8 Common Mistakes When Investing In Crypto

8 Common Mistakes When Investing in Crypto

by Alex Noah — 2 years ago in Blockchain Technology 4 min. read

Everyone wants a piece of cryptocurrency. Many people are overwhelmed by the success they have achieved and want to make more. These mistakes could lead to them not investing in crypto again.

The good news is that success can be learned from failures as well as successes. These failures can also be used as a source of wisdom to others who are attempting the same thing.

Cryptocurrency is a lucrative investment, but it also comes with high risks. These are the most common cryptocurrency trading errors people make when investing in crypto. These mistakes can be learned and you should venture out into Crypto with caution but confidence.

1. Research is not Adequate

Although one may not be an expert on the Crypto market, it is important to do thorough research about the market and the players. It is essential to be familiar with basic information about Cryptocurrencies, such as the market cap, price history and trading volume, fundamentals, management, and future outlook.

This is one of the biggest mistakes investors make. They don’t do enough research before making any investment decisions. Many people choose a popular cryptocurrency to invest in without understanding its basics.

You have many tools that can be used to conduct fundamental research about any cryptocurrency.

2. It is not Necessary to Identify their Investor Profile

It is common for investors to not identify with their investor profile after deciding to invest. The main profiles can be described as ‘conservative, moderate, or trader.

A conservative, also known as “Hodler”, is someone who takes minimal risk. Their strategy is to keep an asset in the long-term for appreciation.

Moderate investors have a range of portfolio positions and may invest in a variety of assets. They follow the strategies of both a Trader and a Hodler.

Crypto traders are those who profit the most from fluctuations in short-term operations and make the most. They also take on the greatest risk.

It is important to plan based on your investor profile to avoid losing money.

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3. A Lack of a Plan

A plan will make it difficult to stay organized. Even though a beginner might not have a plan, it is important to plan aspects such as investment goals, capital requirements, and maximum loss.

Many people have suffered huge financial losses by relying on their whims and fantasies without having a plan.

4. Undiversified Portfolio

Crypto investing is not the best idea. This is a common mistake made by many who choose to invest in one type of investment instead of multiple assets.

A survey found that 32.5% of respondents had said they had invested all their money in one coin.

In the event of a financial market disruption, this can result in huge losses. You can reduce your financial risk by investing in other assets like Bitcoins, Ethereum and Tether.

5. Security Concerns

Another costly and common mistake in digital trading is not to be careful about the security of digital assets. The year 2020 saw crypto criminals steal $1.9 Billion.

Some strategies that can increase the security of cryptocurrency transactions include:

  • Allow 2FA (2 Factor Authorization), on any security-sensitive account
  • It is important to not leave all coins on an exchange. This poses a risk and invites hackers.
  • If you have substantial cryptocurrency investments, it is a smart idea to own a “hardware wallet”, which is a device that is not connected to the internet. To steal funds from a hardware account, someone must first take the device and then know the passphrase. This is difficult.
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6. Crypto-Scams: Don’t Fall for Them

Scammers are now embracing crypto. Nearly 7000 Americans reported losses of over $80 million in October 2020 due to scams involving cryptocurrency.

There are ways to stay away from these scams.

  • People online who seem to be friendly and willing to share their tips should be avoided
  • Verify the authenticity of any websites offering crypto investment opportunities. Fake and scam websites use crypto jargon and fake testimonials to make them appear trustworthy.
  • “Giveaway Scams” are supposedly sponsored celebrities and promise to multiply your cryptocurrency immediately. However, they are just a scammer who will steal your crypto. Reports have surfaced that people have sent more than $2 million to Elon Musk-impersonators in the last six months.
  • The newest way to attract people into crypto-scams is online dating. It is possible for a new relationship to quickly turn into crypto opportunity chats, and then you pursue the advice. This could be a scam, not love.

7. Overtrading and Revenge Trading

Investors may be tempted to trade too many times per day in an effort to make too much money. This can lead to unneeded losses and may cause investors to change their minds. This can also increase tax liabilities.

Many people resort to Revenge Trading after suffering losses. This is done to quickly make up the money lost without having a plan. Most often, this leads to more losses.

Here are some tips to help you avoid falling into this trap:

  • Set a maximum loss limit per day or week
  • After a losing trade, you can sit out for a set time
  • Stop-loss is a risk management tool
  • After losing concurrently, take a few days off from investing

8. It is Difficult to Understand Technology and Technicalities

Cryptography is built on technology. It is okay to not be technologically proficient, but it is important to understand the basics. Although technological jargon may seem intimidating to laymen, it is possible to make informed investment decisions with a little bit of research.

It is equally important to understand the trading charts. An investor will be able to make more accurate predictions if he or she uses technical analysis in trading charts.

Conclusion: While mistakes are inevitable, one can learn from them and others’ mistakes.

This article can help you make your Crypto journey more enjoyable and avoid the common mistakes that others have made.

Alex Noah

Alex is senior editor of The Next Tech. He studied International Communication Management at the Hague University of Applied Sciences.

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