Jumping into the deep end of the crypto pool can be super fun, but unlike regular finance, mistakes in crypto are far less forgiving. Why? Because in the crypto-verse, you’re relying on your own brainpower, security habits, and tax discipline. If you step into quicksand, it could cost you your ability to recover, rebuild, or even keep playing the game. So, what are the really expensive crypto mistakes you absolutely want to avoid? Let’s hit the big three.
Crypto mistake #1 — Falling for scams and fraud
Crypto is the age of programmable money, but it’s also unleashed an army of creative con artists who like to use fancy crypto terms to exploit undereducated people. Old-fashioned Ponzi schemes and other scams are recycled into crypto and usually dupe the same people who tend to be gullible. Common sense is a secret weapon, but people still fall for impossible returns.
How to avoid falling for crypto scams
Whether you already got scammed or you’re just trying to stay vigilant in general, here’s how to avoid falling for crypto scams.
- Do your own research (DYOR). Never invest just because a slick influencer or even a friend says you should.
- Use the “unsolicited contact rule.” Customer support and investment opportunities do NOT contact you randomly. Real investments are sought by investors, not the other way around (generally). And users who need support contact support first, not the other way around.
- Test your exit. If you chose to commit your assets to a platform, at least test deposits and withdrawals with small amounts. If you can’t get the funds out stop.
- Ignore FOMO and hype on social media. Fast money almost always means fast heartbreak. Think turtle beats the hare.
- Educate yourself constantly. Crypto changes fast, and new scams pop up every week. If you want to protect your upside, you have to keep sharpening your fraud and scam intelligence™.
Crypto mistake #2 — Neglecting security & wallet hygiene
In crypto, YOU are the biggest risk factor. Hacks and scams make the headlines, but more losses are caused by user error and poor security routines—failing to document your seed phrase, using hackable passwords and emails or putting big value funds at risk by not understanding security best practices. This ties into Crypto Mistake #1: falling for scams and fraud.
How to avoid self-inflicted wallet disasters
- Use hardware wallets for long-term storage to secure the biggest chuck of your assets.
- Set up strong, unique passwords for every account and use a password manager (not for your seed phrase, though—that’s strictly pen and paper or steel, never digital).
- Enable two-factor authentication (but skip SMS-based 2FA; hackers love SIM swapping).
- Keep that seed phrase offline and store it in two unrelated, secure locations. If your one backup burns down or gets stolen, you’ll wish you had a contingency plan.
- Audit your own security set-up. Don’t just hope it’s secure—actually check.
- Never, ever, ever, ever share your keys or phrases with anyone. If someone ever sends you an “emergency” request for your seed phrase, it’s a scam.
Crypto mistake #3 — Messing up your crypto taxes
The world of crypto taxation is a minefield—especially if you have sloppy recordkeeping, mis-classify transactions, or fail to report everything. If you mess this up, you’ll create a tax nightmare which can be expensive and time-consuming to fix. You’ll also create anxiety trying to get your crypto taxes finished by the tax deadline.
Set yourself up to be as audit-proof as possible. Your goal is to document and CYA (cover your ass); otherwise, the IRS or other tax authorities will drop the penalty hammer or worse.
How to avoid a crypto tax disaster
- Track every transaction, from your first buy to your latest swap.
- Use a master inventory list for all exchanges and wallets. Trust me on this one; there is huge value in manual tracking a master list.
- Save all CSV downloads of your transactions, even if you use crypto tax software. Archive your data in its raw form.
- Double-check if software is categorizing your transactions properly—airdrop income and pre-sale buys might get lost in translation.
- Understand that wallet transfers (between your own accounts) are not taxable—then assume every other type of transaction is taxable (unless you can prove it’s not).
- Stay up to date on crypto tax rules and consider consulting a pro if you haven’t already.
- Open up your crypto tax software and review transactions synced in real time so you can fix early mistakes
Related: How to Prevent Crypto Tax Mistakes (& Avoid Paying Crypto Taxes)
Crypto mistake-avoidance = wealth creation
Crypto doesn’t give second chances easily—but it rewards vigilance, education, and organization. The most expensive mistakes happen when people chase hype, get lazy about security, or don’t take tax compliance seriously.
The good news? All three of these mega-blunders are preventable. Slow down, get the right tools, and treat security and record-keeping like your new part-time job.
WEIGH IN 💬
These are just some of the top mistakes I've encountered in my years working with individuals, entrepreneurs and professionals in the crypto space. How about you? Care to share your personal blunders or the worst ones you've heard about? Let's hear it down below 👇.
As always, your goal is to get a Crypto Bullseye™.
Yours in crypto,
Kirk David Phillips, CPA, CMA, CFE, CBP