Note to readers: This article shouldn't be taken as investment advice — buying cryptocurrencies involves substantial risk. Do your own due dilligence.
It was a damp, grey summer afternoon a couple of years ago as I headed out to catch up with a good friend I hadn’t seen in a few months. “Bring your laptop,” he said, “You can work on some stuff.” I didn’t get any writing done that afternoon, but it was definitely the most financially rewarding cup of coffee I’ve ever had.
“I’ve been quiet about this until I felt comfortable sharing it with other people,” he began as we sat down and pulled out our laptops. “Even now, I’m only showing this to my close friends.” It was a weird way to start a conversation, but I figured he was going to surprise me with good news regarding his music career. Instead, he asked me what I know about Bitcoin.
I knew a few things. The community wants it to be a decentralized digital currency, and there’s “miners” involved that sustain its network (at the time, I’d never even heard the word “blockchain”, let alone knew what one was). I remembered reading about bitcoin in the news over the years too, like when the Mt. Gox hack happened. Bitcoin seemed like a neat idea with a lot of controversy around it. New technology has always interested me, but I never thought about it much beyond that. I did know that one BTC was worth somewhere close to $4,000. “It’s way too impractical to replace traditional currency,” I told my friend.
He agreed, but pointed out that even if it was impractical as a replacement for fiat currency, it still had a real dollar value and that value has skyrocketed over the years — despite major crashes and predictions that the coin was doomed.
My friend told me he’d decided to invest in crypto and after two months, was already seeing profit. By the end of that rainy afternoon, I decided I’d give this crypto stuff a try as well. I’m glad I did.
I started off with $1,000 and a few links about trading my friend gave me. On New Year’s Eve 2017, my crypto portfolio was trading at about $4,000 and I cashed some of that out to pay my rent. I’m not a professional. There’s still a lot of things I don’t understand about blockchain technology, and I have only the most basic grasp of investment analysis, but I’ve learned a lot since I signed up for my first coin exchange.
Here are some things I wish I’d been told before I got into crypto trading. Of course, before you invest in anything crypto-related, it's important to know that this is all high risk and you should diversify any investment portfolio you create. Investing all your money into cryptocurrencies is definitely not advisable.
You may be wondering what DYOR means, but I’m afraid you’ll just have to take the extra five seconds to Google it yourself. See, most people prefer to check their brains at the door and let other people handle boring or complicated tasks. Investing in cryptocurrency isn’t terribly complicated, but unless you know someone offering to manage your portfolio, you’re going to need to learn the basics of investing.
Now that it’s blown up, there are plenty of guides out there explaining the basics of bitcoin, crypto, and what’s been happening in the market. Here’s one I read early on when I started out. I also brushed up on the basics of traditional stock trading, then familiarized myself with crypto-specific terms like “sats” and “HODL”, and researched just what the hell blockchain technology is.
Every coin you choose to invest in should be well researched. That means even if you’re only planning to hold onto one or two coins, you need to be reading whitepapers, learning about as many coins as possible. In this market, there’s no telling what the next major success story will be. One moment everyone might be talking about Ripple — a few months from now, there’ll be something else. In a market where things can change in an instant, keeping yourself well-informed makes the biggest difference between gambling and investing. Gambling may be fine for some people, but I learned the hard way it’s not for me.
Here are a few questions to consider when researching coins:
- What is the coin/project’s purpose?
- Does it solve a real problem?
- Are they active and transparent in communicating with the public?
- Who is on their team?
- How long has it been around?
- What is their road map?
When I started, I jumped into crypto without doing enough research. I ended up in the middle of a bear market cycle (when prices for all coins were falling) with no idea what that meant or why I was losing money. It only takes a few hours to learn everything you really need to know to begin trading properly. I probably could have made more money if I’d learned to read the market and waited to enter after the cycle ended, but I’m happy with how things turned out. That leads me to the next point.
Ignore FOMO. NEVER panic sell
I started with $1,000. With an amount that small I had to choose carefully where I would put it. I decided to diversify and pick between several coins instead of holding onto something mainstream like Ethereum. I ended up losing about a quarter of the original amount I had at first, picking coins based on what I saw people talk about in forums and on social media instead of basing my decisions on in-depth research.
I remember I bought some Ripple when it was less than $0.20 per coin. It's now worth about 50% more, but I didn't allocate much of my money to it because I hadn't done the research and just wanted exposure.
I can think of at least a few more examples from my own experience like this. Anyone who's ever invested money can tell you how easy it is to start obsessing about your portfolio. This is especially true in crypto, where the markets are volatile enough that a coin could be hot one day and completely worthless the next. You’re going to make a wrong call or two. Don’t overstress about it.
Good friends are priceless
When you invest in crypto by yourself, it can feel overwhelming because you have no one to talk to about market movements. This is why I would say having a group of friends who are also into crypto is invaluable. Not only can they help you get set up without losing your money, they are also extra sets of eyes and ears in the market.
If I’m not sure what coin to look at next, I can always check in and see what they are doing to give me ideas. I also think it’s easier to learn from people you know than from strangers on the internet. If you’re interested in crypto, ask your circle of friends if they’re into it too. Talk to them about their experiences first and decide for yourself what you want to do after. I trust my friends, but when it comes to money, you can’t just be a follower.
Buy the rumour. Sell the news
One of my first successful surprise picks was the coin Einsteinium (EMC2). Without going into too much detail, Einsteinium is focused on funding scientific development as well as technology education. It has a solid dev team and support from people with enough money for it to matter. The coin was super cheap when I bought it, but months went by and its price went nowhere but down. I panic sold my EMC2, turning it back into BTC because, its price was more stable. A few weeks later, a rumour spread that the Einsteinium foundation would be announcing a partnership with either NASA or Apple. Either partnership would be a huge move not only for the coin, but for crypto in general. EMC2’s value shot up overnight as people waited for the announcement to be confirmed. I ended up buying in just in case there would be another spike.
Things seemed good leading up to the announcement date. The price was going up and I was making a profit. Maybe not as much as I would have had before I panic sold, but it was something. Then the day of the announcement came. I kept refreshing my browser, watching for the news as well as watching the price. As soon as the announcement was made, I saw people selling off huge amounts of the coin. Suddenly the price was 10% lower than it was a minute ago and I hadn’t even skimmed the news. It was clear, however, there was no partnership with NASA or Apple. With no more hype to sustain its price, people took their money and ran -- including me. Overall, I still made a profit that day, but waiting to sell the news cost me at least a few hundred dollars in the course of minutes.
Trying to get rich quick is still a good way to lose money
Twitter is full of people using all this crypto attention to make themselves rich, but not by being good investors, but by taking advantage of the market and anyone they can to make money.
Stay clear of anyone who says they can guarantee you profits if you send them your coins. Be wary of people selling their “methods” for crypto success. Don’t bother trying to master pump and dumps (and remember, participating in pump and dumps is illegal).
This could only be the beginning
My friend bought into the market a couple of months before me and he was able to make four times his original investment basically right away. 400% return on an investment in less than a year seemed too good to be true, but I managed to do it after 5 - 6 months, despite the market experiencing a major slump for most of that time.
I probably can't make myself a millionaire by investing in cryptocurrency, but it's helped me make money so far. At the beginning of 2017 the total cryptocurrency market capitalization was $17.7 billion. Now it’s more than $200 billion despite some wild swings in the past year and may get even bigger as the technology matures.
Ari Paul, the CEO of cryptocurrency hedge fund Blocktower Capital, made an interesting comparison in this article. He makes a compelling argument that cryptocurrency and blockchain technology is where the internet was in 1994. I was barely a real person in ‘94, but I do know that for the average everyday person, the internet didn’t matter in the slightest. Now look at it. People’s entire livelihoods depend on it.
Like any market, crypto has its ups and downs. At the time of writing, Bitcoin’s value is down 40% from its 2018 peak, but up more than 200% this year. If I learned anything about cryptocurrency in 2017, it’s that it’s only a matter of time before prices rebound. When they do, I hope to make a killing. I hope you can too.