6 crypto investment mistakes I made so you don't have to
This article has originally been posted to my blog: topjer.net
The crypto world is exciting. Filled to the brim with technological possibilities unimaginable mere 10 years ago. As a result it becomes harder and harder not to dip your toe into these waters if you have even a remote interest in technology. This is at least how it was for me.
In the spirit of full disclosure I want to say that I find the whole conglomerate of DeFi, CeFi, Dex, blockchain and whatnot more than confusing. It happens rather regularly that I read an article about crypto which I simply do not understand.
The incredible opportunities come at a price of great complexity and this great complexity leads to one thing especially in the beginning ...
Mistakes.
Thus I want to give you an overview over the mistakes that I have done or just barely gotten away from.
Intransparency of value
If you delve deeper the matter of crypto and are not just in it to hold some Bitcoin then you might encounter a situation that is similar to the following:
Good, my 50 Euro have arrived at Binance. First I will buy some BNB. *buys BNB*
Now I want to transfer that to my wallet. *accepts fees and transfers it*
Sweet, next step: I buy some sweet sweet CAKE over at PancakeSwap. 'buys CAKE'
Wait, you can by lottery tickets with CAKE? Gimme five! *buys five tickets*
I always wanted to hold billions of coins. Time to buy some OSM *buys a ridiculous amount of OSM*
After this shopping spree you end up with a bunch of numbers in your wallet. My personally, I rather quickly forget the value these numbers actually hold.
Is a transaction fee of 0.01 BNB much?
How much did I really lose when I spend 5 CAKE on lottery tickets and not win anything?
I especially noticed that I was sometimes reckless with spending crypto because it was so intangible. Lottery tickets for 0.3 CAKE? Count me in! An NFT for 400 KSM? Interesting! (Not an actual investment of mine)
So my tip here would be the following: Whenever you want to spent some crypto, first ask yourself how much money that actually is. Once you know that, ask yourself whether you really want to go through with the transaction. This is especially true for transactions where you loose your coins, e.g. because you have to pay fees compared to transactions where you gain an equal amount of another coin.
Underestimate transaction fees
I want to stress the last point because I fell for that trap too often in the short time that I buy crypto. The worst thing is that you do not even immediately notice that you have fallen for it.
This is closely connected to the Intransparency of value I have mentioned before. Even though Meta Mask shows you the maximum gas fees, it can be hard to understand what it means.
This totally leaves aside the fact that it is easy to confuse a 0.0008 with 0.008 and thus you do not even notice that you spent a 10 times higher fee for a transaction.
Time for a story. It was the first time I traded crypto outside the safe haven that is a broker. I was ready for the wide world that is crypto and started with PancakeSwap.
For some time everything was smooth sailing. I could provide liquidity, I could invest in Syrup pools. Life was filled with syrup-like goodness.
But dark clouds were forming on the horizon. PancakeSwap has a mechanic where you can claim a bounty which activates the compounding function for the Auto pool. For this interaction you of course have to pay a small fee but simply wait for a bounty that is higher than the gas fees you have to pay. Problem solved
Nothing is as tempting as the promise of free money so I tried to claim the bounty … and failed.
As a side note, it can be really hard or virtually impossible to understand why a transaction failed. Especially in the beginning. In hindsight I think the problem was that Meta Mask was calculating the gas fees incorrectly or the bounty has already been claimed.
So I did the most natural thing to do in this situation. I kept on trying over and over again. Every time I got the same outcome.
At one point I decided to stop. Not because I came too my senses but I made a cruel discovery. For each failed transaction I had to pay gas fees!
Here an explanation why you have to pay for failed transactions on the ethereum network. I assume
that similar arguments also apply to other networks:
The Ethereum network requires gas to execute transactions. When you send tokens, interact with a contract, send ETH, or do anything else on the blockchain, you must pay for that computation. That payment is calculated in gas, and gas is always paid in ETH.
You are paying for the computation, regardless of whether your transaction succeeds or fails. Even if it fails, the miners must validate and execute your transaction, which takes computational power. You must pay for that computation, just like you would pay for a successful transaction.
In the end I had 6 failed transactions. The most expensive one costed me 0.69$. This is pretty high considering that I was trying to claim a bounty of 0.25$.
So always make sure you know how much you are paying for gas and if the transaction is not time sensitive then try to postpone it to another time with potentially better gas prices.
Unaware of "The others"
The internet is full of stories of people who made a ton of money. One smart investment. Getting into this one crypto that no one saw coming early. BOOM! Big returns. Big numbers. Incredible riches.
If it is not the story of people "having made it" then it is the promise that there is this one particular coin that will blow up soon. It is sooooo good it is only a question of time until it goes to the moon.
Side note: People advertising a coin are usually heavily invested in that coin themselves and would therefore profit of other people buying it as well.
In your head you are already thinking about where the perfect place for the new TV is that you will buy once you have become crypto rich as well.
But before you drift too deeply into this crypto dream I want to tell you something about the survivorship bias .
Let us start with with its definition, it is
the logical error of concentrating on the people or things that made it past some selection process and overlooking those that did not, typically because of their lack of visibility.
People that lost most of their investment because they put it into "the next big thing" will probably not brag about it on the internet. Maybe because they are ashamed.
"People will think I am dumb and not as smart as that other guy" might be a thought that is creeping up in their head.
Or they are simply too angry and want nothing to have to do with this whole crypto thing.
Lastly, you probably do not see these posts because they do not sell as well. They are not getting upvoted and
people who run a coin will hardly advertise the post of someone who lost everything with their coin.
So for starters I would advise you to keep in mind that for everyone who made money with a coin there
must be someone who lost money with that coin. This is of course somewhat of an oversimplification but the core holds true.
We can also address this from another angle. If you have already some investment experience then ask yourself how many of your losses you have talked about on the internet. I would assume that the answer is at least 'Not each one' and probably more along the lines of 'None'.
A more realistic view would now be to assume this to be true for everyone you come across. Everyone has some investment skeletons in the closet and rich people usually have big closets ...
Get rich quick mentality
This is an extension of the last point. So lets say that you are aware that people lose money. Not everyone
can be a winner. Still you could be one if you just approached it right.
How could you not want big numbers and prestige for yourself. So you start looking at dirt cheap coins with
zero utility and think: "Maybe this is it. Maybe if I invest just a tiny bit then it would not be too bad if the coins goes to zero. Yet it has potential to blow up really big."
Or you become part of a "pump and dump" community. The people are very nice and they guarantee success. They have done that many times before and everyone in there swears they have been making money.
For those of you who do not know what those communities do. They coordinate buying a certain coin. This results in an increase in price. Maybe they also spread the news like "XYZ is totally blowing up. You must get in now!"
Either way, other people will start noticing the increase in price and will buy as well. That is the moment when the community starts selling the coin to these new buyers for a higher price. Making a profit in the process (and letting those new buyers plunge into their doom).
In case you are wondering: Yes, this is market manipulation and would have severe consequences in other markets like the stock market for example. But good thing crypto is mostly unregulated. Am I right?
Just hope that the community you are in does not have an inner circle. An elitist group that has bought the coin before and then is dumping their coins onto you. Making you the poor fool plunging into his doom.
I think the point I am trying to make is that a get-rich-quick-mentality makes you vulnerable to scams. Stay away from riskier investments. Even if people claim there is zero risk involved understand this: you get a higher return on your investment the more risk you are willing to take. A high yielding investment without risk does not exist. Here I would like to ignore arbitrage situation for the moment which would be return at zero risk but that is a very special situation.
Here is my recommendation: In the beginning buy one of those established coins and hold it for a while. Get a feeling for the ups and downs of the crypto market. You can invest in shit coins. But only amounts that you can stomach loosing. Also do not spend all your time researching the next coin that is blowing up. Instead learn more about crypto. Because this world is actually quite fascinating once you look past making quick profit.
It always pays to take a second look
Let me make that crystal clear: Always make sure you are sending your crypto to the correct adress!
Picture this: you want to send a noteworthy amount of crypto from one wallet to the other. You have done that before. No big deal!
You click send in one wallet and then you wait. But your crypto does not arrive in the other wallet. Nervousness is rising. You decide to check the transaction which luckily you can because a block chain essentially is a vault made out of glass. Comparing the target address from the transaction with you intended target address you realize that one digit is false. Do you know what that means?
You crypto is gone! With a high probability will this wallet not belong to anyone. Even if it would belong to someone it would be nigh impossible to contact that person.
I am very grateful that this situation did not yet happen to me. Once I almost thought that I lost my money when trying to transfer SHIB from Binance to my wallet. In the end it turned out that I did not add the correct currency to Meta Mask and that was why it did not show my transferred crypto.
The take away point: If you intend to send a bigger amount of money or if you do your first transaction to a wallet it might be a good a idea to test it with a small transaction first. Alternatively it could be possible to simulate the transaction on the testnet if that is available for you crypto of choice.
Nothing but a speck of dust
It is wise to start with small amounts when investing into crypto. This helps to get a feeling for how the markets move.
But it also comes with the own set of problems. The following two points are more of a word-of-warning, things to be aware about and not concrete tips.
The transaction is too small compared to the fees
For me, everything started with buying 10 Euros worth of Ethereum. Having this money in my Coinbase wallet was exhilarating. It felt like I was holding a piece of future in my hand.
That it until I wanted to move that ETH into my MetaMask wallet and saw that I would have to pay 8 Euros of fees. Guess what! Those ETH stayed with Coinbase for a long time.
Your holding amount is to small to do what you want to do
It happened to me way to often that I wanted to do a certain transaction but could not do it because it required bigger amounts then I was holding.
Let me give you an example: I have a some money invested in Drip where I get 1% per day on my staked amount. Instead of reinvesting my interest, I claimed it accidentally. When I wanted to reinvest it I couldn't because only investments of more than 1 drip are allowed. So now I have 0.16 Drip lying around and I have no idea what to do with it.
Conclusion
There you have it. These are 6 beginner pitfalls that you hopefully can avoid now that you are aware of them. None of those hurt me too much but it either resulted in burning some money or loosing some hair because of the stress they caused me.
Feel free to share your beginner mistakes with me in the comments and it case that it was not clear already because I was talking about "mistakes", nothing in this article should be seen as investment advice.