The investing information provided on this page is for educational purposes only.
If you read our guide to buying Bitcoin and other cryptocurrencies, you’ve acquired valuable knowledge. But knowing what to do is only half of it. The other half is knowing what not to do. (There’s a third half we read about on Reddit, but words make our head hurt.)
Some purchases to avoid are obvious, like: don’t buy a coin just because a celebrity is shilling it, don’t buy on an exchange named for Magic the Gathering, don’t buy a coin that’s actually a meme, etc.
Other mistakes are less obvious. This isn’t investment advice — seriously, don’t listen to us — but here are the top crypto investing mistakes you might want to be aware of.
8 Big Crypto Mistakes to Avoid
1. Buying At An All-Time High
Have you ever seen Bitcoin or another cryptocurrency take off and gotten sweaty with FOMO? Towel off and take a breath. And maybe a shower — we can still smell the fear on you.
One of the biggest mistakes you can make as an investor is to invest when it’s high — or at an all time high.
That’s what happened to people earlier this year when they bought in as Bitcoin was running from 30k to 66k. When the price came back down and started moving sideways, those who had bought at the high then panic-sold or are now deep underwater. (Scuba is a perfectly acceptable way to hide from your creditors.)
The cryptocurrency market is very volatile and can drop significantly in a very short period of time — We’ve seen the market fall 50% within just a few days.
When it comes to timing your investment, be strategic on how you are going to get that money into the market while minimizing the amount of risk that you’re taking.
Many seasoned investors like to use a DCA (dollar-cost averaging) strategy to reduce their risk. They choose the same day each month or each week to purchase a certain amount of a cryptocurrency. If the market is significantly down, they may increase this amount slightly or if the market is up, decrease it. Emphasis on “slightly” — not like you how you told the police officer you only “slightly” ran that red light.
You may have already done this with a savings account where you auto-invest a certain amount of money. If you’ve ever looked into it and were like, “Whoa! Where did that extra money come from?” — that’s the same strategy you want to take when it comes to investing in cryptocurrency.
And also for collecting paper napkins from food delivery orders. We’re saving up for a picnic!
2. Not Researching Before You Invest
Did you know that anyone, and we mean literally anyone, can create their own cryptocurrency?
Some cryptocurrencies may not even be a real business or company.
Before you invest in a cryptocurrency, make sure you do your own research (DYOR) about that company. Read the whitepaper. See if there is any actual news about them on CoinDesk or another reputable source. Or see if they’ve been covered by well-regarded YouTubers like Coin Bureau, Lark Davis, or Benjamin Cowen.
One crypto mistake people make is investing in a cryptocurrency based on the hype, the trend, and because their best friend’s brother’s uncle told them to buy a coin. That one is for sure going to the moon! (The moon being where Jeff Bezos takes his worthless cryptocurrencies.)
There is definitely a strategy when it comes to investing, and it’s super important to have a system when analyzing cryptocurrencies so you don’t invest in something that is a pump and dump or a rug pull.
3. Investing More Than You Can Afford
When it’s a bull market and returns are fast and furious, it’s tempting to throw all your money into cryptocurrency. But, remember, this market is relatively new and highly volatile. Just like Fast and Furious.
We always hear the stories of that person who turned $1000 into over $100,000, but they never talk about the thousands of people that lost a lot of money putting their last dime into the market. Or the tens of people who can no longer afford a third or fourth Tesla.
Unless you really like living on Top Ramen while you’re waiting for the market to turn back around, don’t throw your grocery and rent money into Bitcoin. Only invest what you can afford to lose. For us, that’s about $5,000 — or whatever it costs for a kidney these days.
4. Not Securing Your Investments Properly
When it comes to investing in cryptocurrency, one of the most important things to keep in mind is security.
Reputable exchanges like Binance, Coinbase, Kraken, Crypto, and others, but it’s not recommended to use these as your crypto wallet. Instead, use a proper wallet, like a Trezor or Ledger.
Some security tips if you choose to store your funds on exchanges:
- Use a strong password for each site and use a different one than you use for other applications.
- Use two-factor authentication for all your crypto apps.
- If you have the apps on your phone, make sure your phone has security measures — like a phone password, Face ID, or a burly security guard who only gives you your phone back if you tickle him in his special spot.
- Don’t check your portfolio or sign into an exchange on an unsecure or public network, like the WiFi listed as “DefinitelyNotDarkSide.”
5. Investing Only in Crypto
When it comes to diversifying your portfolio, cryptocurrency is great, however diversifying among different asset classes is also important. The easiest additional asset classes to consider are stocks, bonds, and mutual funds. But, for some, real estate could be an option. For others, holy relics are the way to go.
The intention here is to decrease your risk. Cryptocurrencies are a notoriously volatile asset class, so diversifying your portfolio may allow you to make money while crypto is heading into winter.
6. Not Staking Your Coins
If you are comfortable leaving your coins (or a portion of your coins) on an exchange, you may be able to stake on that exchange. Staking this way allows you to passively grow your coins like you would via a high-yield savings account. Or a kind of hardy houseplant!
Different exchanges offer different staking opportunities. For instance, Kraken allows you to stake Cardano, Polkadot, Kava, and others at rates ranging from 4% to 20%.
7. Sending Coins to the Wrong Address
One of the biggest mistakes new crypto investors may experience is sending cryptocurrency to the wrong address.
All cryptocurrency transactions are permanent, which means you cannot reverse the transaction. There is no customer service number to call. There is no “oops” button. There is no third example of a thing you could do to undo your mistake.
Well, except Ctrl-Z. There is no Ctrl-Z in crypto transactions, either.
Here’s one tip you can use to avoid sending funds incorrectly: when you want to send a large amount of crypto, try sending $5 to $10 first to make sure that transaction goes through successfully. Once it’s successful, proceed with sending the remainder of your funds to that address — especially if that address is to our PO Box.
You can also double-check the first few numbers and letters at the beginning and at the end of the address to make sure they match the account number you’re sending them to.
8. Not Taking Profits
Lastly, one of the top mistakes investors make is not taking profits. Sometimes we get so excited seeing our investment grow that we think it’s going to go to the moon and decide not to take any profits. And, then the price crashes.
Some days you look at your portfolio and it’s increased significantly and other days you look at it and it’s decreasing significantly. Nothing is wrong with taking profits along the way in either direction.
One profit-taking strategy is to remove your initial investment when you can. Everyone’s situation is different, so you may decide to take out even more than the initial investment if you’ve reached your financial goal.
For example, if your goal is to invest in crypto to gain profits to buy a new house or pay off debt, once your crypto reaches the price that will allow you to do this, you might want to sell enough to let you fulfill your goal.
Remember that the market doesn’t go up forever and the only way you will eventually make money is by hitting that sell button. Or getting a job, which — could you be any more 2019?