10 Cryptocurrency Investment Mistakes you Should Avoid Making

June 21, 2022 - Around 7 mins mins to read

The crypto market is once again facing a volatile period. Even though Bitcoin has been stable at $30,000 for the past few weeks, it still has an unpredictable nature. The recent dip last month was caused by rising inflation. With new investors coming in daily and the trend of investing in cryptocurrencies growing, most investors tend to go into the market blind without proper information or a plan.

So here are ten cryptocurrency mistakes that every investor should avoid making:

Not Understanding the Present Cryptocurrency Investment Market

The market for cryptocurrencies is precarious, and prices can change a lot in a short amount of time. Before deciding, you should think about your financial options, and you should know the situation well. Keep an eye out for dips and rises in the market and make well-informed decisions.

Not having a plan

Planning is crucial before you start trading in the crypto market. After extensive research, you should have answers to questions like “how much am I going to invest?” “How much am I OK with risking if it does not work out?” “Am I in this for the long haul, or is this a short-term investment?” “Should I take a small profit from the total invested, or do I cash out completely?” All of these questions build your investment strategy. So, you must have the answers to these questions before investing.

Losing your private keys

Cryptocurrencies are based on blockchain technology, which is a type of distributed ledger technology that provides a highly secure environment for digital assets without requiring a centralized custodian. However, this places the responsibility of protection on asset holders, and safely storing the cryptographic keys in your digital asset wallet is integral.

Digital transactions are created and signed on the blockchain with private keys, which serve as a unique identifier to prevent unauthorized access to your cryptocurrency wallet. If you lose your keys, unlike a password or PIN, you can not reset or recover them. As a result, keeping your keys safe and secure is critical, as losing them means losing access to all digital assets held in that wallet.

10 Cryptocurrency Investment Mistakes you Should Avoid Making

Having no hard copy of your seed phrase

When you generate your private keys, you are asked to write twenty-four randomly selected words in a specific order. If you ever lose access to your wallet, you can use this seed phrase to generate your private keys and gain access to your cryptocurrencies, and you mustn’t lose your seed phrase.

Maintaining a hard copy record, such as a physical copy or a slip of paper with the seed phrase written on it, can help avoid unnecessary losses from compromised hardware wallets, malfunctioning digital storage systems, and other issues. Similar to losing your private keys, traders have lost a lot of money due to crashed computers and corrupted hard drives.

Buying high and selling low

Fear of missing out (buying high) is a common problem most investors face. When you see that an asset is constantly going up, you think that maybe investing in a rapidly rising asset will bring you profits, that if you don’t invest here, you might miss out on a big take, but there is a saying you should keep in mind: “what goes up must come down.” This means that when you invest when a project is hot, you have a much higher chance of losing money because early investors will start taking their profits, and you may have to wait a long time to break even, let alone earn any profit.

Furthermore, when a project is pumping hard, it may be challenging to buy in, especially if you’re trading on a decentralized exchange. You can also lose money through slippage or if your transaction gets stuck or fails.

Another common problem is fear, uncertainty, and doubt (selling low). When one of your coins is tanking, it ‘is attempting to buy out rather than risk more loss. If the project is solid and neither of the fundamental factors has changed, it has a good chance of recovering. Indeed, staying on can be nerve-wracking, but it’s better than selling assets at a loss and seeing the numbers increase.

Not storing your cryptocurrency offline

Centralized cryptocurrency exchanges are likely the most straightforward way for investors to obtain some cryptocurrencies. These exchanges, however, do not grant you access to the wallets containing the tokens; instead, they provide a service similar to banks. While you, as the consumer, still own the coins stored on the exchange platform, the exchange still holds them, making them vulnerable to platform attacks and other risks of theft.

Numerous documented attacks on high-profile cryptocurrency exchanges have stolen millions of dollars in cryptocurrency from these platforms. The safest way to protect your assets from such a risk is to hold them offline, storing them in either an external software or hardware wallet after purchase.

No diversification

They say you should not put all your eggs in one piece of advice. Diversifying your portfolio prevents you from making high-risk decisions. Suppose you decided to invest in tanks; then you lose everything.

You don’t have anything else left that is still building your investments. When you invest in various types of coins, then you don’t have to worry a lot if one of them goes down because you still have the others. To keep a better balance, you should ensure that you invest in both high-profile and low-profile coins.

Not having a stop loss system

A stop-loss order only allows investors to sell an asset when the market reaches a certain price. Investors use this to ensure that they do not lose more money than they are willing to lose and that they at least recover their initial investment.

Several investors have suffered massive losses due to incorrectly setting their stop losses before asset prices fell. However, it’s also vital to realize that stop-loss orders aren’t ideal and might sometimes fail to trigger a sale during a significant, unexpected drop.

As has been said, the relevance of setting up stop losses to protect investments cannot be overstated and can substantially help offset losses during a market downturn.

Not looking out for scams

The digital market is well-known for its money-making opportunities and scams. Many scams in the cryptocurrency market pose as investment opportunities to lure people into traps. Avoid them and ensure you are investing in genuine assets.

Forgetting about taxes

Many new cryptocurrency investors do not consider their tax obligations. Any government that has legalized cryptocurrency will tax those who engage in any cryptocurrency trade. Don’t start to invest in cryptocurrencies, thinking you won’t have to pay taxes. Understand the laws of the state where you live to learn how they regulate cryptocurrency taxes.

Conclusion

Investing in and trading in cryptocurrency is a high-risk venture with no assurances of success. Patience, caution, and understanding, as with any other form of trading, can go a long way. Because blockchain places the investor in charge, it’s critical to take the time to learn about the market and learn from past mistakes before putting your money at risk. The more you know about cryptocurrency and the market, the more confident you will become about investing in it. You start to see more and more opportunities. You can differentiate between suitable investments and bad ones, all the while making the trading process an enjoyable experience.

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