The cryptocurrency markets are volatile and have exploded in popularity in recent years – Bitcoin has become the best performing asset of the last decade. However as a relatively new technology, cryptocurrencies – particularly altcoins – come with both large upside potential and significant downside risk.
It’s important to invest responsibly and not develop bad trading habits.
What Is Responsible Investing?
The cryptocurrency community often gives this general advice to beginning traders and investors:
Only invest what you can afford to lose
Historical bear markets have seen prices downtrend by as much as 80% for Bitcoin and 95% or more for altcoins. For example the drop in the Bitcoin price from $20,000 to a bottom of $3,000.
If you’d only invested a sum that you were prepared to lose – i.e. wouldn’t need to withdraw for living expenses – you would’ve been able to wait until the next bull market top of $65,000 some years later.
Do your own research (DYOR)
This common mantra refers to not believing one source of information, whether it one Twitter user, Reddit or Youtube comment about a certain coin being about to ‘moon’ or pump.
Consult a number of sources, look into the coin’s whitepaper, roadmap, marketcap and compare it to similar projects in the cryptocurrency space.
Dollar cost average (DCA)
Average in to a position by dividing your trade up into several parts to enter at different price points. Whether that’s by setting several limit order, or buying a certain amount of Bitcoin each week or month.
A simple DCA strategy over the last few years would have outperformed 90% of traders. It also ensures you don’t buy the top.
Avoid leverage
Beginner traders should first see if they’re profitable just spot trading – buying and selling without leverage (or using a 1x short to avoid paying fees). Most exchanges warn that 60 – 70% of retail investors lose money when attempting to leverage trade.
Once you’ve gained trading experience, there can be situations where 2 – 3x leverage can be worthwhile, but certainly avoid 50x – 100x leverage unless you’re trading professionally, as price just moving 1-2% against you will be enough to liquidate your position.
Don’t go all-in on one coin
Preserve your capital and keep some funds in reserve in cash so that you can take advantage of Black Swan events and buy the dip – for example during the covid crash prices dumped 60% then pumped in the following weeks up to all-time highs.
Diversifying your portfolio somewhat allows you to not get married to one coin and ‘hodl’ it all the way to zero. Some altcoins have ended up as failed projects, rendered obsolete by other coins, and been left behind while the rest of the market rallied.
Don’t Send Money to Strangers
There are many scams online where a person will claim to offer a service where they trade for you, if you send them crypto funds, and they’ll later send you back a larger sum. Usually these are scams – learn to trade yourself or simply hold Bitcoin for the long-term.
Alternatively they impersonate a famous person (e.g. Elon Musk), or claim to be running a bonus promotion for a free airdrop of tokens. They’ll be in the replies under the original Tweet hoping you don’t see they’re imposters. Don’t send funds to bot accounts.
Cryptocurrency transactions can’t be reversed or claimed back in the same way as if your bank account is hacked. Also don’t send cryptocurrencies to the wrong address type, e.g. sending BCH to a BTC address will result in permanent loss of your coins.
How to Spot Bad Trading Habits
Some common signs of developing compulsive behaviour as a trader are:
- Revenge trading
- Increasing leverage to add to a losing position
- Not setting a stoploss
- Staring at low-timeframe (1 minute, 5 minute) charts
- Trading with money needed for rent, living costs
- Not being able to sleep
You should be able to set and forget trades, walk away from the screen and set up email alerts via sites like Tradingview for when the price has reached either your take profit or stoploss.
If instead you’re constantly refreshing your tab or staring at the chart and your PnL because you’re all-in or on high leverage, you’re no longer investing responsibly.
“We want to remind customers of some of the risks associated with trading. Digital currencies are volatile and the prices can go up and down.” – Coinbase CEO Brian Armstrong
What to Do if You Have a Trading Addiction
If two or more of the above list apply to you, you may be becoming addicted to the inherent risk and short-term price fluctuations in cryptocurrency.
Self Exclusion
Many exchanges offer self-exclusion features that allow users to lock themselves out of their accounts for a certain amount of time to cool off, or to restrict the position size or leverage to a maximum amount they decide on.
It can also help to use set up wallets on several exchanges and split your trading funds up across them, to prevent yourself from risking everything at once. Some exchanges don’t allow traders to use more than 5x leverage, if any.
Network with other Traders
Many traders benefit from following experienced professionals in e.g. Discord communities or in Telegram chat groups, taking inspiration from their advice. Here is one such trader on Twitter that we profiled on InsideBitcoins. He offers sage advice and emphasises that leverage is not necessary to be profitable.
Making friends with other traders in the same social networks can then also help with feelings of isolation and accountability.
Take Profit
Remember to frequently pay yourself as a reward and positive reinforcement for trades and investments that went well. Spend time with friends and family and use the funds to pay off debts or make large essential purchases such as buying property, a car or taking a vacation.
People with addictions don’t tend to want to stop, and don’t enjoy or appreciate winning trades. If you recognise this in yourself consider taking an extended break and pursuing other hobbies and life skills such as weightlifting.
What Is Responsible Gambling?
InsideBitcoins also features Bitcoin casinos and Bitcoin poker sites in its reviews of online platforms.
Bitcoin Casinos
It’s important to note that casino games such as Craps, Roulette, Slots etc. have a small negative expectation and should be viewed as a form of entertainment rather than investment or a source of income.
Online casino sites typically do not make it possible to ‘count cards’ in Blackjack with the way the shuffle is set up, and even playing with perfect basic strategy the house still has a small edge.
Bitcoin Poker Sites
Poker is a skill game played against human opponents however most players still lose due to the rake – the fee poker sites take from each winning pot in a cash game or part of the buy-in when you enter a tournament.
Games like No Limit Texas Hold’em and Pot Limit Omaha also have high statistical variance – a profitable player can still experience downswings for months at a time.
The usual advice is to only play at stakes where you have experience – beginners can play at microstakes tables with blinds of only $0.01 / $0.02 – and have twenty buy-ins in reserve to practice self discipline and bankroll management.
How to Know if you Have a Gambling Problem
Some common signs of a gambling addiction at online casinos or poker sites are:
- Moving up in stakes to recover losses (similar to revenge trading)
- Moving all-in every hand or increasing bet sizes
- Making negative EV (expected value) plays
- Use of credit cards to deposit
If you notice these patterns or experience anxiety and stress over what should be a recreational activity, consider lowering your exposure to risk.
Where to Seek Help
For professional and confidential help and support contact BeGambleAware.org on their freephone 24-7 national gambling helpline or live chat feature.
Their staff can offer advice with regard to any form of gambling whether it be related to trading, casino or poker gaming, or otherwise.
