When you're looking to invest in cryptocurrencies, you'll find a lot of caveats. I have lost count of the number of times I have written the words “volatile,” “speculative,” and “risky” in cryptocurrency articles. But this knowledge does not prevent it from being painful when those investments fail.
I got caught up in the recent crypto craze and it cost me thousands of dollars. From cryptocurrency platform collapses to interest-paying DeFi, I'm sharing my mistakes in hopes you can avoid making the same mistakes. Here are three biggies.
1. You have invested in too many altcoins
Bitcoin (BTC) recently erased the losses of recent years and rose to a new all-time high. But this does not apply to all cryptocurrencies. I have coins in my portfolio that are still down 70% or 80%, and some of them are relatively well-established projects.
Read more: Best Bitcoin Exchanges
A look at how the top 15 cryptocurrencies are performing as of November 2021 now shows that. Despite all the talk about the end of the crypto winter, with the exception of the two stablecoins and Bitcoin, neither of them have regained their highs yet. If you had invested $100 in each of the top cryptocurrencies (excluding stablecoins), your $1,300 investment would be worth $710 today.
|
Cryptocurrency |
Price in November 2021 |
Price today |
Percentage change |
What is the value of investing $100 today? |
|---|---|---|---|---|
|
Bitcoin (BTC) |
$61,004.41 |
$61,912.77 |
1.49% |
$101.49 |
|
Ethereum (ETH) |
$4,324.63 |
$3,157.62 |
(26.99%) |
$73.01 |
|
Binance Coin (BNB) |
$551.26 |
$507.08 |
(8.01%) |
$91.99 |
|
Tether (USDT) |
$1.0003 |
$0.9995 |
(0.08%) |
$99.92 |
|
Cardano (ADA) |
$1.9500 |
$0.5869 |
(69.90%) |
$30.10 |
|
Solana (Sunday) |
$203.55 |
$170.02 |
(16.47%) |
$83.53 |
|
Ripple (XRP) |
$1.0929 |
$0.5844 |
(46.53%) |
$53.47 |
|
Dotted (DOT) |
$49.98 |
$8.7644 |
(82.46%) |
$17.54 |
|
Shiba Inu (SHIB) |
$0.00007167 |
$0.00002484 |
(65.34%) |
$34.66 |
|
Dogecoin (DOGE) |
$0.2717 |
$0.1287 |
(52.63%) |
$47.37 |
|
US Dollar Currency (USDC) |
$0.9999 |
$1.0001 |
0.02% |
$100.02 |
|
Earth's moon)* |
$44.06 |
$0.000133 |
(100.00%) |
$0.0003 |
|
Uniswap (UNI) |
$25.63 |
$10.63 |
(58.53%) |
$41.47 |
|
Chain link (link) |
$31.57 |
$16.81 |
(46.75%) |
$53.25 |
|
Avalanche (AVAX) |
$65.07 |
$53.53 |
(17.73%) |
$82.27 |
Data source: CoinMarketCap. Snapshot from November 1, 2021 and March 19, 2024 * After the collapse of Terra, a new LUNA series was created and the old one became LUNA Classic (LUNC).
Actionable takeaways
Be careful about straying too far from Bitcoin and Ethereum. Investing in cryptocurrencies is already risky, and small projects – even popular ones – carry more risks. For example, Terra's LUNA was in the top 15 before it completely collapsed. Take your time and research each cryptocurrency carefully before purchasing.
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Read the whitepaper and see what the project promises to do. Look to leadership and developers to see if you think they can succeed. Learn about the economics behind the token, so you understand how new coins will be produced and how many coins may end up on the market.
2. I have used cryptocurrency earning software
Cryptocurrency earning programs come in different flavors, but they all carry risks. Some projects take your cryptocurrencies and lend them out for rewards. At one point, one platform was offering a 20% return on APY. Others offer staking rewards, which involve staking your cryptocurrencies to contribute to the running of the blockchain. The world of DeFi also offers yield farming, where you get rewards for providing liquidity.
Actionable takeaways
The SEC has cracked down on a lot of lending and earning programs in the US, some of which are still in place, especially on DeFi platforms. If you are looking for ways to generate passive income from your cryptocurrencies, tread carefully. Understand exactly where the rewards come from. If they are paid with the platform's native token, look at the value of that token.
3. I had money on cryptocurrency platforms that collapsed
Much has been written about the collapse of FTX and other crypto platforms. Some investors will get some of their assets back from the now-defunct platforms, but there are no guarantees. Cryptocurrency exchanges are not banks and are not protected by FDIC insurance against platform failure.
Actionable takeaways
Consider keeping your cryptocurrencies in a cryptocurrency wallet that you control rather than leaving them on a cryptocurrency exchange. This way, your funds will not be at risk if the platform goes down. If you go this route, make sure you store your security phrase in a safe place and keep your antivirus software up to date.
Why didn't I give up encryption?
I still have investments in cryptocurrencies for several reasons. First, I want a diversified portfolio that goes beyond stocks and real estate. Secondly, I think blockchain technology has potential. This is partly because cryptocurrencies can make money management cheaper and easier. This is also because the concept of decentralization is strong. Finally, I am comfortable with having a small percentage of my portfolio in riskier assets in the hope that one day these assets will outperform.
However, there are a lot of questions about what will happen to the cryptocurrency industry. We do not know what impact increased regulation will have, nor how technology will develop. This is why it is important to only invest money that you can afford to lose. If you want to invest in riskier assets, make sure they only make up a small percentage of your portfolio.
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