Typical Mistakes with Crypto and How to Avoid Them

March 3, 20228 min read
Share on facebookShare on TwitterShare on Linkedin
Mid adult man using a smart phone to monitor his cryptocurrency and stock trading. He is in his small jewellery workshop.
  • According to Bloomberg, the total cryptocurrencies market surpassed $2 trillion in April of 2021. Of that amount, $1 trillion is in Bitcoin. 
  • While Bitcoin and Etherum have the most notoriety in the world of crypto, there are many types of cryptocurrencies in which to invest – but it’s important to do your due-diligence
  • Young investors are advised to limit their exposure to cryptocurrencies to no more than 10 percent of their holdings. Veteran investors getting close to retirement are advised to keep crypto to 5 percent of their portfolios

Launched on January 3, 2009, Bitcoin, the world’s leading and most recognizable cryptocurrency, has rapidly evolved into an asset class that can be bought, sold and traded. For those who are attracted to the potential of cryptocurrencies as an alternative investment, it’s important to recognize that the crypto market is both young and still developing. While the possible upside is quite enticing, the asset’s volatility makes the conceivable downside pretty steep too. With that in mind, let’s take a look at some typical investment mistakes with crypto and how to avoid them. 

Cryptocurrency vs Traditional Investments

According to Bloomberg, the total cryptocurrencies market surpassed $2 trillion in April of 2021. Of that amount, $1 trillion is in Bitcoin. That this much value has accrued in only 13 years has many potential investors eyeing what looks to be the 21st century equivalent of a gold rush with the thought to give it a larger place in their portfolios. 

As attractive as crypto is, it’s important to realize there are some key differences between crypto markets and stock markets. The first of these is that stocks are backed by equity in the business in which you invest, entitling you to a percentage of its assets and cash flow. 

What Drives the Value of Traditional Investments?

Meanwhile, a stock’s price adjusts based upon assessments of the future success of the firm issuing it. Does the organization have a new product that will give it a competitive edge in its marketplace? Has a shift in management made the company more competitive? Has something happened in the world that will make its products more desirable now — or in the future? 

A huge part of being a successful investor is understanding the nature of your investment. You should have a good idea of what will drive the growth of the underlying entity. It’s difficult to calculate the true value of an investment without this information. 

What Drives The Value of Crypto?

Cryptocurrency, on the other hand, is backed only by the moods of investors. In other words, with but one exception (stablecoins), there are no hard assets underlying cryptocurrencies. This makes them difficult to predict, as their prices are predicated upon the notion that someone will always want to buy more of them in the future. Understanding this, it’s useful to look at some of the most common cryptocurrency investment mistakes.

1. Succumbing to FOMO – Fear Of Missing Out has led many to make  decisions they go on to regret. When it comes to crypto, the rapid rise in value it has experienced since its inception may lead to concern you’ve missed “getting in on the ground floor”.  

However, this is a very young market with considerable potential for growth left in it. 

There is also plenty of potential for another crash. 

The value of Bitcoin stood at $67,900 per coin in November of 2021. The price, as of this writing (February 2022) stands at $39,264. That’s a drop of $28,636 in less than four months. 

The cryptocurrency market is extremely volatile. Understanding that before investing is critical, as is keeping your emotions in check. The smart play is to set a goal and invest only what you can comfortably stand to lose. 

2. Going “All In”

Of course, the other side of the volatility concern is the idea a significant price gain could be “right around the corner”. This thought has been known to lead some investors to go all in on an asset. The problem here is an all or nothing bet could leave you with nothing. 

Young investors are advised to limit their exposure to cryptocurrencies to no more than 10 percent of their holdings. Veteran investors getting close to retirement are advised to keep crypto to 5 percent of their portfolios

3. Borrowing to Invest

Again, the volatility of the crypto market makes this a bad idea. In a market as speculative as this, you could wind up with considerable debt in addition to the loss of the personal capital you invested.  As stated previously, never invest more than you can afford to lose without compromising your lifestyle.

4. Failing to Diversify

While Bitcoin and Etherum have the most notoriety in the world of crypto, there are many types of cryptocurrencies in which to invest. Known in the marketplace as “altcoins”, some are predictably more solid than others. 

Investing solely in Bitcoin, because it’s the oldest and best known, is a mistake, just as giving your entire portfolio over to Apple would be. One sharp downturn in that particular asset could wipe you out.  Placing all of your eggs in one basket is one of the most common cryptocurrency mistakes. 

5. Expecting to Get Rich Quick

As is true with most things tech, early adopters who invested well have realized extraordinary gains with cryptocurrency. However, they did not achieve those gains overnight. 

There is no easy money to be made in crypto. 

Still, because it is relatively new, cryptocurrency draws a lot of amateurs looking to make a quick score. Toward that pursuit they often tend to overtrade, which can cost them an accumulation of fees and bad trades. When things don’t pan out, they lose faith and sell. 

This desire for quick profits can also open investors to potential cryptocurrency scams. As with most investment vehicles, the best plan is to carefully invest in a solid currency and hold on to it for a while. 

5. Investing Without Conducting Due Diligence

The need to do your research before investing is true of any asset class and especially so with crypto. Because it is so new, there will invariably be market shakeouts from time to time. The more solid players will potentially last, the weaker ones will potentially falter. 

Study any currency before you decide to buy into it. You should also look into the reputation of anyone who contacts you with a brilliant crypto investment opportunity. Take some time to review the price charts, get familiar with the history of your targeted investment and make your projections as best you can. 

6. Overlooking the Security Component

As database systems go, the blockchain platform is one of the most secure ever devised. Cryptocurrencies rely upon this technology to record transactions and make them viewable to anyone so all parties in a transaction can agree upon the value of the currency. 

However, a database is only as secure as its most lax user. 

Key codes used to conduct transactions and access funds in the system must be carefully protected. Crypto exchanges are favored targets of hackers, because that’s where the money is. Avoid leaving your coins in exchanges for long periods of time. 

Users also have a “digital wallet” in which their holdings are stored. These wallets can be offline (cold) as well as online (hot). Experts recommend keeping your holdings in an offline wallet, to minimize the possibility of an interloper hacking into a database and robbing you.

Along these same lines, you should create a specific email account with two-factor authentication for your cryptocurrency investments. It is also a good idea to use a specialized two-factor authenticator rather than phone, email or text message authentication.  You’ll also want to choose a username and password with no ties to any personally identifiable information. Hackers routinely exploit this type of data to gain access to networks. 

7. Losing Passcodes

According to an article in The New York Times, a trader lost $25 million in Bitcoin when one of his colleagues reformatted the hard drive on his laptop. Another crypto investor is said to be just two wrong passcode attempts from being locked out of a bitcoin wallet with $240 million in digital currencies. It is estimated that $140 billion in Bitcoin lies similarly inaccessible. Passwords must be difficult to crack, but easy to remember.

8. Conducting Mobile Transactions 

Convenience can be a good thing — absolutely. Sadly though, what’s convenient for you in this case can also be convenient for thieves. Data transmitted to and from mobile devices is notoriously easy to intercept. Conducting trades, or storing large sums on a mobile device opens your holdings to inordinate risk. 

9. Using Inferior Exchanges

It is absolutely imperative to shop exchanges carefully before deciding to use one. Practices and fees vary from exchange to exchange. Remember, crypto is an unregulated alternative investment. There is no FDIC or SEC protection backstopping you. 

10. Conflating Exchanges and Wallets

Exchanges are where trading and transactions take place. Wallets are where cryptocurrency assets are stored. You’ll need passcodes to access either, however holdings left in exchanges are more vulnerable to loss. Exchanges have been known to go down and they can also get hacked. Leaving digital currencies in an exchange is exposing them to the potential for theft. 

As mentioned above, wallets come in two varieties — “cold” and “hot”. Hot wallets exist online, cold wallets are offline. Hot wallets make access easier for newbies — and hackers. Cold wallets, while less convenient to use, can be isolated from the internet, rendering them less susceptible to intrusion. 

These are ten of the typical investment mistakes with crypto trading and advice for how to avoid them. Another approach to diversifying your portfolio is investing in alternatives with Yieldstreet. There, you’ll find a curated selection of alternative investment opportunities that were previously only available to institutions and the ultra-wealthy. Whether you’re looking to generate income, grow your overall portfolio value, or some combination of both, Yieldstreet offers a variety of alternative investment opportunities. Take a look around the site now to see what you could accomplish with the platform. 

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure