I’ve been invested in the crypto market since November 2021. During this time, crypto was near the top of a bull run and was headed on its way down. Some investments worked out while others did not.
I’m writing this to document my lessons learned thus far, not only so I can look back at them but for others to learn from them as well. Your experiences may be different, so take these with what they’re worth. This is a continuously growing list.
Here is what I learned.
1.) The Industry is Extremely Early
Bitcoin launched in 2009 and the stock market began in 1792. If my math is correct, traditional stock investing has been around for 217 years before bitcoin ever existed.
Just think about the thousands of companies during those 217 years and the advancements they have made in that time. As time advances, new innovations flood the market and constantly evolve in an effort to make a positive impact on the world.
Cryptocurrency is no different.
My point is, the crypto industry is VERY early in the grand scheme of things, especially when compared to the stock market. Crypto is much more complex than a peer-to-peer payment system. Decentralized Finance (DeFi) for example is an intricate field within crypto that is just now beginning to blossom beyond liquidity pools and staking.
In the next 5-10 years, expect the industry to look much different in terms of efficiency, security, and regulation.
2.) Don’t leave money on centralized exchanges
Many people recommend treating centralized exchanges like public bathrooms. Use them when you have to but get out quickly.
This couldn’t be more true after watching what happened at FTX.
Putting your money on-chain rather than in the custody of a centralized company significantly reduces your risk. On-chain data is transparent, and nobody can take your money without your consent.
Do a case study of Mt. Gox, Celsius, and FTX. Many innocent people lost money in the hands of these centralized players due to exploits, leverage, and fraud.
If you don’t understand the difference between on-chain and off-chain, I recommend you check out my beginner’s guide to cryptocurrency. Also, I recommend you get a hardware wallet to safely store your money on the chain, which leads into the next lesson.
3.) Use a hardware wallet
Use a hardware wallet to protect your funds!
I can’t tell you how many horror stories I heard of people who kept all their funds in a “hot” wallet and had their funds stolen.
It takes seconds to verify transactions on a hardware wallet such as a Ledger and they will only set you back $150 at most. Before making your first crypto investment, I seriously encourage you to invest in a hardware wallet and implement security measures such as keeping your keys offline.
Although the blockchain is transparent, bad actors can access your funds if your seed phrase is exploited. By using a hardware wallet, all transactions have to be physically verified by you.
4.) The crypto market follows the stock market (for now)
Although crypto is a different asset class from stocks and bonds, it tends to follow the sS&P 500 but with added volatility. For those that don’t know, the S&P 500 is the average of the entire stock market.
As of now, the factors that influence stock prices seem to be influencing crypto prices as well. This includes supply & demand, monetary policy, and the overall economic condition. If the S&P 500 goes up expect the overall crypto market to go up as well.
I’m not sure if or when crypto will become uncorrelated to the equities market, but as an investor, I think it’s important to know this correlation.
5.) Doxxing doesn’t matter as much as people think
Knowing the true identity of a team behind a crypto project doesn’t mean it’s at any less risk of failure.
Back in early 2022, there was a popular type of project in crypto called “Node Projects”. Essentially these were ponzi schemes and many investors stuck their money in them because some teams shared their real names and LinkedIn profiles.
There was this idea that just because a team was doxxed, the project would be more successful than non-doxxed projects. This turned out to be false and many of these projects failed.
While it is good to know team members of a project so you can do research on their background, it doesn’t equate to success. Public companies have known figures and they perform poorly all the time, so why would it be any different in crypto? I used to hold a higher weight on doxxed teams but that has been decreasing significantly.
6.) If yields seem to good to be true, they probably are
In crypto, yields tend to be higher than many forms of traditional investments such as stocks and real estate.
With that being said, sometimes yields in crypto are extremely high and unsustainable. During the bull run of 2021, many projects promised a 1% daily return. Some of the DAO projects even listed 50,000% annual returns.
While those yields seem amazing on the surface, they simply aren’t sustainable. Many high-yield crypto projects are ponzi schemes that do everything they can to extend the lifespan of the protocol so they can cash out on new investors. Before investing in a project, you should analyze how the protocol generates revenue to get a good sense of how sustainable yields truly are.
Consider looking at safe liquidity pools on popular dexes to get an idea of how yields are looking.
7.) You don’t know what goes on behind the scenes
Every crypto team operates behind closed doors and general retail investors have no idea what truly goes on behind those doors.
As trusting as the team may seem, they may be planning a rug pull or simply aren’t contributing nearly as much as they say they are.
As an investor, try to gather as much information as you can about the work being done. I like to follow projects in Discord for the latest announcements and see what they’re up to on other social media platforms such as Twitter and YouTube.
Here are some questions you should ask:
- Does the team have a roadmap and are they executing on that roadmap?
- What updates have the team put out lately?
- How impactful have those updates been?
8.) If many people start hyping up a project, it’s probably too late to get in
We all want to be successful investors, but investing just because an influencer says to is not the way to do it.
I experienced this with the infamous “DAO” projects in 2021. DAOs were popping off like crazy and nearly every person on YouTube or Twitter was posting content on how amazing they were and urged retail investors to gather up all cash possible could to invest. Many people did and everything went downhill quickly.
The people that make real money in crypto projects are those that invest extremely early and exit when demand is hot. Demand is hot when everybody starts talking about it. Emotions sometimes get the best of investors from time to time (I am certainly guilty of this) but you just have to take a step back and truly analyze what’s going on.
9.) It’s hard to find good people to follow
I love the crypto industry, but I can’t argue the fact that many people are toxic and have no morals or ethics.
Don’t get me wrong, there’s a handful of amazing and trustworthy content creators but I would say at this point many either shill coins or don’t provide valuable content. I’m not going to call anybody out, but a majority of influencers shill coins because they are paid by crypto projects to do so.
Some shill coins for “pump and dump” purposes as well. Other creators simply don’t have any valuable input. I can’t count how many people say “To the MOON!” or “HODL, this is only going up!!!”. While this is optimistic for those in denial about their investments, there is no validity backing up these claims.
Nobody has a crystal ball.
10.) Many people only care about getting rich, not decentralization and freedom
Decentralization and freedom from the control of large centralized organizations is a big narrative in the crypto space. I think this is a great narrative as well but in reality, many investors don’t care about that.
Most people only care about making money. If you only care about money, I encourage you to read the Bitcoin whitepaper and dive a bit deeper into the intricacies behind blockchain technology to get a better understanding of the decentralized narrative.
I personally believe this narrative will keep getting stronger but for now, when retail investors see gains of 10-20% in a single day they want a slice of that action.
11.) Don’t get attached to any single project/ecosystem
It’s easy to become attached to a project you believe is going to perform well. This is the classic “don’t put all your eggs in one basket” advice.
Investing all your money in one spot greatly exposes you to idiosyncratic risk. Returns can be higher if the project really takes off but that is highly unlikely. This is especially true for those that don’t know how to analyze and research projects.
It’s perfectly acceptable to cut losses as well. Just because an investment drops 40% doesn’t mean you can’t cut your losses before it goes down 80%.
12.) Stuff happens fast!
When major events in crypto happen, they happen so quickly that you may not even know what’s going on if you step away for a day or two.
The collapse of Terra Luna and UST happened in a matter of days which required investors to act fast. The collapse of FTX happened in a matter of days as well It’s easy to let emotions take over in such events. When big events happen just take a breather and have a plan in place before it happens.
You should always take a glass half empty approach and consider the worst possible scenario happening with your investments. When things go south, you should know what your next move will be.
13.) Don’t get emotional
Volatility runs rampant in the crypto market. Due to all the steep ups and downs, it’s easy to lose control of investing fundamentals.
I personally experienced this in my first few months of investing. One of the coins I invested in was dropping fast, like really fast! I thought ok, let’s transfer to a stablecoin so I can wait out the volatility. This was the logical thing to do and I actually did it for about one day.
However, during a very short time, the coin pumped and I thought it was going to shoot back up to all-time highs. This is known as a “bull trap”. Boy was I wrong. The coin fell significantly more and because I wasn’t thinking rationally, my investment fell much lower. Don’t get emotional, and don’t fall for bull traps.
14.) Learn about blockchain technology before investing
It’s always beneficial to know what you’re investing in before you actually invest. Blockchain is a relatively new technology and it can be pretty confusing for beginners.
I recommend taking the time to understand how it works rather than listening to some YouTube video or reading some shilled Twitter post. The technology truly is amazing and understanding it will help you navigate the industry much better than those that don’t understand it.
You can check out my beginner’s guide to cryptocurrency for a good starting point.
15.) Don’t spend all your time on social media
It can be addicting looking at charts and all the social media that comes along with crypto, especially in a bull market. Do yourself a favor and take frequent breaks or get a hobby that takes your eyes off the screen.
Although events in the crypto industry happen really fast, you don’t need to be glued to the screen all day to make a play. By following the right people, doing your research, and having a balanced lifestyle, you will get all the juicy alpha you need to be successful.
16.) Have an exit strategy before entering
Having an exit strategy for investment is just as important as entering an investment. Know when you will take profits.
I’ve seen so many people ride their investments from bottom to top and all the way back down to the bottom. The average annualized stock market return over the long term is somewhere around 10%. You can use this number as a baseline for when you should take profits.