Ploughing into cryptocurrency can be thrilling, but many inexperience investors fall into common pitfalls while trading and investing in cryptocurrencies. New traders can easily lose money due to inadequate security methods or a lack of expertise about crypto marketplaces.
In this article, CoinWire discusses the 10 most common mistakes made by rookie crypto investors, and how to prevent them.
1. Not equip yourself with the basic crypto knowledge
New crypto investors may be drawn in by the buzz surrounding Bitcoin and other cryptocurrencies, but investing in crypto necessitates a thorough understanding of the asset class and how it operates. Investing in an asset you don’t understand or attempting to trade cryptocurrencies without understanding the fundamentals of how cryptocurrency works is a prescription for catastrophe.
Investing time in learning about different crypto projects and the goals of each crypto company will help you become a better investor.
2. Not consider the fees
While there are numerous ways to purchase cryptocurrency, inexperienced investors may simply buy cryptocurrency without understanding how exchange gas costs operate. Buying cryptocurrency with a credit card, for example, may incur hefty surcharge fees (3% or more) as well as additional costs from your card company. Learning which cryptocurrency exchanges have the lowest costs and the best strategy for purchasing and trading cryptocurrency will save you a lot of money in the long run.
3. Short-term investment mindset
The market’s promise of “get wealthy quick” has many new investors only thinking in terms of the short term. And, although there is the potential for large gains from a crypto investment, there is also the risk of losing all of your assets due to a poor investment decision.
A long-term investment mindset will allow you to choose your crypto investments more carefully, focusing on higher-quality projects with extensive track records. Trying to get rich in 90 days is a sure way to go bankrupt, but viewing cryptocurrency investing as a multiyear process will help you develop a more smart crypto portfolio.
4. “It’s ok to store digital assets in online wallets”
Cryptocurrency is a digital currency that must be stored in a digital wallet. While using an online wallet is more convenient, it is also significantly more dangerous than holding your cryptocurrency offline. Online wallets are more vulnerable to security flaws, and hackers can deplete your wallet via crypto scams or hacks. Offline hardware wallets, which are simply USB sticks with superior hardware and software encryption to protect your crypto private keys, are the most secure way to keep your crypto.
5. Not backup your passwords or underrate Seed phrases
Because cryptocurrency is stored in a digital wallet, passwords are required to access these wallets. If you lose your password, your cryptocurrency may be lost forever. Most wallets feature a backup seed phrase that can be used to gain access to the funds, but if that seed phrase is lost or forgotten, there may be no other way to recover your funds.
6. Incorrect crypto wallet address
Transferring cryptocurrency between digital wallets is how you get custody of your cryptocurrency from an exchange or transmit money from one party to another. However, a common rookie mistake is attempting to send cryptocurrency funds to your wallet only to mistype the wallet address. When this occurs, the cryptocurrency is transmitted to an incorrect wallet address and may be unrecoverable. While there are recovery services that may be able to assist with this, they may be very expensive.
7. Too naive to detect scams
As a new asset class, the Bitcoin market is rife with con artists. In fact, the FTC reported roughly $700 million in stolen cryptocurrency assets in 2021 alone. These crooks deploy sophisticated phishing techniques to obtain access to your crypto wallet and convince you to transfer coins to their wallet.
Crypto scams can happen through email or messaging apps, with offenders appearing to act in your best interest. Wallets can be compromised by simply linking them to an application and granting it access to funds. While this is standard practice for many crypto apps, scammers can utilize it to siphon crypto wallet funds.
To avoid these scams, never connect your online wallet to an untrusted software and keep the majority of your cryptocurrency cash in offline hardware wallets. Also, never share your wallet’s password, seed phrase, or private keys with anyone.
8. Overusing Leverage
New crypto investors may be tempted by stories of rags to riches through crypto trading and attempt to magnify their earnings through leverage. The issue is that leveraged trading necessitates upfront collateral, and if a trade fails, you could lose all of your money. Remember that leverage works both ways, and it can also magnify your losses.
New crypto investors would be wise to avoid using leverage until they have gained adequate trading experience.
9. Confused Trading Strategy
New crypto investors who try to dive right into intricate trading techniques because a YouTuber told them to can soon lose money and give up on cryptocurrency altogether. Learning technical analysis, conditional orders, and how the crypto markets function takes time.
Investing in cryptocurrency might be rather straightforward. There is no need to devise a complex trading strategy in order to increase the size of your account. You can dollar-cost average into bitcoin, similar to traditional investment, without the necessity for active trading or being hooked to crypto charts 24 hours a day.
10. Mistakes when making orders
While some cryptocurrency exchanges, such as Coinbase, specialize on making it easy to buy cryptocurrency, many have intricate order forms and trading interfaces that might be confusing to beginning users. A mere decimal point miscalculation when placing an order might cost hundreds of dollars, increasing losses. In fact, a vendor recently lost nearly $300,000 after selling a premium NFT for 0.75 Ether instead of 75 Ether.
Always double-check your orders or transfers before submitting them to avoid making costly mistakes. Because cryptocurrency is irreversible, it’s wise to double-check before submitting a transaction.
The Final Thoughts
Investing in cryptocurrency might be intimidating, especially if you are just starting started. However, avoiding these blunders can help you become a more confident investor and save you thousands of dollars due to a lack of knowledge.