Revamped Edition: 18 January 2020
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There has been much abuzz in the news about cryptocurrencies (crypto). There have been success stories of people “buying lambos” and crypto “going to the moon”. On the other hand, there are horror stories of people taking a loan using their house as a collateral, only to see their investments tank, losing more than 50% of its value.
1) All Altcoins are measured in Satoshis (Sats)
Many people think in terms of USD value but they don’t realise that there is another value called the ‘sats’ value.
ALL altcoins are measured in Sats value which is simply the measurement unit of Bitcoin. 1 Bitcoin = 100 million Sats. Altcoins might appreciate in USD value, but they rarely win in Sats value.
Bitcoin is and will always be the king.
2) United States (USD) Currency is a double edge sword
If you’re not living in the United States, you’ll probably transact in your own local currency. The problem is that most cryptocurrencies are transacted in USD. At the time of writing, the USD is getting stronger, which means that converting out of USD would give you a greater value. The reverse is also true. If USD gets weaker, your gains will be eroded or losses magnified.
3) Exchange trading fees can eat into profits
Traders make a living and only a few make a fortune. In cryptocurrency, the ones that are making the most money are the exchanges because they charge fees. There are trading, deposit, and withdrawal fees.
Here are some example of trading fees that some common exchanges charge:
Binance – 0.1% (Maker & Taker)
Binance (Singapore) – 0.6%
Coinhako – 1%
Crypto.com (No exchange fee; buying fee to be updated)
FYBSG – 0.3 to 0.6% (No longer available)
Huobi – Makers (0.2%), Takers (0.2%)
Uphold – 0.65% to 3.65%
If you bought $10,000 worth of tokens and made a profit of $2000, converting it back to Bitcoin with a 2% exchange fee means that you only get $11,760 back (0.98 x $12,000). Your profit just got reduced to $1,760 from the original $2,000.
So why don’t people just choose the exchange with the cheapest fees? Well, the exchange may not be available in that country. Some platforms are also hard to use or don’t have certain coins/tokens available for trade; the list goes on.
4) If you keep your bitcoins in the Crypto Exchange, you do NOT own your private keys
If you leave you bitcoin in a cryptocurrency exchange (the place where you buy/sell crypto), you are technically leaving it with a custodian. Just as you would, money in a bank.
Best practice is to store your own private keys in a cold wallet (bitcoin cold wallet series coming soon!) That way, you won’t have to worry about the exchange being hacked or absconding with your bitcoin.
5) Buy the Rumour, Sell the News
This is a prevalent issue. Newbie investors get caught in the price run up in anticipation of greater profits, only to be shocked when the price drops when good news gets released. This happened at Ripple’s Swell 2018 event. Before the event, XRP’s price doubled. During the event, XRP tanked 13%. This is not unique to XRP; cryptocurrencies are still highly speculative and the prices don’t always follow the fundamentals of the technological potential.
6) Ordinary retail investors tend to buy high and sell low
To be fair, this is also reflective of retail* investors in the equity market. However this is more prevalent in the crypto market because of the potential of huge profits. Many people tend to buy during the run up and not when it is at the bottom. I was one of those silly investors. I bought Bitcoin and XRP during the run up at its peak. Investors sell low to avoid further pain.
Warren buffet famously once said: “It is wise to be fearful when others are greedy and be greedy when others are fearful”
7) The biggest enemy is your own fear or greed
This links to the previous statement. There is money to be made, but if you let your emotions control you, you’ll make irrational choices and stand to lose. What is an emotionally irrational decision:
“I should buy now because everybody else is buying and the prices are going up higher and higher every min/hour/day!”
“I should sell because everyone is selling” [This is not necessarily wrong per se but it’ll have to depend on your strategy which I’ll discuss in future posts)
“I shouldn’t buy now, what if it goes lower”
Pro tip: We’ve just ended the bear market a few months ago. This is the right time to buy, not when mainstream news start reporting that Bitcoin and the other Alts* are making huge gains.
8) The most heart stopping moment is when your funds are in the transfer process
I’m jumping the gun here because I’ve not elaborated on the whole cryptocurrency process but let’s put it this way, in the traditional banking system, you trust GIRO or SWIFT transactions because you trust the system/banks.
In Cryptocurrency, you copy a long string of letters and numbers into a box to send it to a particular address/wallet. Fund transfer doesn’t take a few days unlike GIRO, but that hour waiting to receive the coins or tokens can be nerve wrecking, especially if it is your first time or if it’s a large amount.
9) Pump and dump groups can Rekt* you
Coins and tokens with small market capitalisations tend to be susceptible to pump and dump groups who gather together at a certain time to pump it up, and collectively sell leaving the unsuspecting greedy retail investor* to wonder how they ended up buying the hype only for the coin/token’s price to crash an hour or day later. How do I know this? I joined a few pump and dump group chats to keep myself abreast of the happenings. This happens on a daily basis.
Disclaimer: I do not participate in pump and dump operations
10) Always read between the lines
There are many news reports with people who are for and against cryptocurrencies. It is important to question why and what they are saying.
- If someone popular makes a very negative comment against cryptocurrency or current market condition – Is this because of rivalry and politics that caused this person to say this. Or could it be that he/she wants to market to tank so that he/she can buy the coins and tokens at a cheaper price?
- If someone makes a positive comment – Is it because he/she wants the market or the particular coin/token to pump so that he/she can make a hefty profit to sell before you?
I hope this article has been helpful. Do drop me a message if you’ve found this to be helpful and if you would like to read more articles of this kind. Likes appreciated as well 🙂
Alts: Altcoins – Other types of coins and tokens other than Bitcoin
Lambo: Someone who made a lot of money/dreams of making a lot of money from crypto
Moon: Prices that head up in a stiff angle, representing a rocket to the moon
Pump and dump: The act of pumping a price artificially, to dump it later on at the expense of others
Retail Investor: Regular people like you and me
Rekt: Slang of “wrecked.” In Crpyto terminology – it’s someone buying at a high only for prices to dip severely causing huge losses
Disclosure: I hold a small amount of bitcoin
Views and opinions expressed are those of the author and should not be taken as investment advice. Buying and trading cryptocurrencies should be considered a high-risk activity. As usual, readers are advised to “Do Your Own Due Diligence” (DYODD) before taking any action related to content within this article