Ten Costly Crypto Investing Mistakes and How to Avoid Them. A lot of people go into the cryptocurrency business because they hear about 100x profits. What if, instead of relying on chance, you actively worked to improve your crypto investing skills?
On their way, most investors end up making these blunders. Even though this post won’t guarantee 100x returns, it will help you negotiate the extremely volatile market and avoid the pitfalls that others have made.
Ten Common Crypto Investing Mistakes to Avoid
1. Not Doing Your Research
Scams, hacks, and false information abound in the Bitcoin industry. It is up to you, the investor, to make sure that crypto coins and projects are legitimate.
Crypto token promotions involving famous people and social media influencers are something that investors should be mindful of. The term “shilling” refers to the prevalent practice of individuals overstating the value of tokens in which they already have an investment on various platforms such as social media and newsletters to increase the price of these cryptocurrencies.
You run the risk of making a poor investing decision if you rely on unconfirmed information found online. Consequently, investing in cryptocurrency responsibly requires DYOR.
2. Participating in Rug pulls
Staying on topic with DYOR, newcomers to the crypto market should know that with the no-code tools and solutions available today, launching a crypto project is a breeze. A new coin can be created by anyone with a well-thought-out project plan and a website that uses smart contracts.
Now let’s talk about rug pulls. When crypto project creators disappear with investor money, it’s known as a rug pull. Now, if you happen to be a token owner of an abandoned project, you should be prepared to lose everything when the token price plummets to zero.
How to avoid a rug pull?
- Please check the project’s website and social media accounts;
- Make sure the founding team has a good reputation in the field;
- Be wary of cryptocurrency tokens that were produced within the past 24 hours; verify their age.
- To determine whether a token’s trading is pausable or whether its market liquidity is limited, you can use tools like DEX Screener.
- Scammers are taking advantage of the fear of missing out (FOMO) to lure investors with newly minted tokens that have soared in value in the past 24 hours.
3. Succumbing to Emotional Decision-Making
When making financial decisions, you should never let your emotions get the best of you. Fear and greed are the two strongest emotions when it comes to investing. Crypto and stock markets are no exception to this rule of risk-asset pricing.
Many people who invest do it out of pure emotion, buying at market peaks and selling at market troughs. Any investor’s greed can lead them to purchase the most talked-about cryptocurrency, the one whose value has skyrocketed in the last week. Investing in cryptocurrency without first doing one’s homework is possible if one is driven by greed or FOMO (fear of missing out).
Investors can lessen the impact of emotional investing with a well-thought-out plan and self-control. Techniques like diversification, dollar-cost averaging, and stop-losses can be rather basic.
4. Neglecting Diversification
One easy and effective strategy to safeguard your cryptocurrency investment is to diversify your portfolio. “Not putting all your eggs in one basket” is the adage that this tactic is based on.
Both the market for costly crypto investing and the industry as a whole are very unpredictable. Putting all your eggs in one token’s basket leaves your portfolio vulnerable to fluctuations in the market.
Is there a plan B in case your investment idea is compromised, loses traction in the market, or becomes rendered irrelevant as new technologies come out? When putting their money into the market, investors must remember that the future is full of unknowns and prepare for the worst.
5. Ignoring Common Risk Management Tools
Decades of expertise in the risk asset market went into developing investment risk management techniques such as buy-limit orders and stop-loss orders. Investors in cryptocurrencies would do well to familiarize themselves with these instruments so that they can hedge against market fluctuations, maximize gains, and minimize losses.
If the price of your tokens drops below a certain threshold, a stop-loss order will cause them to be sold automatically. The same holds for buy-limit orders; they prevent you from paying more than a certain amount for a token.
Both instruments aid traders in navigating unpredictable markets. You may easily incorporate these tools into your crypto trading plan because of how user-friendly they are.
6. Misusing Leverage
Investing with leverage has its benefits and drawbacks. Option and futures contracts are examples of leveraged derivatives that experienced investors can use to increase their available capital’s profit potential. This type of investor understands the potential benefits and drawbacks of debt-fueled trading and uses risk management techniques to keep their losses to a minimum.
Investors risk losing all of their money if they utilize leveraged financial derivatives without understanding the risk and taking the necessary precautions.
7. Fumbling with Crypto Wallet Operations
The crypto world can be accessed through costly crypto investing. You are solely responsible for these, as they serve as your safes. Keep your private keys and recovery phrases safe; they grant you access to your cryptocurrency wallet. If you want the utmost security for your wallet, you can even utilize hardware wallets, also known as cold wallets.
Mistyping the wallet address is a typical error that cryptocurrency speculators make. You must use the correct wallet address when sending tokens to yourself or a friend. Your money will be permanently lost due to even the smallest error.
8. Bypassing Non-Custodial Wallets and DeFi
Permit us to remain focused on cryptocurrency wallets. To avoid having their tokens held by centralized corporations, crypto investors can look into using non-custodial wallets.
Thousands of crypto investors saw their money disappear in 2022 as major centralized crypto exchanges and lending platforms declared bankruptcy, with the phrase “not your keys, not your crypto” ringing in the air. There is ongoing litigation among FTX, BlockFi, Voyager, Celsius, and Gemini Earn customers over the recovery of their cryptocurrency tokens.
Popular decentralized finance (Defi) protocols, such as Uniswap and Aave, provide investors the opportunity to earn interest on their cryptocurrency deposits.
Once again, before employing DeFi programs, we should refer to the DYOR recommendations.
9. Not Keeping Track of Fees and Taxes
When trading cryptocurrencies, investors often overlook the fees and costs associated with the transaction. These costly crypto investments will have a direct impact on your gain or loss from crypto investments, therefore keeping track of them is crucial.
There are also newly enacted crypto tax regulations that crypto investors should be aware of and, depending on their location, may be required to follow. The United States and India are among the nations that have levied capital gains taxes on cryptocurrency that exceed 30%. Additional tax deductions at source (TDS) have been levied on cryptocurrency trading by some governments.
10. Overrelying on Technical Analysis
Oops, this one is difficult. Day traders and investors with a shorter time horizon utilize technical analysis to determine when to purchase and sell an asset. The stock market has been around for a long time, and technical analysis methods developed throughout that time may not apply to the cryptocurrency market. There are distinct market forces that influence the value and performance of cryptocurrencies.
Technical analysis is still recommended, but crypto investors need to know how tokenomics works to predict when things like vesting periods, whale activity, and emission schedules will happen. Otherwise, their investment strategy that was built using traditional technical analysis methods could be ruined.
The Bottom Line
The point is well-made. Be a responsible student; avoid giving in to fear of missing out (FOMO); and do your homework. Sticking to your trading plan during a market downturn or upturn can be challenging when your own money is at stake. Mindfulness of one’s emotions and other basic risk-management techniques, however, can have a significant impact.
When it comes to costly crypto investing, make sure you emphasize security and diversify your holdings. Do not put more money into an investment than you are willing to lose.
