Top Ways Crypto Investors Lose Money

December 10, 2021

Cryptocurrency is still the trend of the say as more and more new investors are jumping on the crypto wagon by the day. But like any investment, investing in cryptocurrency also comes with great risk. At the same time, there is a huge opportunity to make good money from it too.

However, betting on the wrong crypto asset is not the only way crypto investors lose money. There are many other surprising ways new investors are going home sad after losing all their money. In this post, we will show you some top ways crypto investors lose money so you can avoid them and cut the risk of losing your hard-earned money.

How Crypto Investors Lose Money

#1: Investing in the wrong cryptocurrency

This is likely the most common reason crypto investors lose their money. The cryptocurrency market is very uncertain and many people have lost their money investing in shiny new cryptos that failed after a short time. While some were lucky to get in and out early enough, some got stuck and lost their fortune.

It is true that cryptocurrencies can be very difficult to predict and know which will be profitable over a long time. However, you will stand a better chance when you do your own thorough research before investing in any crypto. Try to understand what makes crypto different from Bitcoin and which applications it can be used for.

That celebrities are talking about it doesn’t make it a good buy for you. If you choose any coin because social media is presently hyping it, you could lose a lot of money down the line.

#2: Blindly following experts

This is more like the first point. Many investors have lost their money because they blindly follow every crypto “experts” they could find on the internet. The truth is that there are actually no real crypto experts. The industry is too volatile for anyone to be able to accurately predict market prices. So, before you consider investing in any crypto-asset, make sure you do your homework and do as much research as possible before making a decision.

Understand everything you need to know about your coin. Have a solid plan and strategies for the game. Know when to sell your crypto and don’t let your emotions dictate your actions.

#3: Falling victims to crypto scams

Although this is not interesting in any way, the truth is that it happens, and many people lose their money. Just recently, about 7,000 investors were announced by the Federal Trade Commission to have lost over $80 million in crypto scams from October 2020 to March 2021. And now that the popularity and interest in crypto are growing, it is even easier for scammers to blend in with the crowd.

While some of these people will come with a promise to give you insider tips or tactics, some pretend to be a celebrity or one big organization. They ask you to send cryptocurrency while they give you a huge amount of money in return. They are scams. You won’t get anything from them eventually. So, it is always advised that every trader, especially the new ones, be more cautious when dealing in the market.

#4: Playing with derivatives as a beginner

Derivatives are financial instruments whose values are determined by the values of some assets, such as interest rates, crypto prices, etc. The most common type of derivatives is futures and options. They were designed to mitigate the uncertainty and risk associated with crypto trading.

However, derivatives can also be the undoing of a crypto trader, particularly if such a trader got stock with the wrong derivative. So derivatives are a no-go area for beginner investors. Many crypto investors today lose money because they play with derivatives when they don’t really know what they are doing. If you want to play safe with cryptocurrency, it is recommended you stay away from derivatives until you are a pro.

#5: Hackers

Hacking is not uncommon in the crypto world. These currencies are stored online in digital wallets, so it is not impossible for hackers to get their hands around them despite the numerous security measures put in place to protect them.

Many giant investors in the past have gone bankrupt because they were hacked. For instance, Mt. Gox, a Tokyo-based crypto exchange went bankrupt in 2014 after hackers stole $460 million from them. To stay safe with your investment, you will need to be proactive by staying away from scams and working only with legitimate crypto platforms.

Before you commit yourself to any cryptocurrency exchange, make sure you do your research and understand how such a platform handles and stores your money. If possible, store your crypto in a cold wallet and protect it from physical theft.

#6: Losing Passwords

While cold wallets may be the safest way to store your cryptocurrencies away from hackers, there is also a risk associated with that method. If you lose your password, you may not be able to access that wallet again and that will mean losing your cryptocurrency forever. At the same time, if you use a hot wallet – one that is connected to the internet, the risk here is having your password get into the wrong hands.

A good example of this type of situation is what happened to Quadriga in 2019. Quadriga is a Canadian-based cryptocurrency whose founder Gerald Cotton was unexpectedly reported to be dead. And only he has the password to the exchange’s wallet. And since he was dead, his clients were unable to access their money – up to $250 million.

Whether you are storing your cryptocurrency in a cold or hot wallet, the most important thing is to understand the pros and cons of the method you are using and know how best to protect yourself from the cons. Keep your wallets secured so it doesn’t get into the wrong hands. At the same time, write them down somewhere so you don’t forget them.

#7: Shorting Bitcoin

Shorting is also called short-selling, and it refers to when you borrow crypto and sell them at the market price. You will then buy the crypto back when the price is low and return the borrowed crypto. But this is a very dangerous strategy that has caused many investors to lose their money.

For instance, a Romanian Bitcoin trader called Lord Ashdrake went bankrupt after losing a ton of money to Bitcoin shorting. And Bitcoin shorting is called Ashdraking in the cryptocurrency industry. He borrowed some bitcoin and short-sell them at $300 thinking the price will crash and he will be able to buy again and refund the bitcoin he has borrowed. But surprisingly, Bitcoin’s price zoomed to $600 after a couple of weeks, leading to his bankruptcy. Make sure you are keeping your bitcoin safe for all transactions by using a bitcoin wallet.

Final note

Cryptocurrency is very volatile, and you could easily lose your money. But taking heed to some tips can help you make the most of your investments. We have talked about different ways investors lose their money in the crypto world. Carefully observe and pay attention to them so you don’t do the same thing.

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