Tips (and Common Mistakes) Every Cryptocurrency Investor Should Know
By: Darius Moukhtarzade
Tags: Cryptocurrency, Crypto, Bitcoin, Investing, Blockchain

1. Understand the concept & purpose of crypto

Many people want to invest in crypto because they heard about people or have friends who made a lot of money with it. While you can still make a fortune with crypto it is a lot more than just a get rich very fast scheme. The technology, as well as the use cases, are revolutionary and I recommend everybody to inform himself about them.

Generally, no matter what you invest, first, try to understand it. This is especially important in crypto since it is a new asset class and constantly evolving.

The first step could be to understand the underlying technology of cryptocurrencies the blockchain and its implications of being a distributed ledger sharing a single truth and allowing peer-to-peer transactions.

I suggest every new joiner to read the whitepaper of Bitcoin (the first cryptocurrency) to understand its original use case and the history of its development, which is linked to the financial crisis of 2008. Understand the benefits and also disadvantages of cryptos. If you are not interested in doing so, I suggest you go to a casino and bet on either black or red, do not forget the zero though.

2. Have a clear strategy

This tip is a general one in investing and not crypto-specific but due to the high volatility of crypto assets, I think it is very important to mention it. Always have a clear strategy when investing in an asset. Are you planning to be a short-term investor or a long term (called HODLERS in the crypto space)? This is important to save money and nerves.

In my experience many people come into crypto for short-term investments, they want to make a lot of money in a short time. When the prices increase they suddenly do not want to sell, figuring it will increase even more if they wait, and when the prices fall they say something like “that’s just volatility I wait till the next bull run.” Suddenly they become long-term investors.

Always decide before investing what your time horizon is and when you want to sell.

Define a clear number like I will sell 25% of my cryptos when the price is +20%, for example. Always, have clear boundaries. I also suggest to always take little profit with you on the way even if you think that Bitcoin will become USD 1,000,000 per coin.

3. Pick the right exchange

The first time I bought crypto, I went on google typed in “how to buy crypto” and landed on the Coinbase website where I bought my first Bitcoins. Coinbase is one of the biggest crypto exchanges in the world and there is nothing wrong about it. However, there are several factors you should consider before choosing an exchange.

Firstly, compare the trading fees. They can vary a lot depending on the exchange. Be aware that different payment types have different fees. For example, paying with a credit card is much faster than doing a bank transfer but has higher fees. Think about it, do you have to fund your account right now or can you wait two working-days?

Secondly, check the trading pairs. There are exchanges where you can only trade crypto with crypto in most cases Bitcoin aginst other cryptos. But when you are new you first have to get some crypto to get started on these kinds of exchanges.

Thirdly, check which fiat currencies or cryptos the exchange accepts and offers. Since I am Swiss, I had to change my Swiss Francs into either Euro or Dollar to buy on most major exchanges like Coinbase or Bitstamp. If I had done some research, I would have found out that, there were exchanges where I could buy with Swiss Francs so I could have saved the exchange rate.

In addition, a common misconception is that you can buy most cryptocurrencies in one exchange. This is not the case, there are approximately around 5609 cryptocurrencies in circulation. Therefore, before registering on an exchange be sure they offer the cryptos you want to purchase, do not take it for granted.

4. Store your cryptos safely

You’ve probably heard that cryptos in the billions have been stolen.

This is true but the blockchain is secure. Cryptos are stolen when exchanges are being hacked. Contrary to a blockchain most exchanges are centralized which means the private keys (access to your coins) is stored on a central server. This makes it easy for hackers to get access and exploit the funds.

When you buy cryptos on an exchange transfer them on a cold storage wallet which is the safest way to store your cryptos.

These are devices that look similar to a USB stick where your private and public keys are stored safely. There are two major companies that offer such devices I can recommend: Ledger and Trezor. These hardware wallets cost between USD 50–200 and are worth every penny. When you send your crypto from the exchange to these devices, even if the exchange is hacked you will not lose a single coin.

In addition, when Bitcoin reaches its next highs you can simply send the coins from your devices to the exchange and trade them. This is especially recommended for people with a long-term investment horizon.

5. Be cautious with crypto influencer

There are many “crypto influencers” on social media, some are legit others less. Listen to them but don’t give their opinions too much weight. Just because one person has made a fortune with crypto in the past does not mean they have advanced knowledge.

Also, some influencers have an agenda. They are paid by exchanges and protocols to advertise them or just want to share their referral link to make a profit.

When it comes to crypto it is a good strategy to listen to both extremes the ones that are in favor of a cryptocurrency and the ones who call it a scam coin(this happens quite often in the crypto space). Always form your own opinion. A good way is to first build your own opinion then listen to others and compare it. In aspects that you have different opinions ask yourself why? What assumptions must become true so that this coin will rise in value?

6. Pick the right coin

The world in 2009 was very simple if you wanted to invest in crypto there was only one choice: Bitcoin.

Times have changed and so has the number of cryptocurrencies, which is around 5609 in 2020.

These 5608 other cryptocurrencies are not the same as Bitcoin. While many cryptocurrencies share the original use case of Bitcoin, namely a digital independent alternative to government-controlled fiat currencies, others have different use cases. Ether, for example, the native currency of the Ethereum protocol is needed to fuel Ethereum applications such as DeFi apps or DAOs.

When investing in cryptocurrencies be aware of their respective use case. If you think, the use case generates added value and blockchain is the answer to this go for it. If not, look for other currencies.

7. Be aware of the risks

While blockchain technology is very promising and cryptocurrencies will (in my opinion) revolutionize the financial world and create more equality and independence; never forget that investing in them is a high risk. The technology is still very young (a little bit more than 10 years) and markets are small which makes manipulation easy for large players. Some would even call it speculating and not investing.

One golden rule of investing is to only invest as much as you are willing to lose.

Crypto is very volatile, yes you can make a 20–30% increase in value in one day but you can also lose as much in half a day. Although I am very convinced that crypto will reach mass adoption (due to its added value in various use cases and increasing adoption) I have to remind myself often that it is nevertheless high risk and that there is the possibility to lose everything that I have invested.