7 Crypto Investing Mistakes — And How to Avoid Them
Cryptocurrency is a relatively new type of asset class and can be a bit tricky for many, especially for beginners. Unlike traditional stocks, crypto behaves differently and requires an adjusted investment strategy. Here are some common mistakes crypto investors make and tips on how to avoid them.
1. Thinking Crypto Is Only About Bitcoin
Many people assume that cryptocurrency is just Bitcoin. In reality, there are thousands of cryptocurrencies, each serving different purposes. Their prices can vary greatly. Before you invest, take some time to learn about various cryptocurrencies. Focus on understanding what each one is used for instead of just following the buzz around Bitcoin.
2. Not Doing Your Own Research (DYOR)
It's important to do your own research (DYOR) when it comes to crypto investments. You might hear different advice from social media, friends, or various websites. To avoid wrong decisions, always verify the information. Reliable news websites and educational platforms are good for fact-checking. Also, don’t invest just because someone you know did. Acting on FOMO (fear of missing out) can be harmful.
3. Looking for Quick Riches
Cryptocurrency trading is available 24/7, making prices go up and down rapidly. Many beginners aim to make quick profits. However, crypto is not a shortcut to wealth. Successful investing requires a sound strategy and patience. Set long-term goals and avoid thinking that you’ll become a millionaire overnight.
4. Mismanaging Crypto Wallets
To make crypto transactions, you need a crypto wallet. These wallets are accessed using passwords or private keys. If you forget your password or lose your private key, you might lose your cryptocurrency forever. For instance, if you can't remember the long alphanumeric sequence of your private key, you won’t be able to recover your funds. Most wallets offer a backup seed phrase, so always keep it secure.
5. Making Order Mistakes
Navigating the list of cryptocurrencies can be intimidating for new users. Even a small mistake can cause financial losses. For example, if you mistype the wallet address while sending crypto, your funds may go to the wrong place and can’t be recovered. Also, a simple error like misplacing a decimal point while placing a trade can be costly. One example is a seller who lost nearly $300,000 when they accidentally sold a high-value NFT for 0.75 Ether (around $3,000) instead of 75 Ether.
6. Ignoring Fees and Taxes
Buying crypto comes with various charges like blockchain fees, exchange fees, and others. Choose the right credit/debit card or bank account to minimize these fees. Research the costs before making a purchase for better long-term savings. Additionally, be aware of crypto taxation. Holding crypto isn't taxable, but selling it is. The tax amount depends on how long you’ve held the crypto.
7. Putting All Eggs in One Basket
It's risky to invest only in one type of cryptocurrency. Sometimes, people buy one crypto because of the hype, thinking it's a good strategy. But this can hinder growth. Diversify your investments by putting money into different cryptocurrencies and consider crypto-linked securities like ETFs. This approach can lead to better long-term results.
By understanding these common mistakes and how to avoid them, you can become a more informed and successful crypto investor.
