Been trading crypto for a few months and yes sure the market is now in a bull run but I have learned quite a lot during this period. The Crypto market can be scary as new investors see the extreme volatility. I started when Bitcoin was trading at USD52k, saw it jump to USD63k then drop to USD 30k and now it is hovering around USD38k. Yo what’s going on bro?
That is Crypto for you. Apparently Crypto traders will immediately dump or grab when someone tweets something or some government official decides to make some statement. Worse still, some of the ups and downs make no real sense. We even have a cryptocurrency called DOGECOIN being one of the top 10 cryptocurrencies by market cap just because some celebrities think it is “cool”. Over 130 billion in circulating supply (with no hard cap limit) and each coin is worth USD 0.30 now. It went to USD 0.70 once. Furthermore there can be an addition of 5 billion coins into the market every year. Makes no sense at all. And it can be very dangerous for investors who don’t know better. I know quite a few who just invest in crypto because they read that they can make (lots of) money from it without understanding the risks.
Anyway enough of my rant. Here are some lessons I learned from trading crypto as a small time investor. Note that my experience is in the bull market. And take everything I write here with a pinch of salt. I am no financial advisor and you should always do your own research when doing investment.
- Don’t be afraid to take profits. Yes that is one of the biggest mistakes I made. We are all in this for making some income for ourselves right? So don’t be afraid to take profits from your cryptos. The market is extremely volatile and could drop the next day (or even the next hour). So take your profits. Don’t be too greedy. If I think a coin has some potential, I will normally sell half or even a quarter to recover some of my investment when the price is right. If it goes up further, good for me. If it goes down, well at least I made some profit. The rest I will just hold on till the next run.
- Never leverage. As a small time investor it is a very huge risk to leverage your crypto. Only play with crypto with what you can afford to lose. You can see in the crypto markets that a lot of investors are leveraging, hence the wild mood swings we see nearly every week. With so much money at risk, it also forces the investor to make bad, irrational and impulsive decisions. I know, I have done it myself. Something about crypto that makes it so that greed and fear simply overwhelms you.
- Invest in various cryptos. Don’t put all your eggs in one basket. I know of players who only invest in Bitcoin but my opinion is that this can be dangerous. We will also never know what will happen to that particular crypto and which internet celebrity or which government might suddenly harbor some hatred for it. Read about XRP, XMR and BTC. My strategy is to invest in a few different types of cryptos. My portfolio includes smart contract coins, “swap” coins (those decentralized exchange supported coins), defi coins, privacy coins and even at times stablecoins. But of course you should not invest in too many coins at the same time. It makes it very difficult to track the market trend and react if you have too many crypto to look at. I would suggest around 5 to 6 different coins at a time.
- Stablecoins. We might not think much about stablecoins like USDT or BUSD but they can be a good investment strategy as well. At times I will keep a modest amount of stablecoins in my exchange wallet. First they are very popular to trade with in exchanges. And if you need to act (trade) fast, those stablecoins can be used for purchase for other crypto immediately. They are also be a good source of passive income as their interest rate is pretty high. Even in Binance you can leave them to earn interest. Nexo and Celsius are also good platforms to earn some interest on stablecoins if you are planning to hold. However do note that there are “gas” fees for transfer of crypto between platforms/wallets, not to mention the withdrawal fees. So make sure it is still profitable before you transfer to and from wallets before you commit.
- Don’t panic. Let me tell you my experience about panicking. When I first started trading in cryptocurrencies, I bought BTC (as most first timers would) and it was fine for a few days. The price went up and I was happy. Then it tanked. Not that significantly, but it did tank beyond my initial purchase price. Being a first time investor, I went into panic mode and sold it off at a loss. And a few days later, it went up again. And I started hearing stories that Bitcoin will jump to USD 100k by this or that month and will reach a million by the end of the year and if I did not act now, I will never get it at “this price” (aka Fear of Missing Out or FOMO). So I went ahead and purchase BTC back. Of course things didn’t all go to plan. The cycle goes on and on. So my advise would be simply stay calm and think through before making any decision. The crypto market is extremely volatile and you will see big swings in either direction.
- Unknown coins. I know it is everyone’s dream to find a cryptocurrency that nobody knows about and hold like a million of said coins and in a few years time, they would be worth billions of dollars and we can retire at a beach somewhere enjoying life. I too have been searching high and low for such a coin. Even to the point of checking out those “burnt” tokens. But in reality such cryptos are nearly impossible to find and by the time we all heard about it, the run is all but over. Better stick to having a sound investment strategy rather than going around and buying up unknown coins which might turn out to be worthless or just a scam.
- Hype. One of the most dangerous of it all. Do I need to mention about DOGECOIN again? Yes we do read about people buying houses from the profits of just trading DOGECOIN for a few weeks but have you read about people losing all their life savings because of the wrong bet? Hype and sensational news are pretty dangerous in my opinion. Just a few weeks ago, DOGECOIN went up to USD 0.70 and everyone was claiming it would easily reach USD 1 or more. But it didn’t. In fact it dropped to USD 0.30. And now we have SHIBA INU. Imagine those small time investors who had placed a huge chunk of their life savings hoping to make it big, but it just didn’t materialize. Just because a celebrity “endorse” a coin doesn’t mean that it is a good investment.
- Know the crypto you are investing in. Or at least read a little about it. Yes there are really a lot of investors who dont even know what a cryptocurrency does. Blockchain? No idea. Well I won’t call myself an expert by any means but I will usually find out a little more about the coins I am currently investing in. Nowadays it is not that difficult to find information about such coins, especially if they are in the top 10 or top 20 in market cap. Of course you will need to differentiate between those who are trying to “sell” the crypto to you and those who are actually providing you with the facts. Furthermore if you understand a little about the crypto you are investing in, you will know a little more as to when to sell and when to buy. For example if you read that the governments around the world are trying to restrict trading in centralized trading (like Coinbase [referral link included] or Binance [referral link included]), it might be a good time to go into decentralized exchanges and the coins that support them (eg. UNI or CAKE). And you will be less prone to FOMO or FUD (aka Fear Uncertainty Doubt).
- Coinbase. Get some free cryptocurrency yo! Coinbase [referral link included] has this “earn rewards” section whereby you can earn some crypto by taking courses about different types of cryptocurrency and answering some quiz. I made like over USD 60 through their tutorials. Good way to get your toes wet. This is actually where I started my trading adventures.
- Market Manipulation. Market manipulation is very commonplace in the crypto market. Don’t believe me? Just start your favourite exchange platform and look at the history of various popular cryptocurrencies. The market goes up and down. Sheer madness. But in most cases, there is a method to the madness. It is market manipulation. For example, if a big whale wants to buy into lets say Litecoin (LTC) but they will not want to pay the current market price for their share. So what would they do? Manipulate the market! Create some imaginary “fear” so that the market will crash and buy in at the lower price. Yes cryptocurrencies with a bigger market cap is harder to manipulate and that is the reason why I always tell everyone to only invest into the bigger coins. But it still happens to a smaller extent. Just a few months ago, Elon Musk went on Twitter to tell the world that Telsa is holding Bitcoin. This resulted in BTC rising in price. But later it was revealed that they actually sold some BTC they had in Q1 of 2021. Sweet sweet profit for Telsa. So yes, small time investors like us should always take such tweets or news with a grain of salt.
Take care! Hope that these helped you in your journey into crypto investing. You can check out my current crypto portfolio here.