Investing in cryptocurrency can potentially earn you tons of money.
It is a high-risk, high-reward type of investment, which means that it can also make you broke.
I know it because I have been there. I have seen my portfolio grow by 20,000% and I have seen my “paper gains” slowly evaporate.
I couldn’t believe it. One day, I was a millionaire, yet I am so close to losing it all right now.
They say you don’t lose money until you sell. However, in my case, I had to sell.
I still have some crypto left in my portfolio. So whether I win or lose again, only time will tell.
But I wish I hadn’t bought crypto before learning about these things.
Do Your Own Research (DYOR)
This will save you a lot of trouble. Your research will separate you from people who get scammed and rug-pulled.
Never rely on third-party sources for your investment choices, even if that third party is your friend. This will prevent you from blaming other people for your decision.
The thing with crypto world is, if it sounds to good to be true, it probably is. Suppose you encounter people promoting huge gains in a short period of time. In that case, it’s either they are super lucky to make an entry position at the bottom or they are trapping you to become their exit liquidity.
The same goes for crypto shillers, who might promise you huge, risk-free gains. Remember, there is no such thing as a free lunch. Everything comes with a risk, so be very cautious and don’t get fooled easily.
Conducting thorough research also gives you confidence in your crypto investments. This is particularly important when there are sudden downward price movements.
If you are convinced of the utility, the team, and the institutional investors behind the cryptocurrency, you will not be tempted to sell at a loss.
Trade at Your Own Risk (TYOR)
Are you buying, selling, or holding? Your trade, your risk. Buying is risky because just when you thought that the price would not go any lower, it goes even lower.
Selling at a loss is risky. But what if the price suddenly went up? You could also miss out on a huge amount of gain if you sell too early. “Profit is profit,” they say. But it is painful to see that you sold at 20% up when you could have made it 200% instead.
Holding is also risky. This was my ultimate enemy. I held for far too long, convincing myself that the price would go up tomorrow, only to realize that my 200X before is a mere 2X today.
You have two ways to go about trading, in my opinion. First, you can trade based on your risk tolerance. If you cannot bear seeing a 20% loss, for example, then sell before it hits that price level.
Although I must say that a 20% up or down price movement is a common one in crypto, there’s nothing new about it. It is actually one of the advantages or disadvantages of trading cryptocurrencies.
This kind of move can happen in an hour or even a minute. So if you cannot afford to see a significant drop in your portfolio, then I suggest that you go back to doing your own research until you gain enough conviction or do not buy cryptocurrencies at all.
Second, you can buy or sell crypto in tranches. In the buying side, it is called dollar-cost averaging (DCA). It is a system of regularly buying a fixed dollar amount of a specific investment.
But what’s even better than this system is that you can also accumulate more volume of a cryptocurrency that has dipped below your average purchase price, to make your average cost even lower.
On the selling side, it is called scaling out of a position. This means that instead of selling everything, you may choose to sell a portion of your portfolio.
Therefore, when the price goes up, you can benefit from an even bigger profit, and when the price goes down, you can also prevent yourself from losing all your gains.
Plan your entry strategy
Once you have completed your research and are ready to make a trade, you must plan an entry strategy.
Answer these questions: At what price point will you be happy buying a certain cryptocurrency? And how much are you willing to spend to make a reasonable return on your investment?
What platform will you use to purchase your chosen crypto? Take note that not all coins can be purchased on one platform. You can buy them on centralized exchanges (CEXs) including Coinbase, Kraken, and Binance.
For some new and unpopular cryptocurrencies, you can only buy them in decentralized exchanges (DEXs), including Uniswap (ERC20), Jupiter (SPL), and Pancakeswap (BEP20).
What wallet will you choose to store your digital assets? Always remember to store your crypto in a non-custodial wallet instead of leaving it in a CEX.
Plan your exit strategy
The same thing that happened to me will happen to you if you do not have an exit strategy.
Because no matter how good your entry strategy is, if you do not have the a plan for when to sell, you will end up with so much regret.
Do not be greedy. Most people always fall into this trap. “It will go up even further,” you say. But how would you feel if it suddenly dropped?
Prevent yourself from basing your crypto trading decisions on your emotions. Set a target in advance and follow it when your take profit range is hit so you can be objective in executing your trades.
Do not invest more than you can afford to lose
Cryptocurrency is highly volatile. You can experience generational wealth from this asset class.
However, it can also make you poor or worse even poorer than before. Think of it like gambling.
Though certain cryptos are less risky than others, like Bitcoin, for example, you must not invest more than you can afford to lose.
Never use your life savings to invest, either. Only put in an amount that will not significantly impact your financial status; something that will make you comfortable sleeping at night knowing the fact that it could go to zero.
Apart from its risky nature, cryptocurrency is not regulated. Unlike with your money in banks, there is no FDIC insurance.
And if you made a mistake in sending your crypto, there is no way to get it back anymore. Once a transaction has been executed, it’s already final.
Do not borrow money to invest
This is a mortal sin. Do not take out a loan to invest in crypto unless you are 100% sure that you can make money off of it, which will never be the case.
Yes, it is a hot commodity and can be very profitable. However, it is an extremely unstable asset.
You could put yourself in serious trouble trying to play “god” in this kind of market. You are not smarter than the market; you will never be and no one ever is.
Resist ‘fear of missing out’ (FOMO)
It is always tempting to buy a coin that has already pumped. But you are already late.
If you really want to purchase that crypto, then you should resist FOMO and wait until the price consolidates to a lower price level.
As Warren Buffet said, “Be fearful when others are greedy, and greedy when others are fearful.”
If you think that you are left out, you are wrong. There will be plenty of opportunities in the cryptocurrency market.
Patient people will always get rewarded. What you can do instead of feeling FOMO is research.
Look for other opportunities that are not overhyped. Really study what you plan to buy.
Scrolling on Binance and seeing that a currency up 50% isn’t research. You are only putting yourself up as an exit liquidity for those people who bought at the bottom.
Avoid fear, uncertainty, and doubt (FUD)
Experiencing FUD never helps, and it often leads to unwise investment decisions. For example, you may be tempted to exit a position when it’s 20–30% down.
Yet, short-term price fluctuations shouldn’t bother you if you have a long-term investment horizon.
After all, if you look long-term, the price of most cryptocurrencies is on an upward trend.
Also, if you already did thorough research and are convinced about the coin you bought, do yourself a favor and don’t succumb to FUD.
Trust me. Sometimes, it’s better not to look at your portfolio every minute and just follow your entry and exit strategy.
Beware of “unit bias”
Just because you bought 1,000 Dogecoin does not mean it’s greater than 0.1 Bitcoin.
Not all crypto are created equal. Some cryptocurrencies have an infinite supply, and some have a fixed supply.
The bigger the supply, the lower the price will be per coin.
So always consider a crypto project’s tokenomics. To get the most out of your investment, you may prefer those with low supply and market capitalization.
I would also advise that you factor in why the coin was created. What are the use cases? Who are the team behind the crypto project? Do they have reputable partners and investors?
Do not buy a cryptocurrency just because you think it’s “cheap.”
Not your keys, not your crypto
Unless you trade often, never leave your assets on cryptocurrency exchanges.
If you plan to hold your cryptocurrencies and wait for them to grow, you must withdraw your assets from these trading platforms and transfer them to non-custodial wallets.
Why? Because if anything happens to these exchanges, no matter how big and reputable they are, your precious assets could be lost forever.
However, if you store your crypto in a self-custody wallet, you have complete control over your assets.
