The crypto sector can be an unforgiving place, especially for newcomers. At first glance, the crypto market may seem similar to the stock market. But once you dig a bit deeper, stark differences appear.
One of the most significant differences is the need for personal accountability and the lack of a safety net. In the stock market, you only need to open a brokerage account, fund it and start buying stocks. The custody of the stocks you purchase is left up to the stockbroker. This action can be taken worry-free as the Securities Investor Protection Corporation (SIPC) covers investments in brokerage accounts.
In contrast, although some crypto exchanges carry some form of insurance, others do not. It is up to each investor to vet each exchange for coverage and to determine if the risk of leaving assets on the exchange is tolerable.
Ultimately, the safest action is not storing any meaningful amount of crypto on exchanges. But then this brings up even more need for not only personal responsibility but also for education. Keep reading for more details in the sections below.
The Lesson of Self-Custody — Not Your Keys, Not Your Crypto!
Unfortunately, far too many people enter crypto blindly and try to learn as they go. The hurry to jump right in most likely occurs mainly during bull markets when retail investors are drawn in by skyrocketing prices. This lack of patience exposes many of these investors to unnecessary risks.
A lack of crypto knowledge or a familiarity with buying regular stocks can cause crypto trades to store too much crypto on exchanges. Unknowingly, these investors are exposing themselves to the risk of losing some or all of their crypto. This situation can happen from a hack or a complete failure of the exchange. History has shown us this can also occur with crypto loan platforms.
High Profile Crypto Failures
The following is a list of high-profile cryptocurrency exchange and platform failures that cost investors dearly.
Exchange Failures:
| Exchange | Date | Cause |
| Mt. Gox | 2/07/14 | Hacked |
| BCC Exchange (BitConnect) | 01/15/18 | Scam |
| Cryptopia | 05/15/19 | Hacked |
| CoinExchange.io | 10/15/19 | Business reasons |
| Hotbit | 09/08/20 | Scam |
| HitBTC | 05/26/21 | Scam |
| CoinBene | 02/01/22 | MIA (just disapearred) |
| FTX | 11/11/22 | Business failures, alleged fraud |
Cryptocurrency lender Failures
| Company | Date | Cause |
| Voyager Digital | 07/06/22 | Business reasons |
| Celsius Network | 07/13/22 | Business reasons |
| BlockFi | 11/28/22 | Business reasons |
It’s unfortunate that it often takes investors losing crypto to realize the importance of self-custody. Investors most likely take such risks because of a lack of crypto education or possibly a feeling that it won’t happen to them.
Personal responsibility is a significant concept in the crypto space. It is up to you and you alone to keep your crypto safe. The most important way to protect your crypto assets is through self-custody. In other words, keep your crypto in a secure wallet where you control the private keys.
Of the two main types of wallets, the first is a software wallet, which is considered a hot storage wallet because it is almost always connected to the internet. The second type is a hardware wallet, also known as a cold storage wallet. It is considered a cold storage wallet because, most of the time, it is isolated from the internet. This isolation makes it much more secure than a hot storage wallet.
Removing crypto from an exchange and storing it in a wallet places more responsibility on the investor. They must learn how to transfer their crypto correctly. Mistakes can result in the loss of their crypto. Investors who take the time to learn and embrace self-custody are far better off than investors that just store their crypto on centralized exchanges.
It is a sad reality of the crypto space that far too many investors end up losing a large part or all of their crypto. This can result from an exchange failure or a hack because they did not properly secure their crypto.
Whenever there is an exchange failure, social media is filled with posts from investors who lost everything. The unfortunate part is that most of these losses are avoidable.
Is There An Easier Way?
Yes! There is an easier way. Take the time to educate yourself before risking any of your hard-earned money. Many investor horror stories could have been avoided if they had been appropriately educated.
This education would teach them how to safely store their crypto and the importance of controlling their private keys. It would also teach them how to spot potential scams and scammers. They could learn the crypto market cycles, giving them clues to the best time to enter the market.
Proper education could also teach them how to develop a good strategy for building positions. For most investors, using a dollar-cost-averaging strategy is the safest way to build positions. Dollar-cost-averaging is when you purchase a fixed dollar amount of crypto on a set schedule.
For example, it could be $100 of Bitcoin every month or weekly, whatever fits their budget. Keeping the dollar amount fixed means that when prices are higher, you buy a smaller amount, and when prices are lower, you buy a more significant amount. Over time, this activity gives you a lower average price on the position.
Where to Find Free Crypto Education?
There is a ton of free crypto education on the internet for anyone who puts a little effort into finding it. For example, Benzinga’s “Learn About Cryptocurrency” page offers a ton of free educational content. Other sites and supposed crypto experts will charge you for education, but it’s best to only spend money on courses once you have taken advantage of the free education.
YouTube is a good source for crypto education and is loaded with so-called crypto experts. But investors need to learn which are trustworthy and which will say anything just to get likes and subscribers. It is best to get as broad a range of opinions as possible. Over time you will learn who the real experts are.
Excellent Sources of Free Crypto Education
- Benzinga.com/money/crypto
- Learn Crypto.com
- Upfolio - Bitcoin Explained
- Bitcoin for Beginners - YouTube videos
- Basic Bitcoin Facts
- Bitcoin - Frequently Asked Questions
- Jameson Lopp - Bitcoin Resources
- Bitcoin Information and Resources
- Crypto Wallet Security 101
These free resources are just a tiny sample of what is available online.
Another valuable resource that investors should take advantage of is TradingView. Everyone should learn how to properly read and analyze price charts. TradingView is one of the best online charting sites and also offers a mobile app.
How to Survive in a Crypto Bear Market
Crypto bear markets can be a brutal time for many investors. But they can also be a time for experienced investors and traders to make a lot of money. Most of the time, the difference comes down to timing, strategy, patience and education. When done right and a bit of luck, instead of just trying to survive in a crypto bear market you can thrive.
Strategy
If you just try to wing it in the crypto market, chances are you will get rekt. Investors need to develop a strategy for building their positions. How many positions will make up their portfolio? Will they just invest in Bitcoin, or will they also invest in altcoins?
What percentage will they invest in each position? How long will they hold their investments, years or just through a bull market cycle? Will they employ a dollar-cost-averaging strategy or try to time the market and buy all at once? These are just a few questions that each investor should have answered before investing.
Timing
Timing is another crucial factor to consider. When you enter the market can have a significant impact on your profitability. The ideal time to start building positions is toward the end of a bear market. However, the exception is if you plan to hold your investments for years. In this case, you can start buying at any time using dollar-cost-averaging.
The worst thing investors can do is succumb to FOMO and purchase near the top. This kind of behavior seems to happen in every bull market as prices skyrocket and inexperienced investors are pulled into the market from all the hype. Investors could avoid this by educating themselves about crypto market cycles before jumping into the market.
Patience
Most people have heard the saying, “patience is a virtue,” which dates back hundreds of years. Although it might be debatable whether or not it still applies today, patience can really pay off in the crypto market. But there will also come a time when investors should act. What sets successful investors apart is knowing when to do nothing and when to take action.
Education
The importance of educating yourself before entering the crypto market can never be stressed enough. The “market tuition” you will pay by learning as you go can be costly. Educating yourself first will also substantially improve your overall crypto market experience.
Education will help you develop a good strategy and know when to enter the market and when to sit on the sidelines. Crypto bear markets can be brutally long and will even test crypto veterans. But, for educated investors, crypto bear markets are considered a time of great opportunity.
Is Trading Crypto During the Bear Market a Good Idea?
The short answer is yes for experienced traders. Trading is not easy, but if you can learn to become a disciplined trader, bear markets can be as good as bull markets for making money. You don't need to just survive in a crypto bear market, you can set yourself up perfectly for the next bull market. A good strategy, a well-thought-out trading plan, patience and keeping emotions in check are all signs of a disciplined trader.
If you can learn how to trade in the bear market, you will be a much more versatile trader. Here again, education is vital. If you try to trade without first learning how to do it properly, you will likely just end up as another casualty of the crypto bear market.
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About Donald Hancock
Donald’s expertise lies in the technical analysis of both stocks and crypto.