Now that I've survived the horrors of many crypto crashes, I feel it's time to share some hard-earned lessons. I love crypto but it's a wild ride. Here's a list of things I wish I knew going in..
1. The riskiest part of bitcoin and crypto is getting hacked, scammed or losing data
When you tell your friends that you're buying bitcoin, their first reaction is, "you'll lose all your money because the coin will crash". False! You're far more likely to lose your money due to hacking / scams / data loss way before you suffer your first crash!
Almost everyone I know who was involved in cryptocurrency- including programmers- have had at least 1 bad incident. Let me break down each of these so you can mitigate the risk:
- Getting Hacked: Most often, this is because you're using a bitcoin exchange that got hacked. The hackers did not get your personal computer, but they did clean out all the bitcoin from users of the exchange, and that may include you. The solution is to never keep crypto in an exchange and buy a hardware wallet.
- Getting Scammed: This involves people falling for schemes that seem too good to be true, or buying mining equipment from a fake account. The scams for bitcoin are very elaborate, so be extra cautious.
- Data Loss: This is when your computer crashes or gets corrupted, and you forget your backup key. Many people are careless with the backup key. For example, they do not write it down clearly, and some letters/words are missing or get smudged away. It's important to keep it safe and clear from day one. Remember, due to fire, you might want to keep it offsite.
2. Consider coins that pay a "dividend"
There are some cryptocurrencies, such as Neo or ReddCoin, which pay a "staking" or dividend. Neo is one I like, because, once it is properly kept inside a wallet, you get the Gas dividend without any extra effort. ReddCoin, in comparison, requires that you run their "minting" software. Of course, all these are 2nd rate coins and extremely risky. And, unlike dividend paying stocks, the dividends themselves are paid in crypto, so when crypto drops, so does the return on the dividend. KuCoin is another option. It's a share of the KuCoin exchange and pays out profits from the exchange. However, I think decentralized exchanges are the future, so there may be risk there. BridgeCoin is similar but decentralized. PIVX is yet another staking coin that's rising in popularity.
Hint: The best time to buy "dividend" paying coins is when the market is low. Once it recovers, the value of the dividend as a percent will be high. That being said, the crypto market is extremely volatile, and some coins may never recover, or take many years to do so.
3. To know what's going on, you must be connected to the underground.
To know what's happening with crypto prices, you need to hang around SteemIt and Bitcointalk.org. The mainstream news sites, such as MarketWatch, CNN or Motley Fool have very inaccurate information about bitcoin and cryptocurrency.
One time, when bitcoin tanked, I read on the forums that it was because of a major lawsuit of a hacked exchange, that was forced to liquidate bitcoin onto the market. With billions of bitcoin being dumped onto the market, it forced the price down. After the dump stopped, the price recovered.
The mainstream finance sites, such as MarketWatch, CNN and Motley Fool simply had no idea what was going on in cryptoland, and their articles were desperate attempts to explain the dip. Articles along the lines of "Everyone is Unfriending Bitcoin" were published. When the coin recovered, articles talking about how crypto is recovering because the technology is improving were published. All of this was totally wrong. They were simply finding terrible explanations for what was really happening.
Even CoinDesk did not seem to provide the same insight as the more "underground" communities, so if you want to understand what's affecting price, check those underground places like Steemit and BitCoinTalk. For example, a great possible explanation of today's rally can be found in this article on Steemit: https://steemit.com/bitcoin/@cryptoeater/massive-btc-rally-possibly-due-to-bitmex-maintenance
As of this writing, CoinDesk has not provided that insight.
Got another great source of news than Steemit or BitCoinTalk? Post it in the comments below.
4. Be patient, because there will always be big dips
It's really hard to resist the temptation to buy when things start to heat up. The FOMO, aka Fear Of Missing Out, can drive people to buy coins at a bad time. No matter how promising it looks, I would recommend waiting for a "bear market" or crash. Remember, in late 2017, bitcoin hit over $15K, and people thought it would hit $30K quickly. Now, its dropped below $6K in 2018. I remember when Neo was over $100. It's now under $20.
Remember: Money isn't made on the sale, it's made on the buy. That is a golden rule that applies to stocks, real estate and crypto investing.
5. Be careful with mining contracts
If you buy mining contracts, there's very few trustworthy companies. The closest thing to a trustworthy company is Genesis Mining. Personally, I've bought small contracts from Genesis and it was okay, but there's also some horror stories out there.
6. Do not fear selling when you're up
There's tons of people who refused to sell their crypto during good times thinking it would go higher. My advice- any positive return is good. Do not shame yourself for selling, or fear not taking money out. You need to have a mantra- "profit taking is good". This is a mantra used with stocks- that selling for a profit is a good thing, even if there's murky future gains to be had.
7. Avoid ICOs
This was a rookie error I made. The vast majority of ICOs, even those with a great team, do not do very well, fail or take years to develop. ICOs are designed to be extremely slick and legitimate looking. But many will never return much money. Of course, there are exceptions: Etherium was an ICO. But overall, as a token holder you do not, generally speaking, have a share in the company. I would personally be very skeptical of ICOs, even if they seem like the best idea ever.
8. Thou shall not shill
"Shilling" is the act of promoting a coin. When I made my first little bit of money with cryptocurrency, I was so excited that I started telling my friends. This is a very weird, in-grained human condition- to share news and talk about your great investments. Then, the market tanked. Luckily, I only told a few friends and nothing big was invested.. But still- I felt like a huge jerk. In all honesty, I got wrapped up in the wave and thought genuinely that these coins had potential. In retrospect, I should have talked much more cautiously. So, as cool as bitcoin may be, I would recommend being careful about announcing to your friends how great it is, even if you genuinely feel it's great.
9. Hedge out slowly, even if it's painful
Never invest in 1 big chunk. Always invest slowly. For example, if you want to buy $X of a coin, buy 10% of $X each week for 10 weeks. Now, I know what you're thinking: "Wait! That will take too long! The coin will double, it will hard fork, I need to buy now! I know more about the coin that you, I know I need to buy it all now, since I've done my research!"
My response: Have discipline! Do not buy it all at once! Remember, no matter how high a coin is set to go, it can very likely crash entirely within a few month or a year. So it's always better to buy in small chunks. (Think of bitcoin between November 2017 and January 2018, or EOS over the past few months.)
10. Be prepared to lose everything
Crypto is experimental, and so you must feel comfortable losing everything. If you play by that rule, you'll be just fine! If you feel the urge to go in deeper, see my final tip..
If you love crypto, find other ways to get involved than buying it
If you absolutely love crypto and want to "go in" more than you can afford, I'd say, do not put in money directly. Instead, here are some other ways to get involved with crypto without using your hard-earned cash:
- Make it your day job: Look at emerging companies like CoinSquare or CoinBase for job openings. If you believe crypto will rise, then working for a company like this at an early stage can be fruitful. (Think: Stock options, getting promoted as the company rises, fun of being on the edge of crypto tech.) These companies are fairly well established, and if you're young, it could be a great option.
- Seek bounties for ICOs: Often ICOs want people to do things for them or promote them. In return, they pay you tokens. These are called "bounties".
- Seek airdrops: These are coins that are given away for free. With circulation increased, the theory is the value increases.
That's all for now! Enjoy cryptoland!
Blog photo credit: Marco Verch, Creative Commons License