25 Mistakes People Make When Investing In Crypto (and How To Avoid Them)
25 Mistakes People Make When Investing In Crypto (and How To Avoid Them)
You Don’t Know the Basics
If you’re beginning, you’re likely eager to trade. I get it, really.
But don’t rush it. Take a little bit of time to develop a basic cryptocurrency trading strategy and to educate yourself.
Do you know the basics of blockchain technology and Bitcoin? Do you know what circulating vs total supply means? Do you understand what inflation is? Do you know about exchanges, wallets, private keys, and public keys?
If you can’t answer these basic questions, you’ll be in trouble quickly enough. Take some time to prepare yourself, it’s essential.
To learn the basics, navigate our website — there are tons of cool resources to get started.You Don’t Understand the Technology
What makes Bitcoin and many cryptocurrencies innovative is their underlying technology. But if you don’t understand the foundations of the technology, the road will be risky.
You don’t want to rely on others’ ‘knowledge’ to make your investment decisions. Until you can judge these projects for yourself, you will be missing out on big opportunities.
After all, the creators of Bitcoin and its first adopters were all techies.
To avoid this, find educational sources you trust, take the time to learn, and most importantly, enjoy the journey of learning.
Once you understand block rewards, consensus algorithms, premining, and all the fancy jargon, you will be an improved, independent investor.
Blockchain technology is continuously advancing, so keep up with it the best you can.You Don’t Take Action
Every day, potential investors miss out on cryptocurrency investing because they aren’t confident about how to get started.
Even experienced investors miss on new tools or cryptocurrencies that could bring significant profits simply from not staying active.
Why? Because they’re afraid to make mistakes. The first step is taking action, so don’t hesitate to dive right in.
Action will result in experience, and experience will result in better decision-making. In fact, the experience is all about learning from the mistakes you make.
If you feel ready to make your first investment, then go for it. Even only $10, on any exchange you want, with any payment method you like.
You can’t imagine the difference a small step will make versus not taking action.
This is where your experience will start, and you will feel the highs and lows of investing — it’s a wild ride.
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You Invest Your Life Savings
Rule number one of investing; don’t invest more than you can afford to lose.
You should go into this ready to lose whatever you put in. Ultimately, as the price swings up and down, you should remain calm and still be living a healthy life with room for regular spending.
I’ve heard countless horror stories of people investing greedily with their entire life savings or borrowing large sums of money. This is a HUGE mistake.
Funny enough, even if you hit it big, your greed will likely win you over. For example, if you invest $50,000 and at one point have $150,000, then your mind will rationalize and normalize these winnings to feel less significant than they are.
The next thing you know, the market drops, and you are back at break even, or at a loss.You Overtrade
Some investors, mostly beginners, want to make 20 trades a day. This is dangerous.
Ultimately, many of them lose from fees or because they make bad trades a mistake and then trade more to recover their losses. Only to dig a deeper and deeper hole for themselves.
The reality is that there aren’t 20 good trading opportunities in a day. Trading too much leads to poor decision-making.You Think Cryptocurrencies are Shares
Take your time to educate yourself and understand what you’re investing in.
Cryptocurrencies are not shares like stocks. You have no ownership in the company and receive no dividends.
If a company issues a cryptocurrency, then it is very possible for the company to profit or get acquired, with no benefit to you. A company can be doing very well, yet its coin can drop.
The only exception here may be security tokens which can grant ownership to their investors. But even then, it’s up to the guidelines of the offering.
Cryptocurrencies are a different game.You Chase Cheap Coins
Don’t chase cheap coins with dreams of Lambos and private jets.
Lots of uneducated investors in the crypto space buy low-priced cryptocurrencies because they think there is a higher chance of big returns.
If presented with one coin priced at $0.01 and another at $75, they blindly purchase the $0.01 coin because they think it’s easier for a coin to go from $0.01 to $0.02, rather than from $75 to $150.
This is a common trap.
There are lots of factors that affect a coin’s price, including two important ones:
the circulating supply and the real-world value of the coin.
More often than not, a cheap coin has a huge supply of coins, which dilutes the price of each coin. If the supply is massive and there is little real-world value, then the coin priced at $0.01 is not undervalued and should be priced that low.
A better factor to consider when looking for coins with growth potential is the market capitalization of the coin. The ‘market cap’ is calculated as [current price * circulating supply] and is often a better (although not perfect) indicator of a coin’s valuation by investors.
If you want to find the next gem coin, look for coins that have a low market cap.
Low market cap coins have more potential for growth, but they also come with a lot more risk (failure, illiquidity, etc.)
Ultimately, you should stay away from those coins if you’re still at a beginner level, and pick your next investments based on their potential real-world value.
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You Ignore Fees
Now that you’ve taken action, take your time and find the right exchange with the best fees.
When people start trading, they make lots of trades a day hoping to earn small profits. While this is nice in theory, fees are killing them. Even if they are low, it all adds up.
Do your research before you trade. To become a successful investor, you need to start taking good habits right now.You Think You Must Always Be Right
I hate to tell you this but get over yourself. You’re not always right. And it’s okay.
Investing is a game of speculation which involves some amount of luck — even for professional investors. To be a winner in this space, you only need to be right a certain percentage of the time.
For example, if you 2x your investment 55% of the time, then you can afford to lose 45% of the time as you will make money in the long run.You Don’t Understand Tax Implications
Overtrading also increases your tax liabilities.
At least in the United States and Canada. Most people think that they only owe taxes on profits that were sold back to USD/CAD, when in fact, you owe taxes on every single trade you make — even crypto to crypto.
The IRS and CRA view every trade as a realized gain or loss. Put simply, if you buy Ether with Bitcoin, they consider this a taxable event on a realized gain or loss.
They assume that you sold Ethereum to USD, then purchased Bitcoin with USD, even though this is not what happened.
Ignoring both tax implications and exchange fees will severely impact your overall cryptocurrency investment strategy.
Tax implications, in addition to accumulated fees and bad trades, are another reason why you should not overtrade.
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You Don’t Diversify Your Portfolio
Your cryptocurrency investment strategy must involve diversification.
While it may be tempting, don’t put all your eggs in one basket. Every experienced investor hedges, or protects his/her risk by investing in multiple assets.
You might notice some coins correlate where when one goes up, the other goes down. If this is the case and you like both coins’ futures, then invest in both. Your investment will be much safer.
My recommendation: own a minimum of 5 cryptocurrencies.You Over Diversify Your Portfolio
Be sure to pick a number of coins that you can keep track of. This means keeping up with news and price action.
My recommendation: invest in a maximum of 10 cryptocurrencies at a time.
Diversify responsibly!You Buy High
I bet that when Bitcoin was at $15,000 or $20,000, your friends and family were asking you about cryptocurrencies.
That’s because there is a natural tendency for people to follow trends. But those who profit are those who entered the trend early.
DO NOT buy high, especially when a coin is close to its all-time high.
After all, why buy Bitcoin at $20,000 when you can buy it at $3,500? Buying high may be the right decision in some cases, but is a mistake more often than not.You Don’t Do Your Own Research (DYOR)
Research a coin before you invest in it.
So many people invest based on hype. They see other investors on Twitter or Facebook talking about a coin, see the coin’s price rising, and then buy off of impulse. This often ends badly.
Do your own research.
When researching a project, you should be able to answer the following:
• What is the mission of the project?
• Who are the core team members? Have they worked together before or have past success?
• When is the main net expected to launch?
If you can answer these, then it’s a good start.
Don’t be afraid to miss out on investment; there will always be more to come.You Research Poorly
Once you understand WHAT you should research, then next is starting the research.
The process will be time-consuming if you’re just starting. But the more you research, the better you’ll become at it.
Here are a few basics to get started:
• Have a look at each coin’s BitcoinTalk.org announcements thread and website.
• Search on the internet to see if there are reviews on the coin or mentions of it being a scam. If you see lots of talk about it being a scam on Google or Reddit, then it’s worth digging deeper into that to understand the reasoning.
• Check on the economics of the coin such as its market cap, trading volume, price history, and total versus circulating supply.
• Cross-reference opinions from industry experts. Never trust one single opinion.You Don’t Keep Up to Date with your Investments
As you come to own 5, 6, 7, or more coins, the amount of responsibility on your shoulders increases.
Be sure you keep up to date with all of their developments and price action.
To do this:
• Follow them on social and through their blog
• Join their communication channels (Telegram, Discord)
• Bookmark their websites and Bitcointalk threadsYou Don’t Have a Plan that you Stick With
Lots of folks let the market highs get to their head. Once their portfolio hits an alltime high, they only want to go higher.
On the other hand, as a coin drops in price, they hold until 0 because they are stubborn about their investments.
The best way to avoid these situations is to set a target, stick with it, and don’t be greedy.
So, when you enter a position, be sure to write down your plan.You Don’t Take Your Profits
If you want your cryptocurrency investment strategy to profit, you have to sell and accumulate profits eventually.
Learn from others' mistakes. At the end of 2017, during the big boom of cryptocurrencies, lots of investors became rich IF they sold for profits. On the other hand, many had theoretical profits but overheld into this bear market.
Now, they are stuck holding at a loss, waiting for the next bull run.
Remember: you don’t profit until you sell back to realize your gains.You Don’t Cut Your Losses
Being stubborn is easy. But at the end of the day, the market moves despite how you feel.
Don’t hold a coin you no longer believe in.
You should always ask yourself: “if I had not bought this coin, would I buy this coin right now?”
Be honest with yourself. It’s okay for things to change.
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You Don’t Use 2FA
The crypto world is the wild west. Full of opportunities, but extremely dangerous.
One crucial step when working on your cryptocurrency investment strategy is to reinforce the security of your cryptocurrencies.
Enabling 2FA on every sensitive website is the most important habit you need to adopt to increase the security of your accounts.
2FA, or two-factor authentication, is another layer of security upon login. Most cryptocurrency exchanges, wallets, and services offer to enable 2FA.
To enable 2FA, you will need to download an app on your phone — either Authy or Google Authenticator and sync it with the exchange or wallet via a QR code. It’s super simple.
Next time you go to log in to the exchange/wallet, you will be required to enter your username, password, and the passcode that the 2FA app shows. The passcode changes every 30 seconds, so for someone to hack your account, they will need your phone as well.You Leave Your Coins on Exchanges
One of the most famous mottos in the crypto industry is “if you don’t control your keys, then you don’t control your coins.”
Exchanges are huge targets for hackers and are always at risk. When you leave coins on an exchange, the exchange controls your coins. You are trusting the exchange’s security measures and not your own.
Do yourself a favor — keep your coins in a personal wallet.You Don’t Own a Hardware Wallet
I will be straight up: if you’ve invested more than $500 in cryptocurrencies, then hardware wallets are a smart investment.
They are disconnected from the internet, which means that hackers can only obtain your funds if they steal your physical device and also know the passphrase to access it. This makes security a much easier task.
If you have large amounts of money, say over $5,000, then it may be worth buying two. The second can act as a copy of the first one, in case you lose it.
Hardware wallets such as the Ledger Nano S are incredibly secure, reliable, and easy to use.You Don’t Know the Best Security Practices
Both the wallets and websites you choose to use hold sensitive personal information — do your best to keep it safe!
If someone compromises your accounts, then you can say goodbye to all of your funds. Take security seriously, and learn from those who have learned the hard way.
When using a wallet, hardware, or desktop, be sure to:
• Avoid using Public Wifi
• Avoid using unsecured software/extensions
• Use strong passwords
One more important tip: do NOT use your daily email address when you navigate the crypto space. Use a separate one dedicated to your cryptocurrency investments.You Don’t Back Up Your Sensitive Information Always back up both 2FA and wallet data.
If you lose access to your computer and haven’t backed up your private keys, seeds, or passphrases, then you won’t be able to access your coins anymore.
Same for exchanges: you’ll be locked out of your accounts if you lost your phone and haven’t kept a safe copy of the 2FA keys.
Wallets and exchanges will often guide you through the process, so make sure to read and follow their instructions carefully.
For 2FA, I recommend you back up your keys so when you get a new phone, you can recover all of your accounts to log in. Do not forget to do this, as it will be a huge pain and time sink if you forget!You follow shills
Shill is a common word for someone who is compensated or has a financial incentive to spread the good word about a coin, even if it is terrible.
I won’t name anyone in particular, but lots of influencers, bloggers, and YouTubers have been guilty of promoting horrible cryptocurrencies — sometimes even scams — because of their own, selfish intentions.
Whether they’ve been paid to review a cryptocurrency or have other incentives (they own a lot of coins, they know the owners, etc.), you will be the one paying the price if you follow their advice blindly.