Hackernoon logo7 Common Crypto Investing Mistakes (and How To Avoid Them) by@cryptobadger

7 Common Crypto Investing Mistakes (and How To Avoid Them)

The world of crypto can be quite tricky to navigate, especially for beginners. Here are the 7 most common mistakes people make when they start investing in crypto. Buying high and selling low is the easiest mistake to make and the one that will most likely get you ‘rekt’ At the time of writing, although my portfolio overall is still in a very healthy profit, half of my coins are in loss, some down as much as 75–80%. It’s a good idea to diversify your ‘news channels’ to get a better picture of the market situation.
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Crypto Badger

Not an actual badger ;-) Dedicated to helping people learn about the world of crypto.

A lot of people these days are getting into crypto, hoping to put some money in today and buy a Lambo tomorrow ;-)

Unfortunately, a lot of them end up just losing money, cash out at a loss and get discouraged. Check out the tips in this article to avoid making these common mistakes.

The world of crypto can be quite tricky to navigate, especially for beginners.

Someone put it really well:

“Crypto is everything you don’t understand about finance combined with everything you don’t understand about computers.”

Over the last few years, I’ve noticed that a lot of people keep making the same mistakes when they start investing… sure as hell, I made some of them as well, which in turn sparked the idea for this article.

So here are the 7 most common mistakes people make when they start investing in crypto.

Mistake #1: Buying high and selling low

This is the easiest mistake to make and the one that will most likely get you ‘rekt’. Crypto is extremely volatile and with large gains comes very high risk. Sure, it’s (almost) impossible to time the market perfectly when buying and selling, but there are some clear patterns you can follow to maximise your gains and minimise losses.

There are two main mistakes people often make:

FOMO (Fear Of Missing Out or just simply buying high). Let’s be honest, we’ve all been there. You see a project skyrocketing in price and you want a piece of the action. Even more so if you’ve missed out on previous similar opportunities. You don’t want to miss it again, so you jump in. The thing is that what went up, must come down. If you’re investing when a project is pumping, there often is a far bigger chance of losing money, as early investors will start taking out their profits and you may need to wait a long time to break even, let alone make any money. In addition, when a project is pumping hard, it may be really hard to buy in, especially if you’re trading on decentralised exchange (dex) such as Uniswap. You may lose a lot of money in gas fees (on the Ethereum network), lose money due to increased slippage or have stuck and failed transactions. I’ve been there… it’s not much fun.

FUD (Fear, Uncertainty and Doubt or in other words — selling low). Few things are more disheartening than looking at your investment going deeper and deeper into the red. When a coin is rapidly tanking, it can be really tempting to just sell it to get out of it. The thing is, if it’s a solid project and none of the fundamentals have changed, then there is a pretty good chance that it will bounce back up. Sure, it can be a bit nerve-racking but the last thing you want to do is sell at a loss, just to see that coin going massively up a few days or weeks later. I’m not just saying this… at the time of writing, although my portfolio overall is still in a very healthy profit, half of my coins are in loss, some down as much as 75–80%. It’s shit but I’m just waiting patiently. Remember, you’re only making a loss if you sell, otherwise, it’s just a number on the screen.

Mistake #2: Following one-sided opinions

How did you get interested in crypto? What are your sources of information? Friends, Twitter, YouTube, Reddit? Regardless of who it is or how good that source may seem, it’s always a good idea to diversify your ‘news channels’ to get a better picture of the market situation.

For example, my sources are:

I have 3 favourite YouTubers and I follow each one of them for different reasons: altcoins research, technical analysis, alternative view/approach.

Same three people and many others on Twitter.

I also follow all main projects I’m interested in on Twitter, Telegram, and Discord.

Then there are a couple of paid Patreon subscriptions.

And finally, a couple of newsletters, websites such as Coinbureau or CoinMarketCal etc.

I listen but don’t take things at their face value. I also try to learn as much as possible and draw my own conclusions. And it’s hard to do this if you have just one source of information. Not in the least because, what might be a good investment for one person, may not be suitable for another due to different risk tolerance, entry point or goals/expectations regarding that investment. This leads to the next common mistake…

Mistake #3: Not having a plan

How much money you want to make and how much risk are you willing to accept? When you want to take some profit out or cash out completely (either to re-enter at a lower price point or just cash out completely)? Are you investing short term or long term?

All of the above are important questions and how you answer should go in line with your investment strategy. For example, it doesn’t matter how much you pay for Bitcoin if you’re planning to hold it long-term, as it’s almost guaranteed (if anything can be guaranteed in crypto!) it will go up in value over the years. Sure, there are better and worse moments to invest, but when you invest long-term, the only way is up. On the other hand, a low market cap altcoin may potentially give you far bigger gains, but if you invest when the price is too high, you may have to wait a long time for it to recover… if it will even ever recover.

Mistake #4: Lack of proper security

Maybe not the most exciting subject but hugely important. Remember, crypto is unregulated and if something goes wrong, the chances of recovering your coins are close to none.

There are plenty of fake profiles of crypto influencers on all social media platforms. Beware of the scammers on YouTube, Twitter, Telegram etc. Especially on Telegram, you’ll also find a lot of fake ‘admin’ and ‘tech support’ accounts. Usually, they offer some crazy good giveaways or run offers where they claim to double your crypto in minutes etc. If they want you to send them your crypto — run away! Seems obvious but people lost a lot of money this way.

Being your own bank has its downsides — always protect your private key, password and seed phrase. NEVER save them on a computer, phone, send by email, store them in the cloud etc. Instead, write them on paper and store them somewhere safe (ideally also have a copy in another secure location).

If you’re using Metamask or a similar software wallet, consider using the Brave browser. It has better security and as a bonus, it has some other cool features, such as earning small amounts of crypto while surfing the net.

Two-factor authentication (2FA) on all exchanges and wallets that support it is a must! Another great tool for enhancing security is YubiKey. And if you’re holding larger amounts of crypto, consider investing in a hardware wallet such as Ledger or Trezor. Note: always buy hardware wallets ONLY directly from the manufacturer's website - don't risk buying it on Amazon, eBay etc.

Mistake #5: Not knowing the basics of market analysis

Have you ever thought to yourself, “If Bitcoin is now over 30k USD and ETH around 3k USD then what if ADA or XRP will go up to similar prices”? If I invest now I can easily make 1000x gain in a few years.‘ Well.. no.

You see, the price is largely irrelevant in this context. What is important is market capitalisation (market cap), which is simply the price of an asset multiplied by its supply. For example, at the time of writing this article, Cardano (ADA) is around 1.5 USD and its market cap is 50 billion USD at this price (I’m rounding up the numbers a little bit). So, for ADA to hit 100 USD per coin, it would have to go up in price over 60x. This would give it a market cap of 3 trillion USD (60x 50 billion). To put it into perspective, at the same point in time, the whole crypto market is around 1.6 trillion USD, out of which Bitcoin is 700 billion USD. So, for ADA to go up to 100 USD per coin, it would have to be worth almost twice as much as the whole crypto market or over 4 times more than Bitcoin.

Now, such an increase in value is not impossible — before the recent massive dip, the crypto market was worth around 2.5 trillion USD and it is widely expected that it will reach 8–10 trillion by the end of this cycle, in the next 12–24 months. Nevertheless, this example is meant to illustrate, just how much money it would require for ADA to go up to 100 USD… let alone 1000 USD or more.

If you’re looking for a coin the has the potential to go up 50–100x or more, you have to look for a coin with a very low market cap — ideally around 10–20 million USD. Coingecko and Coin Market Cap are two great websites for comparing different coins, their market caps, trading volume etc.

Mistake #6: Either not having a diverse enough portfolio or investing in too many different coins

This is a bit tricky because the content of your portfolio should depend on your objectives (as in point 3). If you want relatively safe coins to hold long-term, then you can pretty much just have Bitcoin and maybe Ethereum and/or Cardano (at least in my opinion and in the current market).

On the other hand, if you’re investing in much riskier low-cap altcoins and hoping for much greater returns, then it’s sensible to not be overexposed and lower your risk by spreading your investment into few projects.

Mistake #7: Investing money you cannot afford to lose

This really goes without saying, but I’ll say it anyway. You should only ever invest an amount you can afford to lose. Of course, no one wants to lose money but you have to remember that crypto is extremely volatile and those amazing gains go in hand with the risk of huge losses. The lower the market cap, the higher the volatility and risk.

Even ‘safe’ bets such as BTC or ETH can easily dip 60–70% when the market turns. BTC reached almost 20k USD in late 2017 and then dipped to 3,200 USD just a year later. Altcoins can dip over 90% when the market turns and some of them may never recover. At the very least, you have to be prepared to hold your coins for 3–5 years and ride out the rough patch. Worst case scenario, you have to be prepared to lose it all or at least the vast majority of it in case something goes horribly wrong.

How much you invest and where you’ll get this money from will depend on your personal circumstances and risk tolerance, but just make sure that you are fully aware of the risks involved and really consider the worst-case scenario.

Will avoiding these mistakes guarantee that you will make money? Of course not. But it should help you reduce the risk.

The more I understand cryptocurrencies and the market in general, the less I stress out about price fluctuations. I see more opportunities and I have more fun. I really think it’s an amazing time and opportunity to become involved in crypto but the key element is to listen, learn, analyse and think for yourself rather than just simply follow someone else’s opinions… including mine ;-)

Disclaimer

The content covered in this article is NOT to be considered as investment advice. I’m NOT a financial adviser. These are only my own speculative opinions, ideas, and theories.

Do NOT trade or invest based purely upon the information presented in this article. Always do your own research and due diligence before investing or trading. I’ll never tell you what to do with your capital, trades or investments. I’ll also never recommend for you to buy, sell, long or short any asset, commodity, security, derivative, or cryptocurrency-related instrument as it’s extremely HIGH RISK!

You should always consult with a professional/licensed financial adviser before trading or investing in any cryptocurrency-related product.

Also published on: https://cryptobadger.medium.com/top-7-mistakes-people-make-when-investing-in-crypto-24a4ade5056

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