Overcoming Top 5 Beginner Crypto Investor Mistakes
First off, thank you for reading and as always, nothing you read or hear of my content is ever financial advice. It is simply content to help you think more about the ever changing landscape of finance/technology and where I believe we are headed in the future.
My goal in creating this Substack/Twitter (follow me @CryptoOnramp) is to onramp 100+ people into crypto through easy to understand descriptions of the various new technological concepts, so I would appreciate it if you could please subscribe and share if this article hits the spot!
This content is intended to provide a high level overview of concepts for beginnings looking to enter the space. If you are looking for more in-depth analysis regarding anything written below, I would strongly suggest creating a Twitter account and joining the Crypto Twitter space. Start by following a few of the same people that I do on @CryptoOnramp, or reach out to me via DM and I can suggest a few educational resources to dive deeper into the wide world of Web 3, crypto, and blockchains!
One of the biggest barriers for people wanting to invest in cryptocurrency/Web 3 is the countless horror stories of people who lost money in a number of ways.
The list is endless:
- Rug pulled by a scam
- Bought the top of Bitcoin after seeing it on CNBC and now down 80%
- Purchased a NFT expecting to sell it for double the next day but it crashed
- Put 100% of crypto allocation into an altcoin that someone said would 100x
- And on and on and on
This article is aimed towards those who are intrigued, but hesitant on investing in the crypto space because of these worries. Hopefully by the time you are finished reading this, you will understand how best not to become another cautionary tale, and have the conviction necessary to invest in what I believe to be the future of the world!
(And if you are currently invested in crypto, a lot of us including myself continue to make these mistakes occasionally… so this is a great refresher in developing conviction and sound fundamental investing habits)
Below is a list of the most common beginner crypto investing mistakes, and how best to correct them:
1) Be Certain About Your Investment Timeline:
I believe this to be the #1 mistake most investors make. It is the root reason that a number of the following mistakes occur, and can significantly improve your portfolio returns and mental health with this one adjustment.
Determine whether you are investing for the short term, medium term, or long term.
The time frame of each of these periods is up to you, but make sure they are clearly defined and you are well aware which time frame your investment falls under before you hit the buy button.
For me, short term is 1-2 weeks max, medium term is 1-3 months, and long term is 2+ years.
While these may seem like extremely short time frames, we do have to keep in mind that we are talking about crypto investments, and things move FAST in this industry.
It is important to know which bucket your investment falls under because it helps you determine your purchase and price targets to sell.
For example, you purchase a cryptocurrency that you have defined as short term, if the price doubles 3 days after you purchase it, you are much more likely to sell at that point. Being unclear about your investment timeline would have perhaps made you tempted to hold and “ride the green candle” until it inevitably comes back down and you are now underwater and holding long term because you don’t want to sell for a loss.
As another example, if you are looking at a potential investment you only plan on holding short term, and the price has already doubled before you were able to purchase, you’d likely shy away from it as the upside over the next 1-2 weeks isn’t nearly as high or worth the risk. This helps prevent you from experiencing FOMO and impulsively spamming the buy button.
Determining timeframes also helps your brain compartmentalize your irrational emotions during price volatility. Personally, I hardly ever look at the market balance of my RRSP account (or 401K in the US) because I know I will not be withdrawing any funds from that account until I’m 65. It’s largely irrelevant whether my portfolio in that account is up or down 5% on a daily basis. I don’t even flinch.
It is a long-term investment.
On the contrary, I find myself checking crypto prices and my portfolio balance every hour because I am unclear about the investment timeline on the range of tokens that I hold. Obviously, this is not mentally healthy and leaves you more susceptible to emotional trades that don’t turn out well.
Compartmentalizing my crypto portfolio into the various time frames has definitely helped increase my conviction and decision making regardless of market conditions.
2) Understand What You Are Investing In:
This one seems like common sense, but surprisingly gets overlooked far too often.
It is very easy to get caught up in the hype, get a little case of FOMO, and buy based on what an influencer or friend said.
Understand the protocol/project you are investing in. What problem does it solve? What is the governance structure? Who are their biggest competitors? What innovative products do they have in the pipeline? How does it make money? What is the market share and growth potential?
The level of your understanding in questions such as these define the level of conviction you have in your investment portfolio, and the likelihood you have made good investments.
Ask yourself these questions of your existing investments, both crypto and in stocks.
You’d be surprised how little you actually know.
3) Study Tokenomics:
An often-overlooked aspect that can ultimately be the deciding factor between a profitable trade or not.
Do you know the total supply of tokens, how many are currently in circulation, and what the token release schedule looks like for the remainder of the supply?
First edition original Pokemon Charizards are expensive because the total supply is known, all of the supply is currently in circulation, and it’s not likely to increase given unique identifiers that make it difficult to print more of those cards today.
Assess your potential investments.
You certainly do not want to be buying something with 10% circulating supply, and 70% of the total supply unlocking tomorrow, as that usually means a huge price drop as the supply increases significantly without any demand spikes.
In fact, you may decide to sell right before one of these token unlocks.
Bitcoin will only ever have a max supply of 21 million. Most NFT projects have a supply of 10K.
And if you’re still unsold on needing to look at tokenomics, consider this:
The most used form of money in the history of the world $USD, is one of the worst assets to hold over the long run because of the exponentially increasing supply.
Understand the tokenomics of your investments.
4) Investing, Not Gambling:
In the crypto/Web 3 space, given how early we currently are in its lifecycle, it can often be easy to get caught up in the FOMO/hype and start buying tokens with very low market caps in the hopes of catching the next 100x.
However, it is important to keep in mind that these are real dollars and that you are an investor/trader, and not a gambler.
Assess your approach to cryptocurrency investing compared to other forms of investing that you may do.
If you invest in the stock market, do you buy penny stocks or do you stick with index funds and the S&P500?
If you don’t dabble in penny stocks, why do you do it in crypto?
If you only purchase index funds and the S&P500, why do you shy away from $BTC or $ETH as a large part of your crypto portfolio?
Don’t gamble, invest.
There’s a big difference between the two. One makes money over the long run, the other almost always loses to the house.
5) Stop Playing The Victim Card:
Regardless of where you get your investing alpha/information from, or what happened that caused you to lose money, you are ultimately the only person responsible for your own investments.
I need to say that again.
YOU ARE ULTIMATELY THE ONLY PERSON RESPONSIBLE FOR YOUR OWN INVESTMENTS.
That is the beauty of web3. You have the ability to self-custody your own assets/wealth, but with great power comes great responsibility.
This means that ultimately the buck stops with you, and there is nobody to blame but yourself if anything goes wrong.
If you made an investment that lost money, look yourself in the mirror and ask what happened.
On the flip side, having this complete power means that you’re the only person who gets credit when you make profitable investments!
The sooner you start to take responsibility and stop being the victim, the sooner you start to become more profitable.
The above 5 mistakes are very common among beginner crypto investors and are likely the reason for 90% of losing trades.
Just because you are in violation of some of them currently doesn’t mean you are a bad investor or that crypto/Web 3 isn’t for you.
Heck, even I still make these mistakes from time to time. We are humans after all, and not robots. Emotions and irrationality occasionally get the best of us.
The key is to be aware of the mistake, and adjust accordingly so that they do not consistently happen going forward.
That is what creates a successful investor over time.
Good luck. #WAGMI