There has never been a more straightforward way to invest in cryptocurrencies and other digital assets, which can only encourage investors to make trades as soon as possible. From online brokers to centralised and decentralised exchanges, the current streamlined investment process makes buying and selling tokens more accessible than ever. With that excitement, some investors might make common mistakes. New crypto investors may quickly lose funds due to ineffective security procedures or a general lack of knowledge of the crypto market.
Below we have covered the most common pitfalls beginner investors fall into, so you can learn about them, avoid them and build confidence in your investment practices.
One of the most significant errors brand-new cryptocurrency buyers make is pretty simple – they don’t spend enough time researching the industry and assets they want to purchase. This research may sometimes feel like homework, but it helps make wise investment choices. Before jumping to an investment, familiarise yourself with the market’s fundamentals, the technology underlying coins and tokens, and the present state of the market.
Lack of Diversity
Have you heard the famous saying, “Do not put all your eggs in one basket”? It applies perfectly to crypto investments. Simply put, you want to avoid investing in one or two coins. Instead, you want some diversity in your portfolio, so instead, try to divide your investments across a variety of assets to lower the portfolio’s total money-loss risk. So what does a diverse crypto portfolio look like? Here is an example:
- 43% BTC (Bitcoin)
- 22% ETH (Ethereum)
- 30% in leading altcoins, for instance, LTC (Litecoin)
- 5% in modest currencies such as TVK (Virtua)
Short-Term Gains vs Long-Term Strategies
Many investors are under the false pretence that crypto can award them quick gains. While it’s certainly possible, it’s crucial to have a long-term strategy when investing in a crypto market. What are some examples of strategies? Some examples are dollar-cost averaging, staking, and market timing, among others. If you adopt a long-term investing plan, you’ll be able to choose your cryptocurrency investments more carefully and concentrate on picking more lucrative enterprises with proven track records.
Failing to Understand Bitcoin Technology
You might have heard that every cryptocurrency uses a blockchain, but have you actually taken the time to look up what this service is? It’s important to familiarise yourself with essential industry terms such as cryptography and smart contracts as well, before pursuing your crypto investments.
It is equally important to look at recent advancements, too. Are there any applications or digital brokers out there that can help you create a trading plan with achievable goals? Luckily, there are platforms such as xBitcoin Capex app – a marketing tool perfect for newbie investors and crypto veterans that can help you confidently take your first steps in the world of crypto trading. The platform can help you choose a crypto broker, instead of spending hours looking for one online. To top it all off, these brokers also offer demo trading, perfect for those who are just getting familiar with the process of crypto investment. You can take a look at this video tutorial to get a better idea about this type of service.
Using Online Wallets
While using online wallets has tons of perks, including convenient use and accessibility, storing your crypto online can be extremely risky. Many financial experts suggest utilising offline hardware wallets, which will be less easily targeted by cyber-attackers, unlike online wallets. Do keep in mind the latter is more prone to crypto scams and hacks. Hardware wallets are USB sticks, with advanced encryption to store and safeguard your private keys.
Falling for Scams
When money and sensitive data are involved, you can expect it to turn into a breeding ground for scammers. According to the Federal Trade Commission, over 46,000 people have been scammed, resulting in crypto losses worth over 1 billion dollars. It’s important to be aware of phishing schemes, which tend to be the number one fraud method. Some cyber attackers target your online wallets with cheap tricks like installing apps or allowing permission to third-party websites that can access and drain your funds.
We tend to receive tons of push notifications on our phones daily, as well as reminders on our computers, which can create a harmful habit of clicking on buttons without reading – scammers are aware of these involuntary responses and utilise them to their advantage. It’s essential to always read all pop-up questions and take the time to respond instead of clicking or tapping on something automatically.
Lacking a Solid Exit Strategy
For cryptocurrency investors, having a strong exit strategy is essential. This can entail putting stop-losses in place, selling assets when their value reaches a particular level or having a long-term investing strategy. Investors run the risk of losing money or not getting the most out of their investments without a reliable exit strategy.
Poor Risk Management
New investors frequently need to pay more attention to errors of overinvesting or poor risk management. Crypto is a popular topic of discussion, but you shouldn’t always believe the advice you find on YouTube and social media, for instance. Instead, it’s critical to have a well-thought-out investment strategy that takes into account potential risks and benefits and only to invest money that you can afford to lose. As a crypto investor, you should know that some losses are associated with crypto trading, and understand it takes time and effort to grow.
Staying Too Attached to an Investment
Because of how volatile the cryptocurrency market is, novice investors frequently make the mistake of allowing their feelings to navigate their investment strategy. It’s critical to maintain composure and base financial choices on facts and market trends rather than emotions.
Similarly, you might be tempted into an investment when reading the news or watching some form of visual entertainment, so it’s important to distinguish excessive clickbait from genuine updates of the crypto market. Titles similar to “Ethereum Will Skyrocket” or “Bitcoin Turned Me Into a Millionaire” are such examples. We are not saying it can’t happen, but remember that the media tends to hyperbolise to grab attention.
Incorrect Wallet Credentials
This error most often occurs when you try to sell cryptocurrency from an exchange or move money from one party to another by transferring from one online wallet to another. More inexperienced investors can often make the mistake of moving cryptocurrency assets to their wallets, only to find out a few moments later that they wrote the wrong address. When this occurs, the cryptocurrency may be lost because it was sent to the wrong wallet. Recovery services can help with this, but it isn’t always possible and can be very costly to achieve.
Despite the fact that some cryptocurrency exchanges focus on making it easy to purchase crypto, many of them have complicated order forms and trading interfaces that may aggravate new users. When placing an order, a single decimal point inaccuracy can result in thousands or hundreds of dollars in losses.
A famous example was made by the owner of BoredApe, who put up his artwork for the price of 0.75 ETH (as opposed to 75 ETH). The difference is 297,000 USD. This could be due to a “fat finger” typing mistake, which could happen to everybody. However, while this is a reversible process with most banking transactions, it is practically unrectifiable in the fast-paced world of crypto, especially given the ongoing dangers posed by quick, automated purchasing.
Forgetting Your Pass or Seed Phrase
Lastly, we are all prone to human errors, such as forgetting our credentials and passwords. When we are registered on so many platforms, it’s possible to stare blankly at the blinking cursor, having completely forgotten the new password you came up with only yesterday. It’s possible that your cryptocurrency won’t be recoverable if you lose your password.
Although most wallets offer a backup seed word to access the funds, if the seed phrase is misplaced or forgotten, there may be no other way to get your money back. You may use online tools such as LastPass to help you memorise your passwords. Most people have over 50 registrations with online services, and with most financial and governmental services launching online, it’s important to protect your digital legacy now more than ever.
The Bottom Line
Investing in cryptocurrencies can seem intimidating, mainly when you first start out. However, avoiding these errors will make you a more confident investor and save you from suffering a loss of thousands of dollars due to ignorance.