For both seasoned and new crypto investors, there are a few truths that remain universal in trading and investments, no matter whether you’re WAGMI’ing through the death throes of a bull market
with your Twitter ride-or-dies or careening down the bitter streets of Goblintown
solo during a miserable, neverending bear market
Yes, hindsight is 20/20 (or in this case 2020), but every bear market also represents a do-over and another crack at creating that portfolio masterpiece with a clean canvas in front of you (and wiped-out wallets behind you).
Here are five things to know before you buy your first cryptocurrency.
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Did you have to remove those Bitcoin laser eyes
from your Twitter profile pic discreetly or laser off that wolf tattoo? Even the smartest of us can go from betting the farm to buying it when investing in these digital assets that so few of us actually understand.
It’s very easy for new investors to get carried away when they finally take the plunge and jump wallet first, FOMOing
at the mouth as they experience the intoxicating power of a crypto bull market for the first time. Chances are though, they are getting in too late in the game, and will end up selling low when the eventual market correction comes.
As with any investment or “educated gamble,” the first rule remains: Never put in more than you can afford to lose.
As the Luna meltdown painfully showed, anything is possible in the crypto space, and this means you can very well lose everything you put in. The risks are myriad: hacks, scams
, rug pulls
, regulations and so much more. For this reason, don’t put all your eggs in one basket. Try and build a diversified portfolio that covers different sectors and use cases
in crypto, and keep a chunk of cash in reserve at all times.
A sobering account to follow on Twitter is Coinfessions
, where anon investors lament their worst investment mistakes and their fallout: it helps keep your ego in check and let calm heads prevail when things are going well or horrible.
So how much is too much? Luna founder Do Kwon infamously said
to a critic on social media before the crash, “Your size isn’t size.” Everyone has a different risk tolerance, and there are many factors to consider depending on where you are in life, e.g. living a carefree existence in your 20s versus having a family and mortgage in your 40s.
A good yardstick would be to allocate an annual investment amount that won’t stop you from having to radically change your life if you lose it, keeps you up at night or has you reaching for your portfolio every 30 minutes. Divide it by 12 and use monthly dollar cost averaging (DCA
) to gradually build a position over a longer timeframe
What if you’re in deeper than you should? Resist the urge to double down without doing your homework. Unfortunately, crypto’s bull market war cry buy the dip (BTFD)
also resembles sunk cost fallacy. This is the belief that since you’ve already invested X amount into something, you need to protect or improve that investment with more of the same if things go wrong. While certain red market days do present great buying opportunities, in prolonged bear markets you’re more likely to throw good money after bad if you’re investing in the wrong project, as unproven altcoins can shed 99% of their value.
Take a time out and try to assess what’s really going on. Is it just a bad run for the markets, are macro-economic factors at play and what are the chances of recovery? Are you making poor decisions and essentially now gambling in a desperate bid to get your money back? Chances are you won’t, and you’ll get deeper into the red. Investing in crypto should never be a pure gamble, even if crypto casinos
are becoming a thing.
So if you’re new, start small, and get the lay of cryptoland as well as its ebbs and flows. Take profits when you can to reduce the cost of your investment. And yes, you may BTFD to gradually increase your stake if you wish, but only after you’ve DYOR
DYOR (Do Your Own Research
) is a slightly hackneyed term often bandied around in the crypto space as a throwaway disclaimer that what you’re being told or sold is not financial advice.
However, even if it is hacknered, it’s an absolute necessity in today’s crypto space. For me, a good indicator to see how close we are to the top of a bull market is the number of friends (and random strangers) asking me whether they should buy Coin A or Coin B. Ask them what they know about the project, and in most case, you’ll get a kind of “Nothing! I don’t care, I just want to know what to buy!” response.
Take a good look at these crypto tourists who arrive each cycle to buy high, then sell low before they exit in a huff and call crypto a huge scam, only to ape in
again a year after the next Bitcoin halving
If you have no desire to understand what crypto is and what it does and can do, you shouldn’t own it. Understand at least at a basic fundamental and technical level what you’re looking to buy, why you’re interested in this specific cryptocurrency, and what it has in the pipeline in the next year or two that makes it a sound investment.
Here are a few quick tips:
Visit their website, read the whitepaper
and dissect their statistics on CoinMarketCap Community
in order to see what’s really happening under the hood and how adoption is going. Have their smart contracts been properly audited?
Who are the team and have they been doxxed (are their real identities known)? Does the founder have a proven track record and previous success stories? Are they open to community feedback and criticism?
As the Wonderland Sifu saga
and Saber scandal showed, a nasty founder reveal can sink a project. How many reputable early investors are there? How likely are they to dump their tokens or hold on to them and support the project over the long term? For example, having the early backing of elite firms like Alameda Research, a16Z and Animoca Brands is often (but not always) a good indicator of future success and a unique use case.
When looking at a project’s social media accounts, be wary of manipulation. Don’t look at the number of followers but rather the feedback and interaction they’re getting from their community. Are real engagement and passion there?
If an account has 200,000 followers but only five likes per post, or you see endless shilling of their token on other profiles’ comment sections, they’re likely paying for followers or using AI bots. Avoid them.
Instead, roll up your sleeves, cover your nose and dive into their Discord and Telegram channels to connect with the community at grass roots for real insights. Just please, please, avoid common Discord and Telegram scams while you’re there.
Next up, tokenomics.
How are tokens being distributed? What are the token allocation
and vesting period
for private round investors, community and team members? Are they likely to hold on to coins or dump them?
Doing the hard work will give you the best chance at making the smartest investment possible, and over time, each DYOR check will be faster and better than the one before, with red flags jumping out at you.
These are all essential steps you would usually follow if you were to invest in a traditional stock, a car or property. So why don’t we all do it in crypto?
Well, crypto’s tricky and there’s also that little thing called FOMO.
and FOMO are two key concepts to understand and master if you want to hit a positive ROI
on your portfolio. They’re the yin and yang of the crypto hivemind, the light and dark sides of the force that maintain balance in the cryptoverse by flushing out paper hands and rewarding diamond hands
as those Japanese candlesticks
continue to wick and tick up if you zoom out far enough.
The world of crypto often reminds me of the game of poker, which was once described to me as “bargaining based on incomplete information.” If you’re good at poker, you use whatever insights you can find from your fellow players’ behavior and psychology — and of course, you also do the math based on what cards you see.
- A beginner will just play their two hole cards, oblivious to what else is happening.
- A good intermediate player will base their strategy on what cards they think their opponent has.
- A professional player will play the cards that their opponent perceives they are holding.
In short, poker is all about smoke and mirrors and misdirection, and unfortunately, crypto bull markets are often no different, as we saw this year with so many “unsinkable” projects disappearing without a trace within days when things get bad.
In crypto, you must try to cut through the noise of media hype and echo chamber communities to assess the merits of a project properly.
Both crypto and poker require you to compete against other participants (investors or players) with the aim to accrue assets (coins or chips) through smart decision-making. Just as in poker, being successful in crypto trading and investing means capitalizing on new information, the mistakes of other participants (for example a market crash due to a FUD story), market inefficiencies and more. The key to success is to maximize the extent of your good decisions and minimize those of your bad ones in order to keep growing your stack.
There are only 21 million Bitcoin
to be created for eternity by 2140, of which an estimated 4 million BTC
has already been lost, and the rest currently spread between 80 million Bitcoin owners.
This means that only 1 in 3 of the 56 million millionaires in the world today can actually buy a full Bitcoin. If you’re serious about Bitcoin especially, there is no margin for error. HODLers
are playing for keeps and the long-term stakes are so high that it really incentivizes FUD and FOMO news cycles designed to lure in or shake out retail investors. Don’t be fooled.
Some FUD events are so recurring and well-timed — such as China crypto bans
, USDT Tether
issues, Mt. Gox withdrawals
and regulators going after exchanges — that they seem almost scripted.
Peak FOMO? Super obvious in hindsight, but likely you’ll be blissfully oblivious to it while you’re getting high on your own supply in the hopium
den of YouTube. Usually, it’ll have a long run-up over months, culminating in a big Bitcoin
or Ethereum milestone
. Uhmm, let’s hold off on that last point till September.
So how do you know whether you’re FOMOing in too late or FUDding out too early?
The Crypto Fear and Greed index
represents a good barometer for starters to quantify market sentiment and figure out where we are cycle-wise.
All markets move in cycles, and what goes up, will eventually go down, and later up again. Therefore, you can also look at the famous market psychology chart
to try and figure out where you are right now.
Crypto might save the world one day, but until it is properly regulated, it will continue to attract fraudulent, outright criminal behavior. And no, I’m not talking about Bitcoin’s early Dark Web
days or those high ETH gas prices
last year, but the myriad devious ways that bad actors will try and steal all your funds, especially in the innovative but vulnerable DeFi
DeFi presents some lucrative ways to earn passive income by locking your crypto assets for staking or yield farming, allowing you to make anything from a few percent to multiple times your investment in rewards, at least in theory.
However, if things don’t add up and seem too good to be true, then it probably is and you may be in danger.
When maximum greed kicks in, investors quickly eschew conducting proper due diligence in order to get in early for maximum gains. The result is often a smart contract breach or a massive drop in asset value that cost them dearly.
The same goes for earning high interest where you don’t know where the money is coming from to pay the interest. For example, Anchor Protocol famously offered 19.5% in APR
for users who deposited UST. We now know it was constructed by the Luna team to drive the adoption of USD Terra, and ultimately, when the Anchor reserve fund dried up, it was the beginning of the end for Luna.
If something feels off, it likely is.
Blockchain’s immutable and public ledger design is a thing of beauty, helping the world to finally find a trustless
way to reach consensus without the need for third parties.
If you seek answers on a possible investment, most likely you shall find them on-chain. There are hundreds of amazing blockchain explorer or analytical tools like Nansen
, CryptoQuant, Messari or TradingView to gain amazing insights.
This extends to doing the basics as well though. Not sure about a date, or a fact claim by a project? Don’t assume, verify! All the information you need is likely at your fingertips.
Embed blockchain’s inherent quest for truth and transparency into your own investment methodology, and you might very well make it one day. Good luck on your journey!
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