How not to lose all your money with crypto

Crypto is the wild west. There are stories of people who have made millions through crypto, with life changing money pouring into their crypto wallets within a matter of hours. But then there are also stories of scams, of people losing everything on a punt, of life savings disappearing.

Can you game the system? Well, there’s no guaranteeing the fate of your investment when you decide to throw a couple of quid into the crypto ring. But there are ways to minimise risk when it comes to cryptocurrencies, tokens and NFTs. Let’s get into them, shall we?

Seriously, consider less risky assets first – you know, index funds, normal stocks, or just leaving the money in your bank while the heat death of the economy happens around you. If you’ve really got cash to burn, you can even go for gold or diamonds. It’s all a little more tried, tested and stable. Yes, crypto can take you to the moon, but it probably won’t. Slow and steady, as always, is more likely to win the race.

If you really want to put your money into digital currency, then this is the most important thing to remember. Whatever you do, you need to make sure you have enough money to be able to live and not have everything go to complete shit. Say you have your budget for the month and there’s £100 left over, then maybe just invest a tenner. Absolutely do not use the whole £100, then a bit of your food money and then also a bit of your savings. The same goes for normal investments and gambling. The NHS has helplines and resources on these issues here.

Not only will this help you to avoid scams (we’ll get into that later), but understanding what a token or coin actually does means you can get a sense of whether it’s a useful thing that should exist in the world. This involves reading things called whitepapers, if you want to get technical, or you can use a trusted source that delivers impartial explainers (like yours truly). Putting your money into something you genuinely believe in is a great basis for the investment. Just like art, it’s about choosing what you like. At the very least, get the basics of crypto down.

Weird word that, tokenomics. What does it mean? It’s more research really, but in numerical terms as opposed to all the stuff about changing the world through blockchain or whatever. For example, say you’ve learned about a coin on the r/​grapevine (not really a crypto-related subreddit but you get the idea), you should then head over to somewhere like coin​mar​ket​cap​.com and crunch the numbers. Here, you want to look at things like how popular it is, but more crucially (for gains and altcoins in particular) you should also analyse the market cap – if it’s low, it has a chance to grow. Back up your general learning with these figures, as they can help to inform (and probably lower) your expectations.

Let’s use Ethereum as an example of how you could FOMO the bag. On September 11^th, Ethereum had risen from £1253 to £1460 in a couple days. You might have thought: ​“blimey, I better get some!” Two days later, when it crashed rapidly, you might have then thought: ​“blimey, I’d better sell it!” But if you’d sold it for £1315, you’d have lost £145 per ETH.

Then, in late October, you end up repeating the pattern when there’s another price rise. That’s called good old fashioned FOMO, which prompts people to panic buy and sell. This is the most common way people lose money in crypto. The aim is always to buy the dip instead, so that you get more bang for your buck.

Again, research is important here. Not all of them are trustworthy, and when one goes down (like Terra or FTX ) it’s catastrophic for the entire market. A safer bet is USDC. Whenever you make a profit, swap some of it for USDC on the exchange you’re using. A bit of profit now and then is far better than losing it all. A stablecoin, by the way, is a digital coin that is designed to reflect the value of a fiat currency. The USDC is effectively the digital and crypto version of owning dollars.

Water is wet, scams are bad. We’ve written about how to spot a crypto scam before, so click here to brush up on that. If you get scammed, it sucks and you’re unlikely to get the money back. That’s decentralisation, baby.