How Not To Lose Money With Cryptocurrency: Common Investor Mistakes To Sidestep

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(Updated 20240201) Extending on my Cryptocurrency for Beginners: Tips and Tricks You Should Know article, which was written for newbies to get into trading and start playing around with crypto, I am writing this note to share my wider opinion on the late-2020 crypto bull and now 2022/2023 cycle. Take a look at the chart below, the wider question should now be when bitcoin will be push past 60k next? Bitcoin halving will be in around April 2024, all previous halving pushed BTC price much higher than previous peaks, but how many of you will act now?

Still writing in notes form and will be updating it every now and then. Welcome to leave me comments or contact me directly.

  • Cryptocurrency is just a big trading game for now, until you can widely use it for everyday transactions. “If you can’t easily buy coffee with it, it’s not money.” I understand you can use Bitpay Pre-paid Mastercard, have your crypto converted to it and use ApplePay with it to buy your coffee. But I am talking about being a truly new currency, digital and all, should have better user experience than what it is trying to replace. Accepted directly everywhere, no multi-steps conversions needed. Maybe Square (now Block) can change all that soon, Jack Dorsey can finally beat the M&M (Mark and Musk).
  • Look at the number of transactions on Bitcoin and Ethereum blockchains. Currently at around 300k and 1.3m transactions per day respectively. That’s just the main chain transactions, “far more” are transacted at exchanges which usually have their own blockchains. But the growth is simply not proportional to the total value growth, suggesting that the recent growth in value is not due to the usage adoption growth of cryptocurrencies, but just for trading, investment or even gambling.
  • Big names like Elon Musk are helping to drive the market up, but 1.5 billion is hardly serious money for him. (“I am a software dev working at R&D at Tesla in California, over the past 72 hours our company bought 24,701 BTC at an average price of [$]33,142,” from a reddit post.) Previously, when he says anything about BTC or Dogecoin, the market will go crazy, speculating if he owns any. Now that the news is out that he bought BTC for Tesla and Dogecoin for his son, the market stopped reacting mindlessly to make him or his son richer. Did he really have a choice not to sell his BTC for Tesla? It’s just business.
  • In crypto, we are not very good at calling bull markets. Crypto been up by over 75% since FTX collapse, but we are still in the crypto winter mindset.
  • Whenever you see a meme coin getting to top 10, you should be “worried”. Shiba Inu and Doge are reminders to not take crypto too seriously. Not about taking the fun out of crypto. But it is basically saying that most of the “serious” projects are not even better than a joke.
  • Bitcoin ETF approval by US SEC on 10th January 2024 is a big deal, a very serious milestone for bitcoin’s 15 years or so history. Finally recognised by the largest economy as an asset here to stay. (In fact, I will say that China banning BTC is the similar, they recognised that BTC is here to stay out of China.) With a few billions inflow in the first month or so, that’s a great start.
  • Fun facts: Hard cap of 21 million bitcoins. (Not saying that it can’t be changed or forked.) There are 59.4m millionaires in the world. Not enough for 1 each. 93.4% or so of BTC already mined. Only 19% of BTC is actively traded.
  • Total value of all cryptocurrencies is around 1.1 trillion dollars at the moment. It’s way more than the 2017 crypto bull-run peak of around 770 billion dollars. It can be hard to understand how much money that is. The valuation would make it in top 10 largest company in the world, racing after Apple, Microsoft and Amazon, Google, Facebook and Tesla. Why is that important? For crypto value to grow another 10%, that’s an extra 120 billion dollars, which is about the marketcap of McDonald’s, Wells Fargo and Costco. During a global pandemic, general economic slowdown and slow usage adoption beyond crypto trading, where to find billions more to drive the price up? Sure, the valuation doesn’t directly mean the full amount in cash bought into crypto, but even at 10:1, it is starting to be significant.
  • The recent drop from around 3T market cap back to 1T or so, seems like a very serious drop. But most of these are very much “on bits” (as in, “on paper” in the good old days). Not that 2T was actually converted from fiat into the crypto market and somehow loss in the bear market.
  • Key idea of bitcoin is that it is all open and transparent, with hard limits and clear accounting of all coins issued. But currently there is no way to know the total fiat used to buy crypto. USDT and other stable coins are not proven to be anywhere near 1:1 pegged with USD or other fiat currency. Tether issued 35 billion USDT but have only recently confirmed having 1.8 billion in cash, something that they have been refusing to confirm for a long time. And the recent algorithmic stablecoin UST/LUNA crash is yet another level, a flash crash can take out billions of crypto value, it is certainly not stable.
  • Some compare BTC to Gold total market cap of 9 trillion, but it will take BTC many more years before it is as common as Gold. If you are reading this, you already have some level of tech competence, but for the general population, it is still much easier to buy and sell gold today than BTC. Walk into any jewellery store and pay for it with cash. No need for computer, internet access, passwords, keys, credit card, etc.
  • Bitcoin is here to stay. The core technology concepts and even the digital asset stored and processed on the blockchain will still be around. But Proof-of-Work won’t be the norm of future blockchain technologies. Consuming huge amount of electricity to have the decentralised trust is no longer the only solution since it was first launched over 10 years ago.
  • Proof-of-Stake is the norm of blockchain transactions on Ethereum and other top chains. BTC has a dominance of around 47% or so, but that’s by value not transactions.
  • If Ethereum 2.0 merge can achieve 100k TPS as what Vitalik Buterin is claiming. Will there still be the need of so many other chains? Maybe just a few L2 to scale it another 100k times? But any needs for L3 or whatever they think they are? Even Cardano, with around 250 TPS at one point, was already impressive and still not fully utilised. How many years before 100k TPS is fully used and saturated? We don’t need so many blockchains, we just need a few well trusted ones.
  • I don’t think PoS is the only right answer, just a better answer than PoW. Having more rewards for rich stakers isn’t quite what the decentralised world should consider as “fair” even if it is sustainable. There are other consensus algorithms and protocols which are being developed that are not just looking at the asset holding level as reward, but other types of contributions to the network.
  • We can’t imagine BTC turning to PoS? Haven’t seen a hard fork before? Happened on both bitcoin and ethereum. Can they do it again? Yes. We just have to wait until Ethereum ecosystem to be bigger than BTC by value before people will start talking about forking BTC to PoS.
  • But this time, can they do it without keeping the classics? (A bit of history, when it first happened, everyone was confused about hard fork, on how can it just split into 2 coins and both have different values. We were used to splitting or merging stocks but the total value remains unchanged, but not a hard fork where the total value increased.)
  • The biggest value to BTC is not actually a trillion or so of market cap, but the branding. Whichever technology they choose to use, they are likely to stay as number 1, providing there are no major/catastrophic security f-ups.
  • I am not waiting for a BTC killer. There isn’t even a Ethereum killer any time soon. Cardano, Solana, Polkadot, Binance Coin, XRP are all competing against each other to be a stable #3, but still not a threat to ETH. None of them are even close to the total value of ERC20 tokens yet, so they are still quite a way off to displacing the Ethereum ecosystem. The assumption that BTC and ETH are too big or too slow to change is unfounded. What you are using today are not the same version of BTC/ETH when they were first launched, both projects been forced to hard fork and are still around and strong.
  • It’s worth knowing a bit of the history of Bitcoin and crypto. Gen 1, just bitcoin and a few other similar coins. It was rather simple, you pay cash to someone and you get coins. Exchanges was for trading between different crypto, mostly based in BTC. Gen 2, a quasi-cash USDT (not real USD) was introduced as part of the ERC20/ICO craze. Trade volume shot right up as trade can happen with a USD-cash-like USDT value showing on exchanges directly. Putting a virtual USD value to the coins and tokens which you can trade in between. I call this, crypto², virtual currency based on virutal USD. Gen 3, now with many derivative products on different exchanges, running on different chains, based on crypto², so it is more like crypto³ now, virtual financial products based on virtual currency priced using virtual USD. You can now add the UST/LUNA bust as a good case of why crypto³ is unstable. Can the Gen 4 being properly regulated crypto? What will be the fun in that?
  • We are blindly trusting the new chains are safe. Previously you only had to know that BTC and ETH are secure. Now, you won’t even know which chain it is based. Most of them are not valuable enough for hacking. That’s what happening with Defi contracts now, enough money, easier to find issues, just hack/exploit and take the money.
  • Do not confuse crypto and blockchain. Crypto might just be the best killer app of Blockchain right now. Or better still, it can just be a decentralised 1.5 trillion dollars marketing for the blockchain tech industry of the future. A great proof of concept to test blockchain to handle valuable digital “assets”, trillions of dollars worth of transactions, bigger than any company in the world. So that the world can trust it to handle the next wave of distributed tech.
  • Most enterprise blockchains are not using the same tech as the top crypto currencies. They are using Hyperledger, Hyperledger Fabric in particular. It is not costing them 5–20 bucks per transaction in fees like BTC and Ethererum network during usage surge. And they don’t need to worry about PoW wasteful mining or PoS complexity of powerplay. An efficient permissioned ledger with good smart contract, called chaincode, support to keep all stakeholders happy. There might not be wide enterprise adoption of public crypto blockchains, but only to use them for the open cryptocurrency aspects, or like Elon Musk bet on BTC growing faster in value than their core car making business.
  • The biggest players in crypto are exchanges. It’s worth remember this because no matter if the market goes up or down, they make money by volume of trades. But unlike BTC and ETH being just the tech behind the crypto, most exchanges are registered companies that can be shutdown by governments. Sure, most of them are registered at tax or crypto friendly countries, but it is still a big risk in a well connected (financial) world. Even Switzerland is slowly complying to certain global financial rules. The richest crypto players are good at keeping a low profile, but still not untouchables. (It’s time to watch Godfather again.)
  • Talk to BTC hodlr and they will turn all news positive. They will say that regulations of crypto will be a good thing. Will help with adoption. So people can start using it globally, to spend the same crypto globally to buy coffee. It sounds great, but we can do that with USD already. Using Visa or Mastercard to do secure global USD transactions electronically. But as a regulated well adopted currency, BTC shouldn’t have such big daily swings, it will just be like any top currencies in the world. Boring. How many private individual USD day traders do you know? When crypto becomes boring, will people just go back to using fiat which they actually didn’t stop using? Most people like crypto because it is not regulated and volatile. They don’t care that much about the tech or trust, they hardly understand the maths and cryptography.
  • Not all games are zero-sum games by design. Most of them, even if they seem to be zero-sum, like a market of buyers and sellers, zooming out can still be a positive sum game for the wider economy or ecosystem. (Oh, people might just find it easier to understand zero-sum and sounds better. Positive sum game might be boring as saying win-win.) But crypto is a fast moving space. New rules and products are introduced and killed quickly. Be good with learning about the new and quick-changing rules if you want to stay ahead.
  • Not quite a summary point, but certainly can tie in a few of the points above. It’s a big trading game, not quite zero sum, but might be positive sum with a good cut going to the exchanges. That’s why exchanges won’t care much, they don’t care much, just keep encouraging people to trade and they take a cut, the more volume of trade, the better. But with the big swings, excluding the fees, there are still big winners and losers. And it is very much driven by greed, if there is a profit to be taken, someone will take it. It’s usually not illegal to win a lot of monopoly money.
  • Do not ignore the small fees you paid each transaction, that’s what platforms and exchanges are good at collecting. 0.2% seems small, but if you do it enough times, it adds up. During the LUNA crash, the traded value far exceeded the traded value of BTC. That’s why exchanges kept it open even though it was junk.
  • If you signed up to Binance without using any referral codes, you are missing out on trading fees kickbacks. But these are only available to “new” accounts, your ID can only be used for KYC with 1 account. Deleting (not just suspending) your account can done via the mobile app easily, just follow the instructions on this page, but click the Delete Account rather than Disable Account open. But this can be very annoying as you lose all previous trading records and you need to transfer all crypto out, etc. But then again, you will get to save 10% on trading fees forever, if you use it together with paying for fees with BNB, you get to save a total of 35% on fees, which is significant if you trade often. (Use my code to get your 10% fees kickback. You will see the 10% icon when you sign up. I get referral bonus from Binance, you will get 10% of all your trading fees forever as a kickback.)
  • Not totally saying that you should throw out the traditional wisdom when playing with crypto. There are areas which technology didn’t fully solve. The end players are still humans. “Greed is good” still applies. For most of them to make money, they have to lure others to get in. Then sell it to them at higher than what they paid. These rules are still the same.
  • Actually, the above is not quite true, most crypto trades are done by bots. And you don’t even know who owns the bots. So when you trade by hand, you need to have a different strategy to win. You can’t trade faster than bots.
  • How stupid is PoW? Was cool when it was first “introduced” by Satoshi with first gen blockchain. But did he really expect Bitcoin to reach the current value? So he could have been the richest person by holding on to more BTC right at the beginning? Because if he didn’t, then PoW might have just been a miscalculation. Didn’t expect the computation to get so difficult and so well competed by many miners trying to make money, to eat up a sizeable country worth of electricity.
  • When everyone seems to think that BTC can only go up, is it too crazy to think that it will go down? Might be an unpopular view. But which market can continue to grow indefinitely without major “corrections” along the way? I am waiting for big countries to officially recognise and adopt crypto. Or come up with their own digital currency (DCEP or CBDC) to compete with unofficial stablecoins.
  • It doesn’t really matter. Don’t need much logic and research. It can go up and down quickly, almost always against your trade, but it’s okay. That’s the good thing. I don’t think anyone is ultimately in control of it. Just a very wild market. Unless you have insider information, it is just a very technical trading game. Have fun with it.
  • “Nothing is certain except for death and taxes.” Don’t think Crypto can change these. Most people are not paying taxes on crypto profits, but all transactions are digital and highly traceable, be warned.
  • Why can’t there be a crypto that can’t be stolen? One that is designed to protect users and can’t be used for scams? Crypto is well known for the major randomware payments, why can’t it be avoided? Check this site
  • Most people won’t know how to protect their wallets. A 32-bit key seems like very secure, certainly from a mathematical or computational perspective. For most people, they will fail at protecting their key. It is certainly too long to be memorised, so most people will have to note it down. And we are all lazy, so we will likely to have it digitally somewhere. Or better still, because we are good at being lazy, we will end up using a shorter password to protect this longer one, forgetting that the strength was actually based on the fact that it is a long 32-bit key.
  • Is Bitcoin really a limited “resource” or asset? Sure, it represents about 60% of all crypto values. But the remaining 40% are all up for grabs. Anyone with a bit of ETH can issue their own token. It’s much cheaper than getting to write your own cheque or minting your own money. The idea of crypto being a scarce asset is a very Gen 1 view. Ethereum changed all that. I am avoiding talking about NFTs. 🙂 Jamie Dimon, a very smart banker, even questioned if the 21m cap is really fixed.
  • I use Dogecoin (and SHIB) to track the market status. It was setup as a meme, with no serious use planned or intended. If you can’t even beat Doge, then your project is not very seriously taken by the market. As of 20210419, only BTC, ETH, BNB, XRP and USDT are “serious” enough to beat Doge. Can ADA be the next?
  • Reading the above might leave you with an impression that I am very negative about crypto. That isn’t the case. Medium to long term, Bitcoin and other crypto will all hit their new all time high. For the 2020/21 trend however, I think we are seeing the peaks already. Pushing the market to over 1.5T is already an amazing achievement. Next time, maybe in a couple of years, will push well up to the next level. I am excited about ETH2 to push it towards PoS, will it be ready to knock BTC off the top spot?

My Crypto Watchlist

  • BTC — Obviously, can’t be serious about crypto without following the beast. Reminder: Tesla bought about 42000 bitcoins at around $31,700, might have impact to share price if it BTC dips well below 30k?
  • ETH — ETH is still very exciting as #2, other crypto not even coming close to total of ERC20 tokens, nevermind overtaking the underlying ETH.
  • XRP — Very strong backing, look at the transaction volume, still right up there. Starting to buy up real money transfer businesses in smaller countries.
  • ADA — Technically “strong” or just different, but still lacking real world usage. It’s hard to go against the Solidity market.
  • BNB — Probably the first project, other than BTC/ETH foundation, with a good business model. Started the trend of Exchange Tokens. Don’t want it to be too powerful though, not common for exchanges to dominate markets. What’s the difference between (de)centralisation and having one big exchange with near total control of the market? BSC is more or less a centralised clone of ETH with very low fees.
  • BAT — Another project I like with sensible business model. Clever use of tokenomics for online advertising. Rewarding users properly for looking at web ads. But slowly proving that the ads market is not great afterall.
  • UNI — Exciting use of smart contracts to compete with exchanges. But remember that they usually end up with lower value assets, the tokens that can’t be listed on big exchanges. It’s not about fees, volume is more important.
  • FIL — I like the idea of using tokenomics for digital storage. Currently trendy for just the money side of it. But if distributed storage can be priced well, might give S3 a run for their money.
  • Doge — Interesting “line” I use to track the market status. If you can’t even beat Doge, then your project is not very seriously taken by the market. As of 20210419, only BTC, ETH, BNB, XRP and USDT are “serious” enough to beat Doge. I can say the same about SHIB too. And now PEPE. Also, in a twisted way, I quick like the no specific goal aspect these meme coins, so they won’t need to lie to us, won’t have to over-promise, etc. Just allow the market to do its thing.
  • SAND and MANA — Getting ready for the metaverse? Buying virtual land seems odd? Remember the million dollar homepage?

Interesting articles:

Interesting videos:

Crypto Forums to network and learn from community:

Like most articles I write, I will keep updating it. I use Medium like an online notepad to share my thoughts. Welcome to comment and contact me for if you have questions. I am not a full time trader, not even a good trader, but I have strong views about blockchain and AI. I am building new blockchain based recruitment platform with Hyperledger Fabric and ERC20 tokens. Contact me to find out more.