6 January 2025
Investing in crypto may seem easy in theory, but the reality is much more complicated and there are so-called crypto traps. In a recent video on his YouTube channel, Lark Davis outlines five major traps that often trap crypto investors, especially beginners. Here's the review.
5 Deadly Traps in the Crypto World You Should Avoid
1. Big Trading at the Beginning
One of the biggest mistakes new investors make is jumping into big trades without any experience.
“You hear about someone who’s successful as a day trader and think you can quit your day job. But then, you lose all your money in one bad trade,” Davis said.
He suggests that beginners use a demo account or make small trades with $20, not their entire savings.
It is important to learn about risk and manage emotions while trading. This way, you can analyze trades without much stress.
2. Following the Flow (Herd Mentality)
Herd mentality is often a dangerous trap. Major media outlets usually only report on crypto prices after they have spiked or fallen drastically.
According to Davis, this often leads new investors to buy high or sell low.
“When the market is up, people are optimistic. But when the market goes down, everyone panics and thinks it’s the end of the crypto world,” Davis said.
To avoid these pitfalls, it is important to understand market cycles and build a solid investment plan.
3. Lack of Security
Lack of attention to security is one of the main reasons for losses in the crypto world. In traditional banking systems, governments often protect customer funds.
However, in crypto, losing access to your wallet means losing your funds forever.
“Self-custody is an important skill to learn. Use a hardware wallet to store your long-term assets,” Davis said.
He also warned that digital wallets such as apps or browser extensions are more vulnerable to hacking.
4. Not Having Risk Management
Risk management is an important aspect that new investors often overlook. Many invest based on random recommendations from the internet without doing any in-depth research.
Davis emphasizes that professionals typically only allocate 1-2 percent of their portfolio to a single trade.
“Don’t just throw money into the market and hope. You need a strategy, invalidation points, and a plan to take profits,” Davis said.
Risk management also includes diversifying the portfolio and not relying too much on one asset.
5. Investing More Than You Can Afford
One classic pitfall is investing more than you can afford to lose. Many people allocate the majority of their assets to a single coin or token without thinking about the risks.
“If your portfolio is keeping you up at night, you’re taking on too much risk,” Davis added.
Uncontrolled investing not only affects finances, but also mental health, relationships and quality of life.
“Investing should enhance your quality of life, not destroy it,” he said. [TR]