When you research crypto investing, you'll find warnings aplenty. I've lost count of the number of times I've written the words "volatile," "speculative," and "risky" in cryptocurrency articles. But that knowledge doesn't stop it from stinging when those investments fail.
I got swept up in the last crypto frenzy and it cost me thousands of dollars. From crypto platform collapses to interest-paying DeFi, I'm sharing my mistakes in the hope you can avoid making the same ones. Here are three biggies.
1. I invested in too many altcoins
Bitcoin (BTC) recently erased the losses of recent years and climbed to a new all-time high. But that doesn't apply to all cryptocurrencies. I have coins in my portfolio that are still down 70% or 80%, and some of them are relatively established projects.
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A look at how the top 15 cryptos from November 2021 are faring now illustrates this. For all the talk of an end to crypto winter, outside of the two stablecoins and Bitcoin, none of them have yet recouped their highs. If you'd invested $100 in each of the top cryptos (excluding stablecoins), your $1,300 investment would be worth $710 today.
| Cryptocurrency | Price in November 2021 | Price today | Percentage change | What $100 investment would 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 |
| USD 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 |
| Chainlink (LINK) | $31.57 | $16.81 | (46.75%) | $53.25 |
| Avalanche (AVAX) | $65.07 | $53.53 | (17.73%) | $82.27 |
Data source: CoinMarketCap. Snapshot from November 1, 2021 and March 19, 2024 * After Terra's collapse, a new LUNA chain was created and the old one became LUNA Classic (LUNC).
Actionable takeaway
Be cautious about straying too far from Bitcoin and Ethereum. Cryptocurrency investing is already risky, and smaller projects -- even popular ones -- carry more risk. For example, Terra's LUNA was in the top 15 before it collapsed completely. Take your time and research each crypto carefully before you buy.
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2. I used crypto earn programs
Crypto earn programs come in various flavors, but all of them carry risk. Some projects take your crypto and lend it out to generate rewards. At one point, one platform was offering a 20% APY. Others offer staking rewards, which involves tying your crypto up to contribute to the blockchain's operation. The DeFi world also offers yield farming, where you get rewards for providing liquidity.
Actionable takeaway
The SEC has cracked down on a lot of lend-earn programs in the U.S. Some remain, especially on DeFi platforms. If you're looking at ways to generate passive income from your crypto, tread carefully. Understand exactly where the rewards are coming from. And if they are being paid out in a platform's native token, look at how much that token is worth.
3. I had money on crypto platforms that collapsed
A lot has been written about the collapse of FTX and other crypto platforms. Some investors will recover some of their assets from now defunct platforms, but there are no guarantees. Cryptocurrency exchanges are not banks and are not protected by FDIC insurance against platform failure.
Actionable takeaway
Consider holding your crypto in a crypto wallet that you control rather than leaving it on a crypto exchange. That way, your funds will not be at risk if the platform goes under. If you go this route, make sure you store your security phrase in a safe place and keep your anti-virus software updated.
Why I haven't given up on crypto
I still hold crypto investments for several reasons. First, I want a diversified portfolio that goes beyond stocks and property. Second, I think blockchain technology has potential. That's partly because digital currencies could make it cheaper and easier to manage money. It's also because the concept of decentralization is powerful. Finally, I am comfortable with having a small percentage of my portfolio in high-risk assets in the small hope that one day they will outperform.
Even so, there are a lot of questions about what will happen to the crypto industry. We don't know what impact increased regulation will have, nor how the technology will develop. That's why it is important to only invest money you can afford to lose. If you want to invest in riskier assets, make sure they only make up a small percentage of your portfolio.
