There are some myths floating around out there. Crypto misconceptions that are sometimes so pervasive that they tend to last for so long. Some of these myths may be obvious to you but some may have flown right under your radar and by still believing these myths you could be completely oblivious to their impacts on your portfolio.
Myth #1 - Crypto will make you rich
Let's start with perhaps one of the biggest misconception out there.
That is the thought that cryptocurrencies can make you rich. That all you need to do is find the next Bitcoin, throw a few hundred dollars and your good to go.
This is also a narrative that's commonly pushed all across the Internet from YouTube, Instagram, Twitter and TikTok. It's not only that but we also commonly hear stories abouy actual cryptocurrency millionaires.
Those who were able to get on the dogewave over a year ago and are noe sitting on a fortune.
The problem with this narrative is this. Even if the stories of crypto millionaires are all true, they are few and far between. You're much more likely to hear about the one guy who made a million than the 100 who lost their shirts.
This is down to the common logical fallacy of survivorship bias.
People don't tend to advertise their losses and they are not lionized as much. The problem with this is that it creates false expectations for those entering the space.
They are investing based on outcomes that are rare. They're more susceptible to manipulation based on these preconceived notions.
When they don't become a millionaire in a year or two, they get disheartened and abandoned their crypto journey which is sad to see.
Now, I'm not saying that you can't become a millionaire by investing crypto, it is possible and there are many that have done this.
However from most if the news flow and click bait that I see, the narrative is slanted away from the statistics. The more a coin is shield as a coin that can make you a millionaire, the more likely to do its exact opposite.
Myth #2 - Day Trading Profits
The problem with this is that daily crypto moves are incredibly hard to read. They're idiosyncratic and often don't follow predictable trends.
It's therefore much harder to read and effectively trade than if you were to focus on a weekly or monthly time frame.
Not only that but trading too often means that you're going to increase your trading fees exponentially. These can build up quite considerably and these will of course impact on your longer term profitability.
Some of the most successful crypto investors that I've known employ a more strategic buy and hold strategy.
It doesn't mean that they HODL for eternity and never sell. They just have a more disciplined discretionary approach to their investing or trading.
I personally only trade two or three times a week and there are some occasions where I don't trade for days on end. This seems to work for me and it means that I place more weight on each transaction.
I'm more deliberate about the transaction and I'm certainly not doing it on a whim.
This does not mean that profitable crypto day trader don't exist, there are a few. But they are the exception and not the rule. And when the newbie trader can't make their desired return from day trading, they tend to turn to another really dangerous activity.
Myth #3 - Leveraged Trading
There's a belief out there that in order to increase your trading returns, you have to engage with leverage. This is risky in general but even more so with cryptocurrency which is way more volatile than other assets.
Using leverage up to 100x on an asset that can fluctuate up to 20% in a day is a recipe for disaster.
However, there is a narrative out there that seems to say that leverage trading is a quick way to multiply your gains. However, the sad reality is that most retail traders end up getting absolutely wrecked by highly efficient liquidation engines.
In fact there is an evidence that retail traders who engage in high leverage are more susceptible to getting liquidated.
Thoughts
That is for now for my part 1 of my Myths in cryptocurrency. There are many of these misconceptions and myths out there that I may have to discuss soon.
However I must stress the importance of relying on multiple sources and fact checking when it comes to everything crypto related.
There is no doubt that there's a mainstream narrative of crypto that often runs up against the truth. If we were to rely solely on what we read on the news or see on social media, we'd be making decisions and coming to conclusions based on substandard information.
See you again next time! - @Charmy
