Crypto investing is on the rise and crypto investing myths are there to harm new investors. If you want to dip your toe in the industry, defend yourself from narratives that can greatly harm your investment. This post shows you three important crypto investing myths to be aware of.
Crypto Investments
Cryptocurrencies are becoming of interest to a wide variety of people. Some may know about the technology, decentralization, and the whole idea behind crypto, some may only be attracted by the possible gains accessible through investing in new – or old – crypto projects.
Being a fairly new industry, information is often confused and, sometimes, distorted. A lot of dynamics are in play, among retail investors and institutions. It may be confusing to move around. As with any path to success, it is important to know what to watch out for.
Here we start by showing three of the biggest myths that you may come around. However, there are even more.
1. Influencers Can Predict the Market
The crypto space is full of influencers: on YouTube one can find an enormous number of videos relating to cryptocurrencies and the crypto market.
Some will be educational videos, which are an effective way to start understanding the market. Some are technical analysis, or fundamental analysis videos. They cover an adequate role, if well done, in helping people learn to read the market. Some are general commentaries, on new cryptocurrencies, events or “FUD” (fear, uncertainty and doubt).
In this category, we will also find videos by influencers who are promoting (shilling) a certain cryptocurrency. This sometimes happens in exchange for payments or other benefits from the developers. Sometimes, instead, they do it to push the price of small coins and then sell their share, dumping the price.
Some genuine crypto influencers that add value to the industry. However, always be careful and never take anything as Gospel.
Those people are working for their business, not for you, and they can’t predict the market more than anybody else.
X (ex Twitter)
This is the preferred crypto platform.
If you are into crypto investing, you should follow X. That’s where the discourse takes place and where most projects give updates to the public.
However, you should read posts maintaining a certain level of doubt and caution. Again, you will find nice updates in technical analysis which may help you validate your own analysis. Those can be posted by experienced traders, but they can also be posted by newbies to technical analysis who are just trying out. All efforts are good but do not follow anything as if it were “the Truth”, even when the author acts like it is.
The same applies to the rest of the posts. Influencers need a following, engagement and money. They will constantly tell you how much money they have, and that they don’t need more. It always sounds silly. They are craving the attention at least – otherwise they wouldn’t be there.
That can lead certain people to misbehave and push things too far.
Watch out for the extremely high level of toxicity and the latest trend: promoting burnout.
Somehow, improvised influencers, who get a large number of followers, act as Gurus. They insult and mock (not humorously) the average investor and promote this idea of overworking as the sole goal in life.
That is obviously insane, but constant exposure to those messages can shake anyone.
2. HODL
This is controversial because HODL (Hold On for Dear Life) isn’t necessarily a bad piece of advice. It needs the right context, though. It isn’t necessarily a good piece of advice, either.
The strategy of buying and holding an asset through market fluctuations is well established in any investment environment. It wasn’t invented by the crypto market investors. They took it a bit to the extreme, though, with the HODL attitude.
The famous Warren Buffet quote says that If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.
When investing in cryptocurrencies it is essential to remember that anybody can launch a crypto project at any given time, with no need for fundamentals covering any aspect of it.
There are currently more than twenty thousand cryptocurrencies, and it seems quite naive to think that each one will give a great return to its investors.
BTC
When thinking about cryptocurrency, you may immediately think of Bitcoin (BTC). BTC is a project – and crypto – that has been around for more than 10 years. It is generally considered the coin that warrants the highest level of safety to investors, who do not see the coin ever disappear in the future.
That doesn’t mean investments in BTC are always safe: no investment is a completely safe investment. BTC is characterized by extreme volatility in price, hence losses are possible. A good analysis is essential. The project, though, is built upon what can be defined as a solid base and even institutions are involved through investments. That may indicate longevity. It may also mean nothing, though.
In the case of BTC, HODL may make sense (or it may not, depending on your investing style). According to its supporters, the coin is supposed to fluctuate up and down, as any other asset, but is going to give a valuable return in the long run.
That is still just a hypothesis, but its story puts the project at a higher level than project “Whatever”, born today on the base of nothing and promoted on Twitter and YouTube. That one may just disappear in a couple of weeks. The founders may decide to rug (disappear with all of your money, basically), or the project may just encounter issues and see its end.
Nothing is Too Big to Fail
Moreover, even a well-established project may encounter its end for several reasons. Understanding price fluctuations becomes essential: is the price going to recover? Is the price fall the sign of a slow (or fast) death for the project?
A loss in investment does not materialize until you sell at a lower price than your entry. However, it is also true that partial recovery is better than none. If the project is completely dying it may be better to sell at a partial loss than not sell, and HODL, until the investment completely loses its value.
What to Consider
To recap, it seems like a good idea to:
1- Choose why you are investing and know what you are investing in.
Are you investing in the technology and want to see the project perform in the long run? Are you only investing to make a quick gain on some random crypto that seems promising in the short term?
In the first case, it may make sense to HODL (then again, it may not. You may want to trade that investment as well, it depends on you), in the second case the HODL strategy seems risky.
2- Understand if price fluctuations are due to the normal cycles of the market or if the project is dying.
If there is a normal cycle, it may make sense to HODL (again, it depends on you and your circumstances) rather than sell at a loss. If the project is dying, though, HODL doesn’t seem the best piece of advice one can receive.
3. A Strong Community Makes a Huge Difference
This is another common crypto investment myth that can greatly harm your investment. The idea that a highly active community makes a lot of difference in the potential for success of the crypto project is pushed a lot. It makes no sense for most projects.
Small projects need retail investors to launch and survive. The community plays a role there. However, the activity the community has on Discord, Telegram, or whichever channel they choose to use is not a particularly good indicator of performance.
Anybody can join those conversations, be super active and never invest. Moreover, it gives the idea that the core community can somehow control the market and, of course, it can’t.
Needless to say that in those communities the commandment is usually to HODL, and that is often pushed even by investors who are selling their own coins while telling you otherwise. They can get a fairly decent price for their transactions that way.
Communities cannot even do anything when “higher forces” intervene to kill the project: it doesn’t even need to be anything major. No need for a celebrity to sell their investment. Anything can kill a project.
Wonderland
In 2021 a project called Wonderland had a rather big following. Price went up a lot, some people invested all they had in it (which is usually not a clever idea).
One of the founders was well respected and seemed to have a good understanding of what he was doing and what was going on in the market. People were pumped, the community was one of the strongest ever seen in the space.
One day, news came out that the other founder of the project was somebody known by the crypto community as a fraud. He had allegedly participated in illegal activities related to crypto in the past. Up until that moment he was operating with a pseudonym in Wonderland, so people didn’t know it was him.
When news got out people started selling their coins, the price plummeted, and the project was dead. This happened in a matter of hours at most. Several other projects related to the same team also saw the end of their days. The strong community didn’t save the project, people who decided to HODL lost everything. It was a big happening in crypto.
Takeaway Message
crypto investments should be treated as other investments. It is important to remember the basic rules of investing. While it is, of course, a young market with some special dynamics, most things still apply.
Nobody can surely predict the market: the best one can do is learn how to read market movements, but could still not be enough. Not solely relying on others’ analysis may be a good idea.
Deciding what type of investor you are is essential. Understanding if the price fluctuations are normal and healthy or signal the end of a project is vital.
Letting a false sense of community lead investments can be highly disruptive. The market is a zero-sum game. People are there to make money, not to have you grab their share.
Disclaimer: This post is for educational purposes only. Nothing in this post is financial advice.
