Top Cryptocurrency Myths Believed by the Majority

The expanding use of crypto-assets and the multiple-fold price increases that cryptocurrencies have demonstrated over just a few years have understandably sparked interest among investors and traders. The crypto market has seen a surge in new participants driven by the desire to earn quickly and significantly. However, success is far from guaranteed for everyone. Moreover, many traders who initially profit eventually lose both their earnings and their initial capital. So, what makes cryptocurrency investments risky, and what myths prevent people from earning in this market?

Myths Hinder Success in the Cryptocurrency Market

Cryptocurrencies are quite specific assets, fundamentally different from all others available for trading in financial markets. Moreover, the majority of market participants, even professional traders and investors, still don’t fully understand how they work. This lack of understanding has led to many myths, some of which are widely known.

Cryptocurrencies Are Fully Decentralized, Anonymous, and Secure

On any crypto-related website, you can read about the advantages of blockchain and cryptocurrencies based on it, such as full decentralization, anonymity, and, as a result, total security.

In reality, things are somewhat different:

• The blockchain concept implies that all nodes participate in network governance, making centralized control impossible. However, this claim has significant counterarguments. For example, no blockchain network, even the exemplary Bitcoin network, is immune to a successful “51% attack.” This means that anyone controlling 51% of the network’s computing power can influence the entire network’s operations, including transaction validation or even editing the records in existing blocks (hard forks). The same goes for networks using staking — controlling a critical number of full nodes or supernodes could allow manipulation of the network. Therefore, the idea of full decentralization is premature; existing regulators still have the power to control any of these networks.
• Anonymity is also questionable. Yes, blockchain doesn’t publish personal data, and all transactions are carried out using a wallet identifier — a digital code generated through cryptographic algorithms. However, if one identifier is used repeatedly, it’s relatively easy to track its activity, especially since blockchain networks do not hide this information. Associating this activity with a real person is more complicated but doable. Sharing wallet identifiers on social networks, using online wallets hosted by specialized services or crypto exchanges, and making crypto transactions on exchanges and online stores that accept digital assets all provide information that can reveal the wallet owner’s personal details.
• Of course, as long as you don’t share your private keys or seed phrases with others, you can’t lose control over your wallet or its contents. However, this only applies to non-custodial wallets (where no one else has access to the private keys) and only if users strictly follow all security protocols. Another key factor is that any transaction signed with a user’s private key and recorded on the blockchain cannot be reversed. This is true, but it also means that a hacker’s transaction, if they gain access to the user’s private key, also cannot be undone.

At first glance, it might seem unclear how the lack of guaranteed decentralization, anonymity, and security can hinder market earnings. The problem is that many newcomers who blindly believe this myth forget to diversify their capital and invest all their money into crypto assets. If the myth proves false, such as in cases of wallet hacks on crypto exchanges, they risk losing everything.

Cryptocurrencies Are a Worthy Alternative and, Soon, a Replacement for Banks and Fiat Currencies

This myth gained immense popularity during the rapid rise of cryptocurrency prices. However, it bears no resemblance to reality. No country will ever allow its official currency to be fully replaced by crypto-assets of unknown origin. Otherwise, its financial system, which is one of the primary pillars of any state’s existence, would collapse.

It’s more likely that the opposite will happen: governments will either try to bring crypto under control or outright ban it. For example, China has already taken the latter approach. Should the U.S. or other major economies follow suit, we could see the crypto market crash to near-zero levels.

Therefore, those investing in crypto with the hope that it will replace traditional financial institutions risk losing everything. The financial system might adapt (e.g., through the issuance of central bank digital currencies), but it will continue to exist and will consistently exert pressure on the crypto market.

Cryptocurrencies Are Not Affected by the Economic Situation

This perspective has merit, as the issuance of crypto-assets, at first glance, indeed seems disconnected from production growth, GDP dynamics, inflation, and other macroeconomic indicators both domestically and globally.

However, this fact alone won’t help in making profits. The only way to earn from cryptocurrencies is through price increases. When these assets were only of interest to a specific group of enthusiasts, their price movements were somewhat independent of the broader financial markets. But today, digital assets have become investment vehicles, and large amounts of money have entered the market. The behavior of the market is now significantly influenced by major investors who invest not randomly but according to strategies based on the same principles used in traditional financial markets.

As a result, the crypto market today reacts sharply to the same events as other markets. For example, the record rise in interest rates in the U.S. since mid-2022 has led to cryptocurrencies dropping to record lows, and the correlation between the crypto and stock markets has significantly increased.

The Crypto Market Is Unpredictable Due to the Actions of “Whales”

It’s commonly believed that cryptocurrency prices are dictated by large players, or “whales.” Yes, they can provoke major price movements to suit their interests. However, to claim that making money in such a market is impossible is incorrect.

Overall, it is no different from any financial market, where movements are also largely the result of actions by major market participants, such as institutional investors and market makers. However, fundamental and technical analysis methods do work here, and well-developed strategies and trading systems can yield consistent profits.

The same applies to the cryptocurrency market. Technical analysis indicators allow traders to study the asset’s historical behavior and forecast it with a certain degree of accuracy. This means that effective trading systems and profitable strategies can be developed in this space as well. The only condition for making a profit, as with other markets, is maintaining trading discipline. Strict adherence to signals, meticulous application of capital management and risk management rules will also bring positive financial results in the cryptocurrency market.

The Crypto Market Is So Volatile That the Likelihood of Losing Everything Is Close to 100%

Indeed, the volatility of crypto-assets is high. Since volatility is also a measure of risk, the level of risk for market participants is equally high. However, the near-100% likelihood of losing everything is nothing more than a myth. Investments in stocks or currency trading on traditional financial markets are also high-risk, yet many investors find success.

To succeed, you need just a few key things:

• The right choice of strategies. For example, the “buy and hold” strategy may not yield desired results in the crypto market due to high volatility. However, nothing prevents traders from using other strategies that generate profits in both rising and falling markets.
• Proper use of risk mitigation methods. Diversification and hedging work just as well with cryptocurrencies as they do with stocks or commodities.
• Strict adherence to trading system rules, particularly regarding capital and risk management. Yes, there will inevitably be trades that close at a loss. But in a sound trading system, those losses will be offset by profits from successful trades, resulting in an overall positive financial outcome.

In conclusion, many myths circulating among participants in the cryptocurrency market can indeed hinder success. To achieve positive financial results, it’s important not to adopt these myths as part of your market perspective. Instead, it’s much better to approach the market like any other: develop an effective strategy and trading system, and stick to their rules throughout your trades.