you should have fiat ready to invest in cryptocurrencies during bear markets.
Keep these funds available in your wallets and be ready to accumulate your favorite cryptocurrencies when everyone else in the market is panicking.
But, don’t FOMO! Generally, bear markets can last for well over a year. If you buy the dip too early, you’ll end up losing a lot of money.
Bear markets should also give you plenty of time to find some altcoins worth investing in. So do not wait until the bull market is back – do your research in advance.
49. You Don’t Listen to the Market Sentiment
If the overall sentiment varies, then so may the price.
While you may expect a bull market soon or be optimistic about a cryptocurrency, other investors may feel the opposite way.
This is why listening to the sentiment of other investors in the industry is crucial. If you don’t, you might miss the next bear/bull market, or the next cryptocurrency about to moon.
So, how do you listen to the sentiment of your peers?
- Read other investors’ thoughts. Not thoughts from influencers or media – from investors, like you and I. You can do this by joining and participating actively in some of the best crypto communities (read mistake #29)
- Use tools. These tools scrape information from the web and turn it into actionable metrics, and each of them uses different factors to determine sentiment. Alternative.me, for example, scrapes data from trading volumes, Google Trends, and social media amongst other indicators.
Remember that sentiment is just one indicator of the next market movements.
When crafting your cryptocurrency strategy, cross-reference different indicators from several sources. Always use logic over emotions.
50. You Don’t Earn Interest From Your Crypto
You cannot earn interest from cryptocurrencies as you do with your bank account, but there are ways to grow your bags simply by holding.
There are three ways to earn interest on your cryptocurrencies:
- Stake your coins. If you are holding Proof-of-Stake (PoS) coins, hold them in the official wallet, turn on staking, and you will begin earning stake rewards, much like interest in a bank account.
- Margin Lending. Exchanges which offer margin trading allow users to lend coins for a percentage return. This may be small, say 1-2% a month, but it can add up! Even at 1% a month, that comes to 12% a year as a safe return. Beats a 0.2% interest bank account.
- Lending Platforms. Nexo is one example of a lending platform that can land you a minimum of
6% a year. For minimal risk, not a bad deal.
51. BONUS: You Only Invest in Cryptocurrencies
This last mistake comes as a surprise, but why invest only in cryptocurrencies? It’s wise to diversify your portfolio not only amongst cryptocurrencies, but stocks, bonds, and other assets as well.
The stock market is indeed a safer bet than crypto, so if you want to be conservative, put say 15% of your investment funds into crypto. If you hold safe stocks and bonds with the remaining money, then you should be pretty safe.
Disclaimer: we do not know your financial situation, nor are we financial advisors.
The world is your oyster, so don’t be afraid to invest in different markets and niches.
Well, you made it to the end, congratulations!
Although there are plenty of mistakes to avoid, most of them are common sense and require no memorization. Simply being aware of them should be enough to make you think of and improve your cryptocurrency investment strategy.
Which mistake from the list prevents you from making more profits? Which one do you make again and again? Do you make mistakes that aren’t listed? Let me know in the comments!
Lastly, here are more resources you might like:
Top Binary Options Broker 2020!
Perfect For Beginners and Middle-Leveled Traders!
Free Education How To Trade!
Free Demo Account!
Big Sign-up Bonus!
Good Choice For Experienced Traders!