Henry Chueh's top nine tips for those keen to invest in cryptocurrencies

By Henry Chueh*

The cryptocurrency market is like the Wild West. As an investor, you can lose money quickly if you’re ill-prepared or don’t understand what you’re doing.

Here are nine pieces of advice to consider if you’re thinking about entering the market:

1. Never invest more than you’re willing to lose

This is arguably the most important rule of thumb. While your natural tenancy may be to chase high returns, investing more than you can afford to lose is irresponsible.

It can cause your life to start revolving around the performance of your portfolio, which isn’t healthy.

Tip: Ask yourself, “Am I comfortable losing X amount won’t affect my life?”

2. Understand blockchain fundamentals

Putting in the time to understand blockchain technology will always be an advantage when it comes to selecting which cryptocurrencies to invest in. It will mean you’ll stay patient during the volatile times because you believe in the technology and the vision of the coin.

Tip: Watch YouTube videos on what blockchain is. Learn some fundamental blockchain terminology; the different types of consensus algorithms, benefits of blockchain and use cases in different industries. Here’s an article about blockchain and cryptocurrencies for beginners.

3. Research coins and tokens

What problems are they trying to solve?

Is blockchain really necessary to solve these problems?

Who’s behind the project? Are they competent?

Does their whitepaper make sense?

Is a there a community behind the project?

Asking these questions will help you weigh up the value of the coin.

Tip: Write a checklist of what attributes you think a cryptocurrency should have and set standard thresholds. This should give you an indication of whether a particular coin is worth investing in or not.

4. Never have FOMO

Never succumb to the “fear of missing out” mentality. During November and December last year, a number of people invested in cryptocurrencies because of their massive returns. The majority of these investors are now losing money.

Do not blindly listen to people, whether they are friends, YouTubers or famous tweeters. Chances are they have their own agenda which does not align with your interests. So, always do your own research.

Tip: Follow Tip #3

5. Security, security and… security!

*Ledger Nano S: One of the cold wallets to store cryptocurrencies

Before investing in a coin, know what kinds of digital wallets they are compatible with. Well-known cryptocurrencies are generally compatible with cold wallets such as a Ledger Nano S or Trezor.

Cold wallets are one of the most secure places to store private keys. This article explains the different types of digital wallets.  

Wallets will generally come with a seeded passphrase. Whoever has access to this will have access to the wallet. Keep the passphrase safe. 

Always make sure 2FA (Two Factor Authentication) is enabled when trading on cryptocurrency exchanges. Avoid storing cryptocurrencies on exchanges as these have been hacked on too many occasions.

Tip: Buy a cold wallet, keep your passphrases safe and enable 2FA.

6. Never attempt to day trade

Never try to time the market (buy low, sell high) because the market is unpredictable.

Follow rule #2 and #3. Buy a cryptocurrency and hold. Holding reduces emotional investing and is more convenient when it comes to calculating how much tax you have to pay. Yes, cryptocurrency investors need to pay tax. Read more about this here.

Tip: Buy and hold!

7. There are always opportunities in the future and remember to realise some of your gains

Unlike the stock market, the cryptocurrency market is open 24/7/365. There is always an opportunity in the future. Do not make any hasty or decisions you might end up regretting.

Good traders will always remember to realise some profits when gains are made. Remember, this is not a race, but a marathon. Managing the risk of your portfolio is key.

Tip: Be patient.

8. Beware of pump and dumps, scams and ICOs

There will be cryptocurrencies promising guaranteed returns. This is not possible.

There will be pump and dump groups; groups encouraging investors to buy cryptocurrencies in order to inflate the price artificially, only to sell their own shares when the price is high. Avoid these schemes.

I would avoid ICOs (initial coin offerings) as well. Many ICOs, with flimsy white paper, aim to be the next “big” coin. The white paper will contain a lot of jargon and when money is collected from investors, the team behind it will disappear.

Otherwise, early investors will likely get bonuses in excess of 50% and will dump the coins when they reach market. Remember, most ICOs will inevitably fail.

Tip: Be vigilant. If it sounds too good to be true, it probably is.

9. Include detailed instructions on accessing your cryptocurrencies in your will

Last month, the 54-year-old crypto billionaire, Matthew Mellon, died suddenly with over $500 million worth of Ripple. His family is now having trouble accessing the private keys to his wallet.

Tip: Make sure your loved ones can access your coins in the event of you passing away.


*Henry Chueh is a cryptocurrency analyst who advises firms on ICOs. He has seven years' experience working in the financial services industry. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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11 Comments

10. Ignore the FUD peddlers.

Reading about Mathew Mellon on Wikipedia sure makes you realise that money doesn't bring respite from your inner demons.

He must have been on some good drugs when he bought in to the scam coin of ripple. poor dude.

https://www.theguardian.com/technology/2018/jan/17/bitcoin-electricity-u...

It's good that someone is challenging the banks, and good that this might result in the end of interest-charging - because the charging of interest has to cease of growth is to stopped. (And it is better we stop it in a controlled manner than hitting the wall and collapsing).

But betting on an increase in personal spending-power (in personal ability to out-bid others for a dwindling supply of planetary parts) is collectively doomed to fail Nothing is being created here....

More FUD...

The power used secures a p2p international payment platform. More useful than cruise ships, online gaming, world cup football and the thousands of other foibles of humans.

10 Beware of exchanges. The first big bitcoin crash was caused by the dishonest exchange MTGOX. Consider any contact with an exchange as something you should keep to a minimum, or indeed if you are a true believer in cryptos then never use an exchange and just use cyrptos as a currency.

Most exchanges have security that is incompetent at best so you can have personal details, bank account information, etc stolen. Also many exchanges have been robbed of large amounts of cryptos so don't leave the cryptos or your money in the exchange.

I cant find Henry on https://fsp-register.companiesoffice.govt.nz/

https://fma.govt.nz/compliance/cryptocurrencies/cryptocurrency-services/

"Cryptocurrencies are digital tokens available online via exchanges, initial coin offers (ICOs), and token events. If you provide a ‘financial service’ related to cryptocurrencies, you need to comply with the ‘fair dealing’ requirements in the Financial Markets Conduct Act 2013 (FMC Act)."

Is he breaking the FMA regulation advising on ICO's?

Still needs to be accepted by main stream public and institutions. We are at the infancy stage of this " commodity" and in my opinion this is a commodity. Mining costs are around 5500-6000 USD so if you see these levels I would dabble. Historically when it reaches these levels it rallies 2x book. Better to invest in a Bitcoin Investment trust GBTC rather then in the coins . Much less expensive and will let your ride the waive if Bitcoin and other coins rally without risking lots of money. Look...invest slowly and if you see gains, I would sell. Calls are anywhere between 20-25000 for the end of the year far outweighing any gains in equity predictions these year. It's a gamble but some intelligent astute investors are saying they would nibble here.....GOOD LUCK! Full disclosure I do not own any but will most likely get in soon if it retraces it lows.

The real no. 10: Everything outside Bitcoin is a scam or was made with good intentions but will fail.
Be careful out there - this bear market is far from over.

I still don’t get it. Why would anyone think crypto is a good investment? A good gamble maybe. The whole thing is based on sentiment, the currencies aren’t actually useful to trade with or even reliably hold value.

"The whole thing is based on sentiment, the currencies aren’t actually useful to trade with or even reliably hold value"

All monies are based on sentiment, why do you think the NZD fluctuates on a daily basis? Why are they not usefull to trade with? There are thousands of payments daily used for trade. How do you quantify 'reliably" hold value. Fiat loses value every day due to inflation...