Cryptocurrency Investment Strategy 2019: Don't Make These 25 Common Mistakes

Becoming a crypto millionaire is not quite as easy as it sounds, but with the proper cryptocurrency investment strategy, things become a whole lot simpler. Only the most skilled and disciplined investors are running away with big profits, while dreamers and noobs are holding useless coins. In an effort to make sure fellow Cryptomaniaks have a profitable future, we have curated the ultimate cryptocurrency investment strategy: a list of common mistakes that you should avoid when investing in the crazy crypto sphere in 2019. Let’s get started!

If you're a Blockchain and Cryptocurrency beginner, start by reading our comprehensive Blockchain 101 guide. 

  • 1. You Chase Cheap Coins

    Coming in at numero uno: don’t chase cheap coins with dreams of lambos and private jets. Lots of uneducated investors in the crypto space buy low priced cryptocurrencies because they think there is a higher chance of big returns.

    For example, if presented with one coin priced at $75 and another at $0.01, most would blindly purchase the $0.01 coin because they think that they can 2x their investment since it seems easier for a coin to go to two cents - $0.02. In reality, this is not true and is a common trap.

    There are a lot of factors that affect a coin’s price, including two important ones: the circulating supply and the real world value of the coin.

    More often than not, a cheap coin has a huge supply of coins. The number of coins in circulation can exceed one billion coins, which obviously dilutes the price of each coin. If the supply is massive and there is little real-world demand, then the coin priced at $0.01 is not undervalued and should be priced that low.

    A more important factor to consider when looking for coins with great growth potential is the market capitalization of the coin. Market cap is calculated as (current price * circulating supply) and is often a better (although not perfect) indicator of a coin’s valuation by investors.

    If you want to find the next gem coin, look for coins that have a low market cap compared to other coins.

    These low market cap coins have more potential for growth if they go up, but they also come with a lot more risk (failure, illiquidity …)
    Ultimately, you should stay away of those coins if you’re still at a beginner level and only focus on the potential real-world value a coin has when choosing which new cryptocurrency will land in your portfolio next.

    Don’t be fooled by low-priced coins!

  • 2. You Think You Are Always Right…

    We hate to tell you this, but get over yourself. You’re not always right, and it’s okay to be wrong. At the end of the day, investing is a game of speculation which involves some amounts of luck. To be a winner in this space, you only need to be right X% percent of the time. For example, if you 2x your investment 51% of the time, then you can afford to lose 49% of the time - if you invested the same amount in all investments. Investing is a systematic game, if you are down, cut your losses, if you are up, take your profits and stick with a plan.

  • 3. Ignoring Fees

    Take your time and choose the right exchange with the best fees. Coinbase Pro and Binance are two of the largest and most trusted exchanges, with reasonable fees. When some people first start trading they try to make lots of trades a day to make .1% here or .5% there, to add up to 1% or 2% per day. While this is nice in theory, fees can kill you, even if they are .25% - it all adds up. There are some more in-depth strategies related to saving money on fees, but it’s good to at least be aware of them for now.

    When you take profits, make sure that you are taking profits after fees.

  • 4. Investing Your Life Savings

    Rule number one of investing; don’t invest more than you can afford to lose. This means that you should go into this ready to lose whatever you put in. Ultimately, as the price swings up and down you should remain calm and still be living a healthy life with room for normal spending.

    We’ve heard countless horror stories of people investing greedily with their entire life savings or borrowing large sums of money. This is a HUGE mistake.

    Funny enough, even if you hit it big, your greed can still win you over. For example, if you invest $50,000 and at one point have $150,000, then your mind will rationalize and normalize these winnings to feel less significant than they are. The next thing you know, the market drops and you are back at break even, or at a loss. There’s a seemingly endless number of horror stories about crypto millionaires thinking their funds will continue to grow forever, missing out on the opportunity to sell for profits. Now, they are stuck holding at a loss, waiting for the next bull run.

    The best way to avoid being in the shoes of a bag-holder is to make a plan, which brings us to our next point.

  • 5. You Don’t Have a Plan that you Stick With

    As we said previously, lots of folks let their highs get to their head. Once their portfolio hits an all-time high, they only want to go higher. On the other hand, as a coin drops in price, they hold until 0 because they are stubborn about their investments.

    The best way to avoid these situations is to set a target, stick with it, and don’t be greedy. So, when you enter a position, be sure to write down your plan.

    This leads us to our next two points, be explicit about taking your profits and cutting your losses.
     

    You Don’t Cut Your Losses

    It’s easy to be stubborn, but at the end of the day, the market moves despite how you feel. There is no “right” or “wrong.” If your plan is to cut losses at 15%, then do it, no matter how you feel at the time. Don’t rationalize that it will rise - cut your losses and trust the plan.
     

    You Don’t Take Your Profits

    Do you want your cryptocurrency investment strategy to actually profit? If so, you have to sell eventually and accumulate profits.

    Learn from others mistakes. At the end of 2017, during the big boom of cryptocurrencies, lots of investors became rich IF they sold for profits. On the other hand, many had theoretical profits but overheld into this bear market. Remember that you don’t profit until you sell back to realize your gains. If your plan is to take profits at 25%, then do it.

  • 6. You Buy High / Sell Low

    We bet that when Bitcoin was at $15,000 or $20,000 you gained interest in crypto or people were asking you about cryptocurrencies if you were already invested. That’s because there is a natural tendency for people to want to hop on the bandwagon. As prices are soaring, people are buying, but then when the price drops, people cut their losses and sell.

    This vicious cycle is exactly how to lose money. DO NOT buy high and sell low, instead, buy low and sell high instead. If a cryptocurrency is priced low, but you believe in its future, then buy it. If you believe in Bitcoin, why buy it at $20,000 when you can buy it at $3,000? Simply be patient for as long as is needed until it gains its much-deserved traction. Buy low, sell high. The “buy low, sell high” narrative also fits another common rule, “buy the rumor, sell the news.”

  • 7. Buy the Rumor, Sell the News

    Often times, cryptocurrency projects launch their coin before a final product is made. This means that rumors can spread around the community about when their product will be complete, which companies will partner with them, and which exchanges they may be listed on. Usually, these rumors create lots of hype. The hype can grow to be so strong that when the real news is released, the price drops.

    One example is the Verge project, which at one time had rumors spread by John McAfee and other prominent figures, discussing partnerships and innovations. When the time came for real news to be released, the price drops drastically - well over 80%.

    For this reason, remember to buy on the rumor, and sell on the news - surprisingly, this should work out more often than not.

  • 8. You Think Cryptocurrencies are Shares

    Take your time to educate yourself and understand what you are investing in.

    Cryptocurrencies are not shares like stocks. You have no ownership in the company and receive no dividends.

    This means that if a company issues a cryptocurrency, then it is very possible for the company to profit or get acquired, with no benefit to you. Actually, a company can be doing very well, yet their coin can drop.

    Cryptocurrencies are a different game.

  • 9. You Don’t Understand the Relationship Between Bitcoin and Altcoins

    Think you get the crypto markets? Well, maybe you do, but in case you don’t, read this.

    Lots of people think Bitcoin makes up the entire cryptocurrency market when in reality it makes up about 40-50% of the market’s liquidity. There are thousands of altcoins that work in correlation with Bitcoin.

    There are generally three situations for how Bitcoin and altcoins affect one another:

    1. The whole market crashes. In such a case, Bitcoin will generally be more resilient than others. We witnessed this firsthand in 2018. Smaller coins will drop 80%, while Bitcoin will drop say 50%.
    2. Bitcoin’s price increases sharply, but altcoins go down. We witnessed this in September 2017 - November 2017.
    3. Bitcoin rises gradually, but with major volume, and as a result, altcoins increase in price substantially. We witnessed this in December of 2017.

    All of these time frames can be viewed using coinmarketcap.com. Take your time and look at different time frames! 

  • 10. You Don’t Diversify Your Portfolio

    Your cryptocurrency investment strategy should involve diversification. While it may be tempting, don’t put all your eggs in one basket. Every experienced investor hedges, or protects his risk by investing in multiple assets. You might notice some coins correlate where when one goes up, the other goes down. If this is the case and you like both coins’ futures, then invest in both. Your investment will be much safer.

    Be sure to pick a number of coins that you can keep track of. This means keeping up with news and price action. If you own fifty different coins for example, then you may be over-diversified and this is not recommended. We recommend investing in five to ten cryptocurrencies.

    On the other hand, if you invest in one coin, then you are making one big bet. If that coin drops, then so does your entire portfolio. We recommend choosing some short term, higher risk coins, and some top long term cryptocurrencies as well.

    Diversify responsibly!

  • 11. Not Knowing Your Investments

    This seems obvious, but research a coin before you invest in it. I know, you may be surprised we are even mentioning this, but so many people invest based off of hype. They see people on Twitter or Facebook talking about a coin, see the coin’s price rising, and then buy off of impulse. This is called buying due to FOMO. Always be sure to do your own research.
     

    Do Your Own Research

    How should you go about researching a project? Good question.

    You should be able to answer the following:

    • Who are the core team members? Have they worked together before or have past success?
    • What is the mission of the project?
    • When is the mainnet expected to launch? Do you think it will ever hard fork?

    If you can answer these, then it’s a good start. Good places to find this information is on the coin’s BitcoinTalk.org announcements thread and website. Also, search around to see if there are reviews on the coin or mentions of it being a scam. If on Google or Reddit you see lots of talk about it being a scam, then it’s worth digging deeper into that to understand the reasoning.

    Next, you can check on the economics of the coin such as its market cap, trading volume, price history, and total versus circulating supply.

    Don’t be afraid to miss out on investment, there will always be more to come. Once you have done your research, be confident in your investment. Don’t let anyone persuade you otherwise, even shills...

  • 12. You follow shills

    Shill is a common word for someone who is compensated or has a financial incentive to spread a good word about a project even if it is bad.

    We won’t name anyone in particular, but a lot of influencers, bloggers, and YouTubers have been guilty of promoting horrible cryptocurrencies - sometimes even scams - because of their own, selfish intentions. Whether they’ve been paid to review a cryptocurrency, or whether they have other incentives (they own a lot of coins of the project, they personally know the owners …), you will be the one paying the price if you follow their advice blindly.

  • 13. And crowds …

    Well known shills tend to cause crowds to follow their footsteps. If they are influencers with thousands of followers, then you will see swarms of accounts talking about a coin in unison.

    Take a crypto project called ICON as one example. During the ICO, it wasn’t the most well-known coin, but after the ICO, it started to be shilled. As a result, everyone bought in. There was a lot of traction on major forums and social media outlets. Everyone thought they needed to ‘HODL’.

    12 months later, the price was down by ~98% and the coin underperformed during the bear market. Demand drives prices. When demand is high, it’s the right time to sell. When the demand is low - and you think it’s gonna go higher, it’s the time to buy. Follow this advice: when everyone’s talking about a cryptocurrency, it’s probably time to sell it.

    This leads us into our next topics - FOMO and FUD.
     

    FOMO & FUD

    FOMO, or fear of missing out, and FUD, short for fear, uncertainty, and doubt - are words for impulsive investor behaviors. When shills promote their coins of choice, they create large chatter amongst the community and ultimately persuade investors to buy - there are two angles they are coming from, to induce FOMO or FUD.

    FOMO is when investors feel they are missing out on something big and as a result, will immaturely buy an asset to hop on the bandwagon. Many shills will take advantage of FOMO by explaining to investors that this is the next big thing, the price is soaring, and if you don’t get in now, you will regret it forever. Ignore them.

    The angle of FUD is to get people to sell, not buy. So, if the shiller or manipulator wants to buy into a coin at a cheaper price, he will start spreading bad news about security vulnerabilities, hackings, team changes, or anything else to get people to panic sell and no longer believe in the project.
     

    Panic selling

    The intent of spreading FUD is to cause panic amongst investors, persuading them to sell. Often times FUD will set in after the price has already begun to decline, which means that investors are not panic selling for profits, but for losses. Despite how convincing sources of FUD may seem, use common judgment and trust your reasons for initially investing.

    Cryptocurrency news can be very deceiving. All in all, “control your emotions” - wow, what a convenient segway into our next topic…

  • 14. You Don’t Control Your Emotions

    In general, remember to stay calm and relax. At the end of the day, you should have invested an amount you are comfortable losing, so have fun with it. Don’t let the negative press or big news sway you. Here’s what we are talking about…
     

    General Media Propaganda

    Major news sites will sometimes release very negative and often times threatening news. The news may be about a country banning the use of cryptocurrencies, mentioning how it’s only for criminals, or about how Wall Street doesn’t want to get in. At the end of the day, trust your instincts, trust the industry and be aware of all the great projects with massive funding that continue to move forward.

    Most of these news articles are for click bait and to create conversation. It’s generally very exaggerated. Controlling your emotions will be one of the most effective changes you can make for your long term cryptocurrency investment strategy.
     

    Getting Emotionally Attached to Your Coins

    Many investors become attached to their investments at an emotional level which is very dangerous because, at the end of the day, the market does what it wants despite how you feel. This goes along with our personal biases we mentioned earlier - we often don’t want to admit we are wrong. You may love your investment, but your investment doesn’t love you.

    Source: imgflip.com
     

    We’ve met several crypto investors who have been down even 95% and still won’t sell because they believe it will come back. Even after learning that the project has been abandoned by the team or delisted from exchanges. This is called catching a falling knife - don’t do it. It’s an easy trap to fall into but can significantly hurt your portfolio.
     

    Lack of Patience

    Remember FOMO and FUD? We want to reiterate the importance of that. You will be surprised at the importance of patience. We know people who have changed their portfolio around where 40% of their portfolio is one coin. This is generally an impulsive act and due to FOMO or FUD. In the end, it ends up being a terrible investment. Just be patient - because the sophisticated, wealthy investors are.

    For example, you may feel desperate to find the next big investment, but “whaleshave enough capital to sit on the sideline for even two years waiting for the right time to strike.

  • 15. You Don’t Care About Security

    2FA

    2FA stands for two-factor authentication and it’s extremely important. Two-factor authentication is a second layer of security upon login. All cryptocurrency exchanges, wallets, and services offer 2FA when you create an account. To enable 2FA you will need to download an app on your phone, either Authy or Google 2FA and sync it with the website via a QR code. It’s super simple. If your funds aren’t safe, then you may as well throw your entire cryptocurrency investment strategy out the window.

    Next time you go to log in, you will be required to enter your username, password, and then the passcode that the 2FA app shows. The passcode changes every 30 seconds, so for someone to hack your account, they will need your physical device as well. This adds a whole new level of security that you should not overlook.
     

    Leave Your Coins on an Exchange

    The most important motto in the crypto industry is “if you don’t control your keys, then you don’t control your coins.” Ultimately, when you leave coins on an exchange, the exchange controls your coins.

    From a technical point of view, you are trusting the exchange’s security measures and not your own. Exchange are huge targets for hackers and are always at risk. Do yourself a favor - keep your coins in a personal wallet.
     

    You Don’t Own a Hardware Wallet

    We’ll be straight up - if you’ve invested more than $500, then hardware wallets are a smart investment. They are disconnected from the internet, which means that hackers can only obtain your funds if they steal your physical device and also know the passphrase to access it.

    Hardware wallets such as the Ledger Nano S are extremely secure, reliable, and easy to use.
     

    You Don’t Know Best Practices When Using a Wallet

    Here are some quick tips when using your wallet.

    When using a wallet, hardware or desktop, be sure to:

    • Avoid using Public Wifi
    • Avoid using unsecured software/extensions
    • Use strong passwords
    • Avoid using your daily email address. Use a separate one dedicated to your cryptocurrency investments.

  • 16. You Don’t Back Up Your 2FA and Wallet Data

    Always back up both 2FA and wallet data. Generally, wallets will allow you to press a button that says “backup” to save your keys, passphrases, and seeds in another location.

    For 2FA, you can back up your keys so when you get a new phone, you can recover all of your accounts to log in. Do not forget to do this. It will be a huge pain and time sink if you forget!

  • 17. Not recognizing scams

    Be careful out there. Unfortunately, like with any industry, there are lots of scams, and they become more clever over time. While we know you are not a gullible old lady, you still want to be sure you are speaking to someone from the company, at the correct website, and use common sense about anyone guaranteeing you profits.

    Trusted ways to avoid scams are:

    1. Always check the URLs you’re clicking on. A URL can be embedded in text. What if you click on a sensitive link - like a wallet - and end up on a different URL? If you don’t believe me, click on www.google.com and see what happens.
    2. Once you click on a link, check for deceptive URLs by double checking the URL of the page you land on. You might sometimes see some surprises. For example, you might land on coiinbase.com instead of coinbase.com, and believe me, these websites are set to steal your money.
    3. Make money easily. Each time you’re offered to get rich online, there is a hidden scam. Great opportunities aren’t offered to you on a plate. This includes Ponzi schemes such as the famous Bitconnect case.

    Another easy way to avoid obvious scams and Ponzi schemes is to ask the question to Google and communities.

    Type “Website” + Scams or “Website” + Review and you should know soon enough.

  • 18. You Do Sloppy Mistakes

    Sending to the Wrong Address/Wallet (i.e. Bitcoin Cash Instead of Bitcoin)

    Hold your horses buddy! Take your time when sending your money. Don’t rush, and make sure the sending and receiving addresses are correct. Never type an address. Simply copy and paste them. This way you avoid any chance of typos, and hey, it’s faster!

    After you copy and paste it, always verify the first 2 letters and the last 3 letters of the address.
     

    You’re on a Scam Site and Don’t Even Know It

    We can’t emphasize enough the importance of this. Be sure to:

    • Always check the URLs of the pages you land on
    • Always check the URLs embedded in the links you click on. You can do this by right-clicking on it, copying the URL address, and pasting the URL in a new tab, but DO NOT press enter.

  • 19. Buying Illiquid Coins: Entering a Position You Can’t Exit.

    Liquidity refers to the amount of ease with which an asset can be bought or sold in a market. If you hold a coin, but no one wants to buy it, then you are in an illiquid market.

    The less liquid a cryptocurrency, the riskier it is. One day you may want to sell for profits, but there won’t be enough buyers willing to sell you back Bitcoin.

    If you’re a beginner, don’t even waste your time considering buying a cryptocurrency that has a low daily trading volume. Flexibility is important in cryptocurrency.

    • What if you think cryptocurrency is gonna collapse?
    • What if you think one cryptocurrency is going to skyrocket and you want to get in?
    • What if you need money for a personal situation?

    For any of those scenarios, you’ll need to be able to sell off your position. If your cryptocurrencies are illiquid, you might have to say goodbye to your money and if it has low liquidity, you might have to sell at a very lower price to find buyers.

  • 20. You Hold Too Much USDT

    Tether, or USDT, is a stablecoin that is pegged to the value of $1. As a company, they issue tokens to exchanges, allowing traders to speculate on crypto to fiat fluctuations. Each Tether is backed by one USD in a bank.

    There are two dangers to holding USDT. One is that they have had a shady past. Many believe that not all Tether is backed by USD, which means that if you want to redeem Tether for $1, then they may not be able to fulfill your order. Even worse, they can go bankrupt one day and run off with your money. Tether has been around for years and is generally safe, but you never know what the future holds.

    Second, most people don’t know this, but just to withdraw USDT from an exchange costs ~$25! This means that if you want to transfer funds to another exchange, you will most likely need to trade back to a cryptocurrency before withdrawing.

    All in all, don’t hold a USDT position for too long, Bitcoin is safer.

  • 21. You Overtrade

    This goes along with our discussion on fees. Some people want to make 20 trades a day, but this can be dangerous. Ultimately, many of these traders lose from fees or lose because they made a mistake and then try to recover intraday losses by trading more, only to dig a deeper and deeper hole for themselves. Trading too much can lead to poor decision making.

  • 22. You Don’t Understand Tax Implications (US Investors)

    Overtrading also increases your tax liabilities. At least in the United States, most people think that they only owe taxes on profits that were sold back to USD, when in fact, you may owe taxes on every single trade you make - even crypto to crypto. The IRS views every trade as a realized gain or loss. Without getting into details, if you buy Ether with Bitcoin, then the IRS considers this a taxable event on a realized gain or loss. They assume that you sold Ethereum to USD, then purchased Bitcoin with USD, even though this is not what happened. Ignoring both tax implications and exchange fees will seriously impact your overall cryptocurrency investment strategy.

    So, in addition to fees, tax implications are another reason why you should not overtrade. Don’t avoid the tax man!

  • 23. You’re Being Ignorant

    You’re eager to trade. We get it, we really do, but please digest the fact that there is no rush. There will always be the next best thing coming out and interesting price action in the markets. Take time to learn theoretically first, then practically.
     

    Theoretical (learning)

    Understand some basic economics. Do you know what circulating vs total supply means? Do you know what inflation is? Do you know what block time is? Do you know what a private key and public key is? If you don’t the answer to these basic questions, then you should take some time to read up on it. Prepare yourself, it’s important. We recommend reading up on our premium course to gain a comprehensive foundation of all the basic.
     

    Experience (practical)

    Now you are ready to make mistakes - I MEAN, gain experience. Yay!

    Seriously, what is experience? Experience is primarily based on learning from the mistakes you made.

    If you feel ready to make your first investment, then go for it. This is where your experience starts and you will feel the highs and lows of investing - it’s a wild ride.

  • 24. Not Finding a Reliable Community to Learn With

    Surrounding yourself with like-minded people is important. It also provides you with a consistent flow of cryptocurrency news to stay on top of the industry.

    Find a community that you feel comfortable asking questions to. Naturally, we recommend checking out our Facebook group. Our team of experts and general community members are there to share knowledge with each other and help you where you need it.

    There are also many more cryptocurrency Facebook groups, but if you’re not on Facebook, then you can search on Reddit and BitcoinTalk as well.

  • 25. You Don’t Use the Best Tools Available

    The cryptocurrency industry is full of creative and hardworking people who are offering some very useful products and services. Don’t rely on only yourself, use all the tools at your disposal to craft the best cryptocurrency investment strategy.

    Some tools that will help you make better decisions are:

    Read moreBest Crypto Tools: The Ultimate Checklist

    Well, you made it to the end! That’s a lot of mistakes to avoid, but we believe in you. Lots of these are common sense that doesn’t require memorization, but simply being aware of them is all you need. Now, you are that much closer to being a crypto pro.

    If you want to further jumpstart your journey to the moon, come check out our more hands on investing guides.

Strategy
Mistakes
bankroll management
emotions
Posted by Michael R.

Michael is an entrepreneur who has been deeply involved in the cryptocurrency industry since early 2014. He joined Cryptomaniaks as a cryptoanalyst, helping to create accurate and digestible content.

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