There are important things to know before you begin crypto trading. One of the biggest “secrets” about the process is that a lack of federal regulation makes it harder to fight back after getting hacked or scammed.
There are others (see below) to reckon with, including things that are actually no secret among experienced crypto traders but which may feel like “hidden knowledge” to the new investor.
There are plenty of crypto blogs with breathless headlines claiming there are cryptocurrency secrets to know before trading. One blog with an impressive-sounding name lists one of those so-called secrets; “Blockchain has great value”. While that statement is true, it doesn’t provide much analytical insight.
Another gem from the same article reads, “Cryptocurrency is volatile”. As grateful as you might be to know this “secret” you might be MORE grateful to learn there are some things you should know before investing–things that are no secrets per se but aren’t obvious to the crypto newcomer.
What follows is not investing advice. It is merely a primer to let you know what to expect should you choose to invest. Cryptocurrency trading involves risk and that risk can be higher than traditional investing. Don’t invest money you cannot afford to lose.
The first “secret” to know before you invest even a single dollar? An impressive number of the investing tips and tricks used in crypto are the same ones used in traditional investing.
The secret here is to know what TYPE of investing to watch in order to get a sense of how crypto works. If you are new to both investing and crypto, you’ll want to read up on high-risk commodities investing as well as Bitcoin, Ethereum, etc.
Make no mistake, these two worlds can differ greatly, but where risk and profit-taking go, the strategies can be similar.
Many of the clickbait articles about crypto secrets don’t contain too many actual secrets if any. Here’s a fact about as close to a secret as it gets in crypto. It isn’t a true secret but it’s something not discussed much; a fairly typical (at press time) lack of “interoperability” between crypto platforms.
You can trade coins with other users (trading Bitcoin for Ethereum or vice versa, for example), but can you use Ethereum on the Bitcoin blockchain? It’s one possible assumption easy to make as a newcomer; that “all cryptocurrency is the same and can be used interchangeably”.
That is more of a major misunderstanding of how crypto works rather than a secret, but you get the idea.
It is no secret that there are literally thousands of cryptocurrencies to choose from. It is also no secret that a certain number of them are as useless as a scam.
Here is something close to a secret about where to invest your money in crypto; the more well-established the players are in a non-crypto way, the less likely you are to be investing in a take-the-money-and-run con game.
The restaurateur who opens an NFT-based social club can’t disappear as easily as an unknown NFT artist with a single name flogging a new and untested type of crypto investment.
In other words, research the players in the project you want to invest in. Are they full-fledged nobodies or are they known names in a variety of fields? Not all the nobodies are out to take your money and run, but it’s safer to invest as a newcomer in crypto opportunities that have names attached with a bit more permanency.
“BunnyBooBoo Flake 949” might be a legit crypto player. But if YOU don’t know them, and you are ALSO a new crypto investor? You might want to wait until you know more about both investing and who the trusted names in the space currently are.
That’s not a secret. What is, at least to newcomers, is that crypto exchanges may compete with one another, and sometimes you’ll find a price advantage on one platform that isn’t present on others.
This may be an opportunity to do some profit taking by purchasing cheaper coins on one exchange and selling them immediately for more profit on a different exchange. That sounds like a no-brainer, right?
Except for one little issue. Gas fees (see below for more on gas fees) may be higher during certain trading times. If you hit those higher fees will your profit-taking be affected? It might. The timing of your trades can be just as important as the floor price on the crypto you want to buy. If you try to sell during peak traffic times you could wind up paying your profits back to the exchange.
Knowing all the transaction fees, in general, is the safest bet, but in particular? Know your gas fees for peak and off-peak traffic hours. Trading during the highest gas fee hours may eat into your profits or eliminate them entirely depending on the transaction. You may have to do some digging to learn this, but investing without this knowledge isn’t similar to gambling. It’s WORSE.
Buying and selling crypto can be tough for those used to manually purchasing stocks. An automated set of buy and selling rules is the hallmark of an experienced trader, and it is no different with crypto, if you use automated stop-loss strategies to buy or sell when a coin gets to a certain price range, you maximize your ability to protect your investment.
But using smart contracts or other automated trading measures requires you to learn the software and the rules of engagement. It’s a good idea to experiment with these technologies using very small amounts of money before you start trading in earnest.
You just don’t know what the learning curve might be like and how many little failures may be required to learn the ropes. If you have never executed automated trades before, starting small may be best.
Not a secret. However, where to look in the fine print can be a bigger challenge. You will need to know in advance what the policies are for technical issues that disrupt your trades.
Are you simply out of luck if there is a crash, a hack attempt, denial-of-service attack, power outage, or other problem that canceled, altered, or interfered with a transaction? What happens if you lose money as a result? Know these policies BEFORE investing. You won’t get a break because you didn’t know the rules.
One cryptocurrency blog writer discussing crypto investing secrets breathlessly informs us, “Not everyone believes in cryptocurrencies”. And while that is definitely NOT a secret, it can be a useful thing to pay attention to.
Why? Because you want to know three basic things when considering your next investment move; the current hype about certain projects, the overall state of the market, and the negative talk about the same projects you’re reading the hype about.
Why? Because FOMO (fear of missing out), fear-and-greed indexing, and other metrics for measuring the level of emotional investment in the market are useful tools when you take the opposite approach. Unemotional investing is the key to profitability.
Don’t let your feelings guide your investments. Let the information you get from the marketplace drive your decisions instead. Facts, not feelings.
The thing to keep in mind when comparing traditional investing to crypto is that crypto is practically unregulated in many important ways while commodities are heavily regulated. The differences between these two worlds? Protection.
The lack of regulation for crypto trading means you have little recourse if you are hacked, scammed, or careless.
If you lose your private keys, there is no central authority to appeal to. If you are scammed, you can report it to the FBI and the FTC, but in an unregulated world like crypto your law enforcement options may be far more limited than if you have been swindled while participating in a federally regulated process.
Regulations also come into play when it’s time to report crypto gains and losses to the IRS. You are required to report “taxable events” related to crypto such as when you buy or trade it for a profit. You may only be required to report crypto gains under certain conditions, but this will depend greatly on the laws of the current tax year. Failure to report cryptocurrency gains is a violation of IRS regulations.
Not all countries allow cryptocurrency. China has banned crypto trading, while El Salvador embraced it as legal tender. But El Salvador’s investment in Bitcoin was worth half (at press time) than it was when it was originally purchased.
Not even formal government acceptance of Bitcoin in this particular case was enough to prevent the loss in value.
It’s the nature of the investment–incredible highs with incredible corrections to match. It’s too early to tell what the legal fallout of using El Salvador tax dollars to speculate in crypto might be, but El Salvador’s president could (depending on a variety of things including that country’s tax laws) result in big legal fallout.
Similar legal fallout could happen to any number of current crypto projects in America and elsewhere should the United States federal government choose to begin regulating crypto. The current state of the market, the value of Bitcoin and Ethereum among many others, and the value of NFT projects across the cryptocurrency world could be dramatically changed due to new regulator concerns.
Your crypto investments are worth X amount of dollars at press time. But that value can and will change. With the addition of any new federal regulation, it is likely that the overall, long-term value of all crypto assets may be affected.
The key is to decide in advance how much you are willing to let that value change before selling or trading your current investments. Stop-loss measures, those that prevent you from taking more financial damage when conditions change for the worse, are your best bet to protect yourself.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.