Crypto Investment Mistakes and How to Avoid Them
1. Not doing your research
This is the #1 investing mistake across the whole of investment. It’s not specific to crypto! However, cryptocurrency is much easier than traditional investing to dabble in.
Don’t let that fool you: you need to think like an investor – there are plenty of free tutorials and academies that help you with these basics!
But what about crypto, specifically?
Cryptocurrency is new technology. It has some different business models that don’t exist in traditional finance. But whatever new model it is, there will be fans and haters, and it will probably be similar to something that’s been tried in the past. There just aren’t that many new ideas.
Whatever your concern, someone has probably addressed it in a Twitter post/Reddit post/forum post somewhere. But when you find it, treat that with scepticism too: it might be their competitors lying about them!
What to research?
Three things in cryptocurrency that you should always check are: the business model, the technology, and the history.
The Business Model
Things in Crypto usually exist so someone can make money out of them. Wallets, coins, exchanges, protocols… this isn’t a bad thing: this is capitalism after all.
However, it pays to know who’s planning to make money out of you and how they plan to do it. If this information isn’t relatively easy to find, then that’s a big red flag.
First, look at who’s running the company. Do they even exist? When were they founded? What assets do they have?
Make sure you understand their business model. How does their plan work? What do experts say about that way of generating returns? Have there been similar companies that collapsed using similar business models? Does their business model depend on solving a technical problem that might not exist for long?
Good sources of information are websites such as Coindesk that report Crypto news, Government regulator websites, forums and subreddits, etc.
Check news articles about the company. Look up whether there are any negative articles about the individuals running the company.
Does the technology work? Does it even exist? Is it secure?
Click on the links in the footer of the website that no one ever bothers to click on. Do they actually work? Do the terms and conditions actually apply to the website? Beyond the glossy front page, mistakes like these are the clues that a company is not worth your time.
Another sign a company has its priorities wrong is if they don’t moderate comments on their informative articles/blog posts. Many “informative” articles are accompanied by pages and pages of bot-spam scams that could have been cleared or prevented.
It’s almost impossible for you, a regular person, to verify that a site or app is secure unless it throws up some very obvious errors such as expired certificates, but this is another area where a Google search using terms such as “bugs”, “exploits” or “scams” might be worthwhile.
A good website or app will take some time to explain to you how it’s been secured. Ideally, this would be by hiring specialists with a track record. If you’re really thorough, you might check whether that company really hired them, or is just saying they did.
A company’s history is important. It consists of the history of the founders and project team and the history of the company itself.
Do the project team exist? You’d be surprised how many team photos are of someone else entirely – as a Google reverse image search will confirm.
Do the founders have a verifiable record of success and integrity? LinkedIn is good, and internet gossip is also good.
Has the company or its founders got into any trouble with regulators?
Research is important. Without research, you’ll make all sorts of mistakes, such as:
2. Investing Based on Emotion or Gut Feeling
No investment should ever be based on FOMO (“fear of missing out”) or FUD (“fear, uncertainty, doubt”). The coin isn’t going to zero, and it probably isn’t going to zoom out of reach either. There are other opportunities. Don’t panic!
3. Investing Blind
Where is your money going, and how is it being used to generate profit for you? It’s important to know what people do with your stuff.
4. Having no Strategy, or Having Strategies that Don’t Work
Normal investment strategies might not work in Crypto, for unexpected reasons.
Did you know that buying more than one Crypto might not protect you from loss, because they mostly move the same way at the same time against the dollar? Sometimes Bitcoin gets stronger against other Cryptos as it gets weaker against the dollar. Watching the markets and charts every day would confirm this.
Is TA (Technical Analysis) an Effective Strategy in Crypto?
Technical analysis is when you analyse trade patterns to predict the future. Automated trading systems are very big on this, and it’s a huge area. But is it valid? Or is everyone just really keen for it to be valid because there’s no plan B? Cryptocurrency is subject to external shocks and volatility that can invalidate techniques from traditional finance.
If you’re curious, find any technical analysts (Twitter’s a good place!), look at their predictions from last year, and look at the markets to see if they were right!
This kind of research helps you make up your own mind about who’s worth listening to and who isn’t.
Oh, and GET YOUR NUMBERS RIGHT! Maths is your friend, and to ignore it means disaster!
5. Don’t Forget About Tax and Regulation
One of the biggest mistakes people make is to assume that Cryptocurrency is anonymous and that, therefore, it’s not taxable. It is.
Even if it’s not visible to the tax authorities for technical reasons, it’s up to you to report profits and transactions. And these can be very complicated if you’re engaging in DeFi activities.
If this is scary, do something simple. Interest-bearing Crypto accounts such as the one we offer at AQRU make reporting at least a bit easier. Tax regulation differs in every country, and it pays to know about it in advance.
If you’re interested in our interest-bearing Crypto accounts, then why not sign up for free today and take a look at how you could start earning high returns on your investment.
How does AQRU address these problems?
AQRU helps investors avoid mistakes by making Crypto simple and using well-established coins that have stood the test of time. Our platform doesn’t require trading or risk and encourages long-term investment.
We have partnered with security specialists Fireblocks to harden our security and protect wallets and deposits. Our payments are also handled by trusted payment provider “MoonPay”.
We also have an established company team with a verifiable track record. But we can’t do your tax for you. That’s on you!