For every person who has made lots of money through crypto, there are several people who have lost money. This is one of the reasons why so many people remain hesitant to dip their toes into investing.
In this article, we’ll cover three of the top reasons why people lose money with crypto in 2021 – and what you can do to reduce your chances of making the same mistakes.
- They jumped on trends too late
It’s difficult to tell which currencies are going to increase in value, and which are going to decrease. One strategy that many beginners take is to watch which currencies are increasing in value, and invest in them. But there’s one big problem with this: by the time they make the decision to invest, it is often too late. The price of the coin crashes back down again, and they panic and sell.
A great example of this in action was when Elon Musk tweeted in support of Dogecoin multiple times last year. In December, he even suggested that he would soon accept DOGE for Tesla merchandise payments. Naturally, the price of DOGE skyrocketed after each of these announcements. Many people poured significant amounts of money into DOGE following this, hoping that the price would remain high. But it soon crashed back down, and many people lost their investment.
- They got caught up in cryptocurrency scams
As cryptocurrency continues to gain traction and become more popular, it is only natural that the number of scams associated with it are on the rise too. And they have been growing rapidly.
Between October 2020 and March 2021, over 7,000 people reported losses of over $80 million on scams. The reported median loss for these scams was $1,900. Compared to the year before, this is about 1,000% more in reported losses, and twelve times the number of reports.
In 2021, the rise of decentralized finance (DeFi) had a large role to play in the rise of crypto scams. Losses from crypto-replated crime were up by 79% from 2020, and a record $14 billion in cryptocurrency was taken, according to a report from Chainalysis.
- They think that crypto is a get rich quick scheme
Crypto is well known for having huge ups and downs – and many people get caught up in trying desperately to cash in the highs to make some quick money.
This is hardly surprising – cryptocurrencies fluctuate in price much more rapidly than traditional stocks, and we’ve been fed countless stories about people who became crypto millionaires overnight. These stories can seed an unfounded sense of confidence in investors, and cause them to dump large sums of money that they can’t afford to lose into coins they don’t understand.
But no matter how much experience you have, making money in crypto is still largely about luck. Nobody really knows what will happen long-term, and markets can change rapidly.
What can we learn from this, and how can I reduce my chances of losing money?
As DeFi continues to gain traction, there is no doubt that we will see even more people losing money in 2022 than in 2021.
To mitigate some of these risks – many of which cannot easily be managed by single investors – we are witnessing the rise of DeFi asset management platforms, such as HyperDex, that are making it easier for investors to capture the value generated by DeFi.
The HyperDex platform essentially decentralizes and automates the process of investing by providing a passive strategy for investors who do not have the time, knowledge, or experience to take advantage of DeFi opportunities.
This vastly reduces the chances of investors losing money through one of the methods outlined above, and enables virtually anyone who owns crypto assets to effectively invest in DeFi, regardless of their level of DeFi knowledge.
