In the light of the last year’s explosive growth of the cryptomarket, many investors will share the stories how they have become rich suddenly, having invested in new cryptocurrency or in the next perspective ICO. However, in so volatile and unstable market everything happens vice versa — inexperienced investors lose all the investments. We have reviewed five most probable scenarios according to which players of the cryptomarket are left without their dear bitcoins.
Don’t study the cryptomarket and cryptocurrencies
If not to carry out the fundamental and technical analysis of cryptocurrencies, and to rely only on an intuition or recommendations in a chat from the user with a name like @BitcoinBillioner, in the shortest possible time it is possible to lose the investments.
For example, this week, on March 5, the rate of cryptocurrency Ripple has grown almost by 20% and has reached a point of $1.08. It has occurred against the background of news about a successful testing by South Korean Woori Bank of cross-border payments on the basis of Ripple technology and also rumors about the fast addition of cryptocurrency in the listing of the Coinbase crypto exchange. However, on March 7, the crypto exchange denied this information, therefore, the rate of cryptocurrency dropped by 14% up to $0.92. Those who have entered on a maximum, having believed only in rumors, now have to wait for the next wave of positive news at least to break even.
New investors and traders who don’t want to carry out the analysis of cryptocurrency and only make decisions proceeding from the latest events, can invest in assets at the moments of growth and sell them at the falling moments, thereby incurring losses. According to the crypto-investor Rishab Baldi, on average, if the new investor plans to come for this extremely volatile market, then in the first three-four months he has to be ready to spend five-six hours for studying the market, players, cryptocurrencies, and cases. According to the investor, during the year of the careful analysis and good planning of investment strategy, it is possible to increase the size of the deposits by 1000%−3000%.
Think that it is possible to become rich really quickly
The crypto traders Peter McCormack analyzed a situation in the cryptomarket and came to a conclusion that many new cryptos – enthusiasts come to the market with absolute confidence that they will become wealthy in a short period of time. According to McCormack, it leads not only to a disappointment but also to a fast loss of means.
It is natural that when the market endures the take-off period, many new investors rush in, expecting to get an easy profit. Moreover, it’s mentioned in all news, and those who manage to receive quite good earnings, tell their stories of success. But that’s how the bubbles are born: same happened to a bubble of dotcoms, and the same was with a housing bubble of 2008.
However, the cryptomarket doesn’t work according to the scheme of instant earnings. It is the speculative market in which some players could grow rich quickly. Many have promptly lost all the investments. The cryptomarket, as well as any other market, is cyclic, and it means that after growth period surely there will come the falling period. As it has happened in 2013: on the general schedule of the cryptomarket, this period looks at the moment of small growth after which there was an insignificant falling.
But, actually, in November 2013 cryptomarket capitalization quickly grew against the background of the arrival of new players who invested in Bitcoin — new revolutionary money of the future. So, by December 4, 2013, the indicator has reached the first maximum of $15.7 billion. And by December 19 capitalization has sharply fallen almost twice — to $6.9 billion. The cryptomarket needed more than two years to be restored and reach former maxima.
This situation can repeat, even in spite of the fact that today the market of cryptocurrencies strongly differs from what we observed in 2013: players have more information, and the ecosystem promptly develops and finds all new applications. Nevertheless, it is the speculative market which can fall off at any time. Of course, there are examples of how it is possible to grow rich quickly, however, chances to lose all investments because of badly planned investment strategy is higher.
Neglect security measures
Investment into cryptocurrencies is connected with high risks including as a result of a presence on the market of a large number of swindlers who use various methods of the attacks to receive crypto-savings of investors. So, by recognition of the crypto trader Peter McCormack, the attacks on crypto wallets are made daily. The exchanges are exposed to continuous checks on durability too: recently the investor Cody Brown wrote an article about how malefactors got access to his account at the Coinbase exchange and have removed about $8000 within 15 minutes. Each holder of cryptocurrencies has to know about potential threats and observe all precautionary measures, working with cryptocurrencies:
- To choose a way of storage of cryptocurrencies: it is the best of all to use cold wallets and to have their backup copies;
- To use two-factor authentication of the user;
- To install the reliable anti-virus program;
- Never to disclose the private key;
- Always to check addresses of wallets and references;
- To have the reliable system of passwords and seed-phrases.
It is also worth storing the passwords and seed-phrases in the reliable place, otherwise, the probability to repeat the fate of Mark Frauenfelder who in 2017 has nearly lost the bitcoins for the sum of more than $32,000 is high. And all because he has lost a sheet with the password from 24 words from a cold wallet. Having understood that he can’t remember the PIN code to a wallet, he was horrified by understanding that he couldn’t receive the cryptocurrencies in any way. Frauenfelder addressed the technical support of the producer of the crypto wallet, wrote at forums, looked for ways to crack it and even addressed the specialist in hypnosis, but all this didn’t bring the desired result. All in all, he was helped by the young hacker who wrote the instruction how to crack the OS of a cold wallet. However, it cost him many months of stress, money and the commission to the hacker for recovery of the password and a seed-phrase.
Sell crypto assets too early
One of the early investors in Bitcoin known as SuperDuperDerp, told on Reddit as he invested in cryptocurrency in 2012 when it cost $4. He bought 100 BTC for $400. But in spite of the fact that he was instantly involved in a subject of the cryptomarket and knew that the Bitcoin would cost much, he didn’t manage to keep the assets for a long time. Financial difficulties and also a weak growth of cryptocurrency became the reason. Therefore when the rate of Bitcoin doubled and reached a point in $8, he decided to sell the assets, hoping that the course still will fall off, and he would manage to enter at the low price again.
However, it didn’t happen. As the investor writes:
“I observed how the rate of Bitcoin grew and when it reached a point of $100, I invested again, but now in 8BTC. During 2013, for several times I followed my emotions and in panic sold and bought Bitcoins back. At some point, I urgently needed money, therefore, I sold almost all the cryptocurrencies. Now I have 2 BTC left which is still better in comparison to 2012. I want to believe that if my financial position allowed me, then in 2012 I would have invested in a bigger quantity of Bitcoins for a long-term and wouldn’t begin to sell them so hastily. But who knew? To make money, money is necessary”.
According to the co-founder of BK Capital Management and the author of the book “Bitcoin Boom — How Alternative Currencies Will Change the World” Brian Kelly to remain in plus, it is necessary to follow three simple rules:
- It is worth beginning with small — cryptocurrencies still are a rather new technology, and the market is extremely volatile, the optimum amount of investments has to be from 1% to 5%.
- Not to sell too quickly — even if investments have grown by 20% or 30%.
- Not to panic — cryptocurrencies are extremely unstable, and their course can change from 20% to 50% in one day.
Are engaged in marginal trade
Marginal trade — one of the most profitable, but at the same time and the riskiest strategy for crypto traders. This strategy is suitable only for skilled players who are ready to suffer big financial losses.
At marginal trade, the crypto traders take from the broker, played by the exchange, providing the pledged sum — a margin. At the same time for use of the credit, percent are raised. Thus, the crypto traders can invest in cryptocurrency for the sum exceeding balance.
There are two main options of a marginal trade: it is a long position, or the bull speculation when the trader puts on the fact that crypto-asset will grow in price and a short position, or bear speculations when the bet goes on the fact that the price for cryptocurrency will fall. However, if the price of the crypto-asset seriously goes down at a trade for an increase, then when it reaches a critical point, the trader can lose all the deposit because of a marginal call — compulsory closing with the broker of the transaction if the trader hasn’t deposited additional resources to the account. If borrowed funds are under the threat, then the exchange has the right to subtract a loss from a deposit of the marginal account of the trader.
There are cases when traders who face serious losses for the first time decide to raise rates and to win back the positions instead of accepting losses. What often leads to even big losses.