Strategies, Tips, and Pitfalls to Avoid

General

Don’t go all in on crypto

Consider other investment asset classes (stocks, funds, robo-advisors, fixed deposits, CPF top-ups etc) as well.

Account Opening

Create a new email account dedicated for crypto investment use

Not sure which platform sold or leaked my email address, but my primary email now receives crypto scam and phishing emails on a daily basis. If you have not yet started your crypto journey, I recommended creating a new email address dedicated for crypto investment use.

Spread out assets across multiple exchanges

Spreading assets across more than one exchange helps mitigate losses during hacking incidents. Moreover, as each individual crypto exchange has its own strengths and weaknesses, actively using more than one exchange may help to optimize investments.

DeFI

Don’t get carried away with promises of high APR/APY

In liquidity mining or farming, many new projects promise sky high APR/APY rates, probably in the thousands (e.g. 2000% APY). If you look at the projected earnings, simply putting $1000 might turn you into a millionaire within a year.

For newbies (yours truly 😔) to liquidity mining, it is easy to get carried away by FOMO and greed, and dump in funds immediately. However, these high reward rates tend to reduce very quickly once funds start to flood in.

In liquidity mining, rewards are typically paid in the DeFi platform’s native token. Projects that can boast such high APR/APY payout rates would have an extremely high emission (minting) rate, which devalues the tokens so quickly that even with a high APR/APY rate, investors struggle to break even or might even be making losses.

If you are liquidity mining with other crypto pairs and the reward token crashes, you would just be suffering loss of opportunity costs; but if you are liquidity mining with the reward token itself and it crashes, you might suffer considerable losses.

Another issue with rushing into new DeFi projects is that the new platform’s reward token might not have found it’s market price yet; if the reward token’s value crashes, even the high APR/APY rate wouldn’t be able to make up the losses.

Use yield aggregators

To receive liquidity mining rewards, one typically needs to harvest them periodically which would incur network costs. For small timers, these network costs might eat into a considerable portion of the rewards, so it might make more sense to use yield aggregators (e.g. Beefy Finance) which harvest on your behalf for a small fee.

Due Diligence

Research into a project before committing to an investment

Do not blindly follow the advice of celebrities or social media influencers, and do proper research before committing to an investment into a project.

Case study:

• Various celebrities including Kim Kardashian, Floyd Mayweather and former NBA All-Star Paul Pierce sued by investors for misleading statements over alleged crypto scam involving cryptocurrency EthereumMax (EMAX) [Jan 2022].

Basic checklist includes:

• White paper
  • what makes this project unique?
• Developer team
  • experience level
  • past successful projects?
  • do they accept constructive criticism and improve the project from the feedback?
• Community activities
• Project vision
• Social media
  • check forums for opinions of others
• Tokenomics

Funding

Avoid crypto related terms when entering descriptions in bank transactions

Banks are wary of their customers making investments in cryptocurrencies.

As a precaution, investors should never explicitly use the word “Bitcoin” or other cryptocurrency related terms, in any transaction description entered on a deposit made from their bank, as this is likely to draw unwanted attention and may result in unexpected bank account closures.

Avoid credit cards to fund accounts. Use multi-currency debit cards instead

I have been stung by cash advance charges by the bank when funding my account or buying crypto assets with credit cards.

You can avoid these cash advance charges by using certain multi-currency debit cards. Some products available in Singapore:

• BigPay
• Revolut
• Singlife
• Wise

There might still be other transaction charges involved, so it is best to avoid using cards altogether if other funding options are available.

Have some flexible funds

If using stablecoins to earn interest, keep some under a flexible scheme (lower interest) rather than a locked scheme (higher interest) in case the funds are needed urgently.

Perform a test transfer when depositing to a wallet address for the first time

When transferring assets to a wallet address for the first time, one might consider making a small value transfer to confirm that the wallet address was entered correctly, and the assets are successfully received. The transfer fees for the test transaction might save you from huge losses.

Transactions

Use a burner wallet for high risk activities

Whenever you mint, transfer or swap assets with your wallet, the wallet is exposed to a smart contract in the backend. If you get scammed by a phishing link, a rug pull or a poison smart contract, you can mitigate losses if you had used a burner wallet.