How not to lose your money when entering a crypto market
I’ve lost money in flash crashes and during a bear market. I’ve learnt it the hard way, but I’ve learnt it. In this article I will share my knowledge with you, so you won’t make the same mistakes.
How to onboard your folks to crypto:
- The modern financial system from gold to petroyuan & de-dollarization
- Debunking misconceptions about crypto deflation
- How not to lose your money when entering a crypto market (current)
- How to choose the core holdings of a crypto portfolio
- Structuring satellite holdings and rebalancing a crypto portfolio
Disclosure: some links in this article are referral links. I also own BTC, ETH, BCH, and other coins, but my portfolio is heavily diversified, so I don’t have financial incentives to shill for any particular coin. This article is brought to you by a privacy-oriented peer-to-peer marketplace LocalCryptos.
People will only learn if they lose money.
© Andreas M. Antonopoulos
In the previous articles of this series we’ve talked about a history of a modern financial system, debunked misconceptions about deflation, and explained how to motivate relatives to learn about crypto.
How to onboard your folks to crypto #1: from gold to petroyuan & de-dollarization
History of money is a very sensitive and controversial story that shows us the dark side of human nature through…
Now is the time to give some practical suggestions how not to lose money while entering a crypto market.
In this series of articles we will discuss how to spot a conflict of interest, how much to invest in crypto assets, when is the perfect time to buy in, how to get the first cryptos and store them safely, where to exchange crypto assets, which coins/tokens to hold, when to rebalance a crypto portfolio, how to use leverage investing and avoid flash crashes, why diversification is so important, how to efficiently follow the news, and when to cash out.
- The purpose of this article is to educate people about risk-management and importance of diversification
- Investing in crypto assets is very risky, so don’t read further if you don’t like this technology or prefer stable assets
- If you’ve already decided to invest in crypto assets, but you don’t have any investing experience, then reading this article can save you money
We will split this topic into two articles, because the first one will cover the basics, while the second article will focus on more advanced stuff.
Conflict of interest
Always beware of a COI (Conflict Of Interest) when consuming the crypto content, because on the unregulated market people often don’t make a proper disclosure. There is nothing wrong in monetizing an educational content by promoting things that have value to an audience, but some people motivate their followers to actively day trade, knowing that most beginners will lose money in a zero-sum game. Others promote Ponzi schemes and make profit, while their followers lose money.
Always ask yourself why is this person promoting this platform or coin?
Here is a good example.
This guy sounded smart and talked about diversification, but top coins from his list were MLM lending platforms with his referral links in the description. Needless to say, 3 of those 4 Ponzi schemes crashed within three months after that video.
OK, so what is my motivation to write this article?
- I’ll get some revenue from referral and sponsor links
- Crypto articles give me more clients for consulting
- Writing is an opportunity to improve my investment strategy
- It’s a contribution to the community, so less people will lose money
- I believe that cryptocurrencies will liberate people from a debt slavery, help escape the global banking cartel, and destroy a government’s monopoly on money creation to make sure that corrupt governments cannot simply print money to fund programs without consent of its citizens (e.g., to fund wars or bail out bankers).
People are losing money all the time
Firstly, before buying any crypto assets, we should understand that losing money in a crypto market is very easy. Here are a few examples:
In the end of 2017 I’ve lost 90% of my Bitfinex balance in flash crashes. Since my portfolio was diversified between different platforms, I didn’t lose all my cryptos, but some victims lost the entire portfolios on that day. Unlike GDAX, Bitfinex denied any technical issues and refused to reimburse the victims.
In 2018 Bitconnect Ponzi scheme crashed and 1.5 million people lost their money, sometimes life savings. In the same month BitGrail got hacked and all its users lost huge capitals, which eventually led to bankruptcy of the exchange.
Investors often lose money by sending cryptos to the wrong addresses.
Many people became very rich from a margin trading on upswings, but then lost all their money. The famous example is a guy who earned and then lost 200 BTC (the entire portfolio) in a single downswing tilt. This is a great reminder not to use any margin, unless you’re a professional trader.
The cryptocurrency market crashed hard in 2018 to slightly bounce back in 2019. Many amateur investors lost money, because they bought high and sold low, while experienced investors used this opportunity to accumulate more crypto assets.
The crypto space is a “Wild West” with lots of opportunities and dangers. If you still wanna give it a try, then let’s start.
Investing vs. trading
FUD = Fear, Doubt, Uncertainty (usually leads to selling low)
FOMO = Fear Of Missing Out (usually leads to buying high)
HODL = misspelled “hold” or Hold On for Dear Life (hoarding)
Trading is a zero-sum game, so if a trader bought low and sold high, then it means that other traders made the opposite move, selling low in FUD and buying high in FOMO.
You can try to jump into the game and compete with experienced crypto traders, but most likely you will either lose your money or make less profits than a simple HODLer. You will also have less quality sleep, higher chances of a heart attack and spend hours staring at charts and drawing imaginary triangles, instead of doing something meaningful for yourself and the community.
So in this article we will focus on investing, rather than trading.
Most important security tips
- Register a unique email address for crypto websites and keep it secret
- Always activate a 2-factor authentication (TOTP is preferred over SMS)
- Use unique passwords
How much to invest and when to buy?
Loans and margin
Taking any loans to invest in crypto assets is, obviously, an extremely BAD idea, because you can lose everything due to your own mistakes.
If you really want to get some extra adrenaline, then you can try a very conservative leverage investing with a small portion of your portfolio using exchange’s margin trade, so you will risk losing only your collateral held (we will talk about this risky strategy in the next article of this series).
Lump sum vs. small chunks
Investing all your fiat savings into crypto assets in one day is NOT a good idea, unless you are very young, your salary expectation is rapidly growing, you are fully in love with cryptos, and the market is extremely oversold on a big uptrend. If you seriously want to put all your money into crypto because of FOMO, please watch this video how the guy lost all his savings ($30K) in Bitconnect. Don’t be like him. Be patient.
Dollar-cost averaging (DCA) is the safest way for beginners to start investing in crypto and it’s very profitable during a bull market, even though it’s not the most lucrative strategy for experienced investors.
The idea of DCA is to divide a lump sum into smaller chunks and invest fixed amounts every week (or month) over a long period of time (e.g. 6–12 months) to reduce risks associated with volatility and different newbie mistakes like sending cryptos to a wrong address. With DCA you will sleep much better and you won’t check prices every hour.
Example: instead of buying crypto assets worth of $1,000 in one day, you buy $100 every Sunday for 10 weeks, so the total acquisition cost will be $1,000.
Keep in mind though that the dollar-cost averaging strategy suits only for coins that have low transaction fees, otherwise your profit will be eaten by high fees. Last two years most cryptos had relatively low transaction fees, but that might change if the crypto mania will come back too soon, because reliable scaling solutions are still a work-in-progress on many chains, and we already saw big network congestions before.
The timing is not crucial when investing with the DCA strategy, but if you want to improve the strategy even further, then you can buy every dip during an uptrend. That’s very common among experienced crypto investors.
You can spot these corrections when most coins become red on short 24h graphs while staying green on 30 days graphs. Buying at these moments is very lucrative unless there will be a trend reversal.
TradingView has free cryptocurrency quotes from many analysts, which will help understand the market, but don’t trust them blindly with a big sum, because the only thing they can guarantee is that the price will either go up or down.
How to buy Bitcoin or Ethereum
Privacy-oriented peer-to-peer platforms
LocalBitcoins was a popular custodial trading platform to exchange bitcoins around the globe with all kinds of payment methods and privacy filters such as “SMS/ID not required”. However, the platform introduced mandatory KYC in 2019, which turned off many traders, especially from countries where owning cryptos is not safe.
LocalCryptos is currently the most advanced privacy-oriented peer-to-peer marketplace to buy and sell cryptocurrencies with different payment methods from credit cards, PayPal, PayTM, Western Union to in-person cash.
Here are a few advantages of LocalCryptos:
- no KYC is required
- it’s a non-custodial marketplace
- all chats are end-to-end encrypted
- it supports multiple cryptocurrencies
- no google analytics or other web trackers
- users can log in with their own wallets (e.g. a hardware wallet)
- unlike some centralized exchanges, it’s available in any country
However, there are some risks of using peer-to-peer marketplaces, so make sure to find a trader with a good reputation and don’t move large funds with a first transaction. The escrow system can mitigate these risks, but you should always be very cautious.
Disclosure reminder: LocalCryptos is a long-time sponsor of this blog.
You can also find a cryptocurrency ATM nearby with CoinAtmRadar. Some ATMs deal only with BTC, while others support altcoins like ETH, BCH, LTC, etc. However, not all ATMs support both buying and selling cryptos, so make sure to check that before commuting to an ATM.
Side note: one of my friends went to an ATM without any cash, thinking that he could buy cryptos with a credit card, so I feel necessary to mention that most cryptocurrency ATMs require cash, not credit cards.
How to store crypto assets?
The first step of any cryptocurrency investor is to order a hardware wallet, because it’s the safest way to store cryptos at the moment. Delivery might take a few weeks, so make sure to order it before you even ready to buy any crypto. That way you’ll be prepared when the next market dip happens.
However, a hardware wallet is not a bulletproof solution, because you can lose it as well as a recovery seed, and hackers might find some critical bugs and steal your funds even without any physical contact with a device.
Exchanges and online wallets
Side note: there will be no links to custodial exchanges in this section because all of them have pros and cons, and even the most reputable custodial exchanges occasionally experience hacks and periods of time when an access to funds is unavailable.
Custodial exchanges hold your crypto assets (private keys) for you and all trading is done off-chain, so most hardcore crypto enthusiasts don’t trust custodial solutions.
Storing big funds on an exchange is a “red flag” unless you are a day trader, but keeping a portion of your portfolio on a few centralized exchanges can provide you with certain benefits such as an ability to:
- Convert some crypto assets to stablecoins when the market is overbought
- Get many altcoins during a bull market
- Easily exchange crypto assets even during a network congestion
- Rebalance your portfolio without paying extra fees
- Access funds even if you don’t have a hardware wallet with you
- Set up 2FA, whitelisted IPs and withdrawal addresses
- Use APIs
Additionally, if you diversify your crypto portfolio among different custodial and non-custodial wallets, that will reduce risks to lose everything at once because of a single point of failure.
Software, paper and memory wallets
There are a few other options to store cryptocurrencies, but for most investors a hardware wallet, a custodial exchange and an online wallet will give enough diversification and flexibility. However, in order to use cryptos as a payment method, you should get a software wallet for your device, because it will provide a much better user experience.
Be careful with in-browser Ethereum wallets though, because any website can detect if you are an Ethereum user and even check your balance when you unlock a wallet. Side note: Brave’s BAT wallet is not detectable and was included in the tweet below by mistake.
Now you have a better understanding of how dangerous the crypto market is, and how to avoid the most common mistakes while investing in cryptos.
In the next article of this series we will discuss more complex topics such as which coins/tokens to hold, when to rebalance a crypto portfolio, how to use leverage investing and avoid flash crashes, why diversification is so important, how to efficiently follow the news, and when to cash out.
If you want to support more candid articles about crypto, security, privacy, and Hong Kong, then please share this article, retweet, donate crypto, or simply sign up at LocalCryptos with this referral link.
Disclaimer: I am not a licensed financial advisor, and this article is not a financial advice. The information presented here is for educational purpose only, it represents my personal opinion, and is not purported to be fact. Cryptocurrencies are very volatile and can move quickly in any direction. I’m not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, services or companies mentioned in this article. Seek a duly licensed professional for an investment advice.
If you’re highly concerned about privacy & security, then you should read how Hong Kong activists avoid an internet surveillance.
Digital resistance: security & privacy tips from Hong Kong protesters
Full digital gear: Telegram, Protonmail, AirDrop, FireChat, Bridgefy, PrivateBin, Fingertrapp, What3Words, Tor, VPN…
If you’re an activist, then check out an open source project decentralized-activism, which shares the best practices from different decentralized movements across the globe.
The purpose of this project is to raise global solidarity, unite people, and exchange valuable knowledge and experience…
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