If you research crypto investing, you'll come across a lot of warnings. I have lost count of how many times I have written the words “volatile”, “speculative”, and “risk” in articles about cryptocurrencies. But having that knowledge doesn't mean you'll be upset when your investments fail.
I got caught up in the recent cryptocurrency craze and it cost me thousands of dollars. From the collapse of cryptocurrency platforms to interest-paying DeFi, I share my mistakes in the hopes that you don't make the same mistakes. There are three big takeaways here.
1. I invested too much in altcoins
Bitcoin (BTC) recently erased recent losses and rose to new all-time highs. But that doesn't apply to all cryptocurrencies. There are still coins in my portfolio that are down 70% or 80%, and some of them are relatively established projects.
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We can see this by looking at how the top 15 cryptocurrencies have trended in November 2021. Despite calls for the crypto winter to end, no other currency has yet regained its highs, with the exception of two stablecoins and Bitcoin. If you invested $100 in each of the top cryptocurrencies (excluding stablecoins), your $1,300 investment would now be worth $710.
|
cryptocurrency |
Prices for November 2021 |
today's price |
Rate of change |
What would a $100 investment be worth today? |
|---|---|---|---|---|
|
Bitcoin (BTC) |
$61,004.41 |
$61,912.77 |
1.49% |
$101.49 |
|
Ethereum (ETH) |
$4,324.63 |
$3,157.62 |
(26.99%) |
$73.01 |
|
Binance Coin (BNB) |
$551.26 |
$507.08 |
(8.01%) |
$91.99 |
|
Tether (USDT) |
$1.0003 |
$0.9995 |
(0.08%) |
$99.92 |
|
Cardano (ADA) |
$1.9500 |
$0.5869 |
(69.90%) |
$30.10 |
|
Solana (SOL) |
$203.55 |
$170.02 |
(16.47%) |
$83.53 |
|
XRP (XRP) |
$1.0929 |
$0.5844 |
(46.53%) |
$53.47 |
|
Polkadot (DOT) |
$49.98 |
$8.7644 |
(82.46%) |
$17.54 |
|
Shiba Inu (SHIB) |
$0.00007167 |
$0.00002484 |
(65.34%) |
$34.66 |
|
Dogecoin (DOGE) |
$0.2717 |
$0.1287 |
(52.63%) |
$47.37 |
|
US dollar coin (USDC) |
$0.9999 |
$1.0001 |
0.02% |
$100.02 |
|
Terra (LUNA)* |
$44.06 |
$0.000133 |
(100.00%) |
$0.0003 |
|
Uniswap (UNI) |
$25.63 |
$10.63 |
(58.53%) |
$41.47 |
|
chain link (link) |
$31.57 |
$16.81 |
(46.75%) |
$53.25 |
|
Avalanche (AVAX) |
$65.07 |
$53.53 |
(17.73%) |
$82.27 |
Data source: CoinMarketCap. Snapshots from November 1, 2021 and March 19, 2024 * After Terra's fall, a new his LUNA chain was created and the old chain became his LUNA Classic (LUNC).
practical takeaways
Be careful not to stray too far from Bitcoin and Ethereum. Investing in cryptocurrencies already comes with risks, and smaller projects (even popular ones) carry more risks. For example, Terra's LUNA was in the top 15 before it completely fell apart. Please take the time to research each cryptocurrency carefully before purchasing.
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2. I used a cryptocurrency earning program
There are many different types of cryptocurrency earning programs, but they all involve risks. Some projects take your cryptocurrency and lend it out to generate rewards. At one point, one platform was offering her APY of 20%. Others offer staking rewards that involve tying up cryptocurrencies to contribute to the operation of a blockchain. The DeFi world also offers yield farming, which rewards you for providing liquidity.
practical takeaways
Although the SEC has cracked down on many lend-earn programs in the US, some remain, especially on DeFi platforms. If you are considering how to generate passive income from cryptocurrencies, do so with caution. Understand exactly where your rewards will come from. And if you're being paid in a platform's native token, check the value of that token.
3. Had money on a collapsed cryptocurrency platform
Much has been written about the collapse of FTX and other crypto platforms. Some investors may recover some of their assets from defunct platforms, but there is no guarantee that this will happen. Cryptocurrency exchanges are not banks, so they are not protected by FDIC insurance against platform failure.
practical takeaways
Rather than keeping your cryptocurrencies on a crypto exchange, consider storing them in a crypto wallet that you control. That way, your funds won't be at risk if the platform goes bust. If you use this method, be sure to save your security phrase in a safe place and keep your antivirus software up to date.
Why I didn't give up on virtual currency
There are several reasons why I continue to invest in cryptocurrencies. First, I want a diversified portfolio that goes beyond stocks and real estate. Secondly, I think blockchain technology has potential. Part of the reason is that digital currencies can make managing your money cheaper and easier. This is also because the concept of decentralization is powerful. Finally, I'm comfortable investing a small portion of my portfolio in high-risk assets with the small hope that they will one day outperform.
Still, there are many questions about what will happen to the cryptocurrency industry. We do not know what impact stricter regulations will have or how technology will develop. That's why it's important to only invest money you can afford to lose. If you want to invest in riskier assets, make sure those assets make up only a small percentage of your portfolio.
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