If I had known in 2020 what mistakes to avoid in the crypto market, I would probably be a millionaire by now. Learning on my own, I first made money and then lost a lot. Here are the 5 most important lessons I paid for with my own cash.

Usually, the less someone knows about a chosen topic, the more adamant their views are. A priest tells how to raise children, an overweight person advertises a miracle diet, an actress discusses immigration policy. Scientists even have a separate term for it: the Dunning-Kruger effect.

A similar phenomenon exists in the cryptocurrency market. New investors think that old rules should be thrown out the window. That since Bitcoin has grown by hundreds of thousands of percent over the years and continues to rise, it’s impossible to lose on it. Let alone on altcoins, which grow even faster!

In hindsight, I know it's not true. Below, I give you 5 lessons for free, understanding which cost me thousands of dollars and a small apartment in Poznań. ;)

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👑 Bitcoin really is the king

When I started getting interested in crypto around the end of 2020, Bitcoin seemed like a harmless old man. Sure, it rose from fractions of a cent to thousands of dollars, thus providing great profits for early investors. Covid hurt it, but the halving in May 2020 again boosted its attractiveness. Well, but it's still a retiree.

Altcoins - that's what matters! Best are the smallest ones, with a market cap of a few million dollars. If they do what $BTC

Well, everything worked until it didn't. After two years, half of my small altcoins lost 80%. With DeFi protocols, it went even worse - the vast majority of those promising fantastic profits simply collapsed. Meanwhile, Bitcoin has never been cheaper than in 2020.

🔄 The cycle rules everything

This advice complements the previous one. It doesn't matter how good your coin is. It can be the king of the market like BTC, it can grow at a fantastic rate, it can be bought in tons by Elon Musk. When the bear market starts, none of that matters. Regardless of the prospects - it will fall, and it will fall hard.

During the previous bull market, I spotted a few sure bets. Coins that were supposed to secure my retirement. I didn’t sell them when they started to fall, nor when the bear market was already raging, nor when they dropped by 80%. I was a true hodler, I had diamond hands.

These are good coins and they bounced back along with others in 2023. I didn’t incur significant losses. Nevertheless, the idea of holding them in a wallet when everything is dropping was idiotic. If I had sold them at the end of 2021 and repurchased a year later, I would have five times as many as I have today.

💥 Leverage crushes the overly bold

We know it from movies and stories of old-timers. Bitcoin is on the edge, about to crash down. We bet on a short with x100 leverage. In a few days, $BTC

Unfortunately, it’s not that simple. Leverage multiplies both profits and losses. If we have such a short position, and BTC first rises by 3% and then falls by 20% - we are cooked. We no longer have a short position; it was closed after the increase. A similar situation applies to leveraged longs, which can be closed on a temporary pullback before the price moves up.

Conclusion - don't touch leverage until you learn to play well in the spot market. And even then, be careful with the size of the leverage. I know risk-takers who play even 1:125, but for me personally, 1:10 is the maximum.

🤑 Greed doesn't pay

We don't even have to play with futures to end up in our socks. We can also incur significant losses in the spot market if we have unrealistic expectations.

I felt it firsthand during the bull market of 2020-21. It was an amazing time - practically every coin rose by 50, 100, 200, 500 percent! It was enough to wait two months to multiply the initial investment several times.

Unfortunately, such a streak lasting several months dulls vigilance. Instead of slowly reducing the position, we have completely distorted expectations. Even reasonable people start to believe that making 10 zł from every złoty is just a matter of time.

The remedy is to create an investment plan and stick to it. Counting on a x10 increase, let's leave at most 10-20% of coins in the wallet, systematically selling the rest. And of course, it’s worth having an emergency exit if the coin behaves differently than we thought.

🏦 An exchange is not a bank

A beginner's mistake that I made myself. What? Holding funds on an exchange longer than necessary for buying or selling cryptocurrency. Especially if it’s smaller exchanges, say outside the Top 10.

By transferring our funds to the exchange, we lose control over them. Their withdrawal is now dependent on its goodwill. Generally, there is no problem with this, but the situation can change rapidly if it gets into trouble.

Although exchanges are becoming better secured, a hacking attack is always possible. In the case of small exchanges, it can have catastrophic consequences; while Bybit or Binance will likely survive it and might even refund losses, smaller exchanges can lose control over the situation.

I write this as a former client of two such exchanges, Bilaxy and Hotbit. One froze more than 50% of my assets forever, the other prevented exchanges and imposed a $50 withdrawal fee for each asset separately.

🎯 Summary

Of course, this is not a complete list of my mistakes. Succumbing to FOMO, ignoring opportunities, lack of diversification, keeping 100% of funds in hot wallets… The crypto market allows for substantial profits, but it is a real trap for the careless.

💡 Remember: The most expensive lessons in the crypto market are paid for with your own cash! 💰

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