Risks Of Investing In Cryptocurrency

I’ve spent 7 years in DeFi. I’ve lost money, made money, and learned more than I ever expected. Here are 10 mistakes I’ll never make again (so you don’t have to): 1. Chasing unsustainable APYs If the yield looks too good to be true, it probably is. I’ve learned to ask where the yield is actually coming from. 2. Overexposing to a single protocol or chain Putting all your capital in one place is dangerous. Even the most hyped projects can collapse overnight. 3. Using unaudited smart contracts I once trusted a sleek interface and lost funds to a basic exploit. Audits aren’t a guarantee, but no audit is a clear warning sign. 4. Not securing my keys properly Hot wallets are convenient, but they’re not the place to store serious capital. Hardware wallets and multisigs are now non-negotiable for me. 5. Assuming stablecoins will always stay stable I used to think stables were safe by default. I learned the hard way that understanding the mechanics behind the peg is essential. 6. Ignoring governance dynamics Low voter participation and whale-controlled voting often make governance meaningless. Now I evaluate a protocol’s political health before getting involved. 7. FOMOing into tokens without understanding tokenomics I used to buy the story. Now I break down emissions, lockups, and incentive structures. Most tokens lose value unless carefully designed. 8. Staying too long in ecosystems with fading developer activity If builders are leaving, I’m already late. Developer engagement is one of the clearest signs of a healthy ecosystem. 9. Underestimating regulatory risk I used to ignore it. Now I track legal exposure and jurisdictional risks before deploying capital. 10. Believing “this time is different” Every cycle has the same emotional beats. I keep notes, revisit old mistakes, and remind myself that experience is expensive. DeFi is still in its early days. The risks are real, but the innovation is too. If you’re navigating this space, I hope these lessons help you avoid a few pitfalls. What’s one DeFi mistake you’ll never repeat?

This is the crypto chart you need to understand. The primary risk drivers in our asset class are not smart contract bugs. They aren't fraud. They aren't market manipulation. The primary driver: custody failures. And few people are taking this seriously. We see the consequences of this. Custody failure is the dominant operational loss vector. And the losses are accelerating. I have more data on this. Much more. I speak to folks in traditional finance and I feel concerned. Concerned because they think they are covering their bases. But traditional frameworks are not made to explicitly cover digital asset custody risks. Look at the custody losses from entities like Bybit. They had SOC 2 Type 2, ISO 27001. Many more examples like this. This isn't to throw stones. We're all in this together. I am pointing out the assumptions investors make when they enter this asset class regarding proper Operational Due Diligence. "But when we onboarded, we made sure they ticked the boxes - SOC 2, ISO". Not good enough. This is only creating a false sense of security. So what can you do? There are two things you can do. 1. Make sure your custody provider has undergone a comprehensive custody audit. The best one is the CCSSA, the only audit purpose built to cover the usage of private key material in the context of custody and a trading operation. CryptoCurrency Certification Consortium (C4) 2. Avoid the Prime Trust event (Prime Trust was a regulated custodian who used Fireblocks, but they did not integrate Fireblocks into their operation appropriately). You need to ensure your fiduciaries have appropriately structured a custody provider into their operation. Just because you are exposed to a "trusted provider" does not mean things are appropriately set up. If you want to dive more into this data, feel free to reach out. This is a problem I am shouting from the rooftops. Happy to talk your ear off about it, and provide my thoughts. If you're allocating to crypto, you can’t afford to assume your current ODD processes cover digital asset custody risk - they probably don’t. Don’t wait for the next headline-grabbing custody failure to take action. Let’s talk through the specifics. Reach out directly, and we can walk through the data, discuss practical solutions, and help you tighten your due diligence around custody risk. At DigOpp, we've built our business around solving precisely these challenges. Let’s address this proactively, together.

Last week was obviously tough. ETH dropped 36%, BTC fell below $50k, and the market lost ~$800B since its June highs. While it’s always our responsibility to warn about the hazards of trading, I would like to see more emphasis on the *security* risks of market swings. E.g.: A purely financial POV would say FUD / FOMO contributes to poor investment decisions. However, from a security POV, emotion is also low-hanging fruit for scammers. Look no further than crypto romance scams, a purely emotional con that impacted ~57,000 people last year and is now on the rise. A purely financial POV celebrates bull runs. From a security POV they pose unique risks. Bull runs are a breeding ground for bad projects that lack proper development and a solid use case. There are also more incidents of rug pulls. A purely financial POV views volume solely as a market indicator. From a security POV, higher volume = more opportunities for bad actors. While crypto scamming and hacking revenue fell significantly last year, this year losses more than doubled in Q2 compared to the same time in 2023, totalling over $572M in lost funds. Our industry is growing considerably more secure YoY, but we’ve by no means put a lid on the issue. It’s evident that market swings pose risks beyond what’s in the numbers–but this simple lesson sometimes gets overlooked. #securitymatters #securityfirst #cryptosecurity

The new Dept of the Treasury/Financial Crimes Enforcement Network (FinCEN) guidance on Cryptocurrency Investment Scams is excellent, like so much of what they do! 15 Red Flags are identified that should become the new standard for everything we do around protecting victims here. The language is heavily slanted towards banker-speak, but still valuable concepts. VASPs (We would call them Crypto Exchanges, but VASP is "Virtual Asset Service Providers" which was language adopted by the international anti-money laundering community's primary organization, FATF, back when we were still pretending NFTs weren't a universal scam.) These are my simplifications of the Red Flags to convince you to download and make posters of the actual red flag content in the attached report and hang them prominently about your bank. Behavioral Red Flags: 1. first time crypto user tries to initiate a high-value transfer to a VASP. 2. customer mentions significant returns from crypto investments they learned about from an online only acquaintance. 3. customer mentions being guided to a kiosk or ATM to deposit crypto to an address the individual provided 4. customer seems distressed or anxious to access funds to meet an investment opportunity deadline Financial Red Flags 5. liquidating savings prior to maturation and attempting to wire to a VASP 6. taking out a HELOC or second mortgage and sending the money to VASP 7. depositing to fiat from crypto at a slightly larger amount than previously sent to crypto. This deposit is then followed by substantially larger fiat-to-crypto movement. 8. Inactive or limited activity high balance account starts showing uncharacteristic, sudden, abnormally frequent, or significant withdrawals of funds to VASP 9. Multiple EFTs or wires to VASP, espeically if noted as being "taxes," "fees," or "penalties." 10. A customer with a short history of small-value EFTs to a VASP begins sending high-value wires to holding companies, LLCs, or individuals with no prior transaction history Technical Red Flags 11. Accounts accessed by unique IPs, unique devices, or inconsistent geographies. 12. Crypto interactions with a poorly designed or amateurish website. 13. Crypto transactions to websites with newly registered domains, no physical street address, and international or chat/email-only contact details. 14. Downloading an app directly from a third-party website rather than a well known app store. 15. Crypto converted to a currency with a lower transaction fee, such as TRX, and then abruptly sent out from exchange. #FinCEN #CryptoRedFlags #CryptoInvestmentScams #CryptoScams #PigButchering

"The surging value of bitcoin has paralleled an increase in both investor interest and potential security risks. As bitcoin continues its upward trajectory in market capitalization, it becomes an increasingly attractive target for sophisticated cyber-attacks, fraud, and theft. This growth in value not only raises the stakes but also expands the attack surface for those holding bitcoin, necessitating more rigorous and sophisticated security measures. Bitcoin's substantial price appreciation transforms every wallet into a more lucrative target. This heightened value attracts a broader range of threats, from advanced cybercriminals to state-sponsored actors. As bitcoin becomes more widely recognized and utilized, the public knowledge of its value intensifies the risk. Holders who manage their own keys must be exceptionally vigilant, defending against both digital breaches and physical thefts or coercion. For individual holders, the responsibility of managing private keys involves substantial security challenges. These challenges are not only technical – requiring robust encryption, secure networks, and safe storage practices – but also physical, such as securing private keys against theft or loss. As the value and complexity of holdings increase, the task of securely managing these keys becomes more daunting. Multi-institution custody models address these growing security concerns effectively by distributing the custody of bitcoin across multiple, independent entities." Check out the report below from Onramp CSO Brian Cubellis to learn more or book a consultation here: https://lnkd.in/gicrYF5s