[Feature] STOP! Are You Making These Crypto Mistakes?

People make mistakes; we are only human after all. It’s a part of life and no one person is immune to it, but sometimes certain mistakes can have terrible repercussions and lifelong consequences. Like going all-in with your life savings on a lottery ticket but losing it all, or choosing to say something hurtful in the heat of the moment but emotionally scarring the other party, and more. At the end of the day, it all boils down to the choices we make. The same goes for crypto. Whether you are a crypto veteran or a crypto newbie, blunders are pretty common and sometimes your mistakes are minor enough for you to brush them off. But what if they are catastrophic? Here are some mistakes to watch out for:

1) Making decisions blindly without a plan

I get it. We are hot-blooded human beings; at times we feel with our hearts and make our decisions emotionally. We want what we want so we dive into things rather recklessly. Ask yourself, “What are my goals? How do I go about achieving them?”. It is imperative you have a plan or strategy with well-defined and measurable goals — kind of like a roadmap to your destination.

I have met people who told me they want to invest in crypto to make money, so I ask them how and what they did. A majority told me they just dumped some money into the ‘trendiest’ crypto (the information can be based on what they see online or what their friends ‘told’ them) and check the returns periodically. Having an end goal is important but the process to get there is what matters.

Do not take a fair-weather approach with your strategy. By that I mean once you have a strategy, stick to it instead of constantly changing your plan. Reason being, you would not be able to see its long-term effects when you are always changing it; if anything goes awry, you would not be able to isolate what went wrong with the plan.

Benjamin Franklin’s quote about the power of planning

2) The dump-all-I-have then dump-all-I-borrowed strategy

What is worse than dumping all your savings when you invest in crypto? That is to take on debt to pump into your crypto investment. How much you can invest or trade is something you need to take note of as well — if you have lesser responsibilities, you might be able to place more of your net worth into crypto as opposed to someone with more responsibilities like children, house loans, and more. Whatever your financial position, you should never invest what you cannot afford to lose. As harsh as life is, if you made your bed, you have to lie in it.

In 2017, Australian journalist Derek Rose poured in his $70,000 retirement money into cryptocurrencies. Things were great at first; he was paying $1,000 per day in interest but making half a million a day in profit. His holdings reached $7m at one point. This continued until he lost his life savings, not forgetting the $14m he borrowed to buy more crypto.

3) Not doing your own research

You will hear this or read about this a lot in the crypto world: do your own research (DYOR). It means exactly as it reads. It is ok to dig deep and dig around extensively because that will aid you (to a degree) but take everything with a pinch of salt. Read, listen, watch, compare, analyse, and understand, before you make any decisions.

I was stumped when I saw the above report (happened just recently). He had committed two huge mistakes but I do not think he realised it even at this point. One, dumping his entire savings in crypto. Two, blaming his friends for not warning him. Admittedly he was blindsided by the drastic change in his fortunes, but accusing others of not alerting him to the instability of virtual currencies, is not right. Did he not DYOR? He also claimed only dozens of coworkers, family members, podcast hosts, and respected economists had alerted him. Then why did he not stop? Would he have stopped if a thousand people (as he claimed) had warned him? What about the hundreds of people he chose to ignore? The moral of the story is, please DYOR for EVERYTHING, especially for things that involve your hard-earned money, and do not place the blame on others when things go south (unless you were forced to do something at gunpoint).

Is there an ideal way to DYOR you ask? Personally, you need to know how to discern facts from fiction. Make sure your sources are reputable and trustworthy, and also ensure they have a sizable following. But there is no right answer to this. As you progress on your crypto journey, you will pick up the necessary skills to help you.

4) Not keeping backups

In the crypto ecosystem, people often use phrases like “secret recovery phrase, seed words, recovery seed, key phrase” and others. They are essentially passwords. For example, the 12-word secret recovery phase is the master key generated by your wallet. Each wallet’s address has its own private key, which is the generated words, to help you recover your funds in case anything happens that prevents you from accessing your wallet.

What do you do when you have more passwords than you can remember? Do you note them all down in a document on your phone or computer? Or do you manually jot each one down with the good old pen and paper? Try not to store them in electronic or digital form as anything online is hackable. Although the age-old method of writing them down on paper is a hassle and not 100% foolproof, at least it is not hackable. Have a couple of hard copies and keep them in various SAFE places like a safety deposit box, a file with slots, or any highly secure places you can think of.

A query/request from an online user who had lost the password and secret phrase from his/her wallet. According to the moderator’s reply, retrieval is not possible unless the user has a backup of the browser with the working MetaMask.

A friend opened up about how he had bought 1 Bitcoin (yes, a whole BTC) when it first came out and was worth just a few cents. He haphazardly wrote down the secret recovery phrase and forgot about it, thinking that BTC would not be able to get him much money, if at all. Turns out, he was sorely mistaken. Without the ‘password’, he could not cash out when BTC was at its ATH, not then, not now, not ever. The paper containing his ‘password’ was misplaced and likely recycled into something else as of today. It was a jaw-dropping revelation for me and a devastating blow for him (whenever he recalls or recounts it). So, safeguard them with your life.

5) Buying purely cause the price is low

We are always looking out with eagle eyes for a great bargain or a super cheap deal. However, we also can attest that doing so does not guarantee the items are of the best quality. The same goes for crypto with too-good-to-be-true low prices. This can go either way: buy low and make money, or buy low and lose money. Low prices do not always mean a great bargain as prices can be low for a reason so always be careful. The cryptocurrency might have falling user rates or the developers had left the project thus leaving the crypto insecure. If for any reason you want or need to buy, do so only after you have assessed your risk tolerance and prioritised your finances accordingly.

6) Falling prey to scams

Scammers have been around for ages; they are older than you and me combined, and probably more ancient than the stone age. Their end goal is your money but the ways to get to the goal are as vast as the endless horizon: love scams, phone scams, kidnapping scams, insurance scams, and so on. Then comes crypto, this hot, new thing. Naturally, scammers have to get their paws on it. When one crypto scam stops working, they devise another one, and the cycle repeats. Scams typically work on an emotion — joy when finding out you strike the lottery, fear when finding out your loved one is ‘kidnapped’, frustration when finding out your parcel has been withheld, and more.

Since the start of 2021, over 46,000 people have reported losing more than $1b in crypto to scams (more than any other payment method). The top cryptocurrencies people said they used to pay the scammers were Bitcoin (70%), Tether (10%), and Ether (9%). So remember: if anything is too good to be true, chances are, it is.

2021 was filled with Defi-related hacks as reported in CipherTrace's June 2022’s report. The graph illustrates the top 10 DeFi hacks (including losses from smart contract errors) of 2021 and 2022 (through Q1) account for $2.4b.

There are way more crypto mistakes out there than those I listed (for another time). Investing and/or trading in crypto, much like stocks, shares, etc, takes patience, time, caution, and understanding. It is crucial to take the time to figure out the market and learn from past mistakes (if any; or mistakes committed by others) before you put your funds at risk.

Disclaimer: The content in this article is by no means financial advice and is purely for educational/informational purposes only. Many can attest to this general rule of thumb: never invest more than you can afford to lose.

Written by: [Coinlive] Catherine