Crypto investing has grown exponentially over the years, attracting more and more investors. However, the flood of information and ever-changing markets can easily lead to mistakes, especially for beginners.
In this article, we have summarized the most common mistakes made when investing in cryptocurrencies and how to avoid them.
Lack of proper market research
As with any investment, it is extremely important to properly research both the asset and overall market conditions. When it comes to cryptocurrencies, it’s not just about understanding the asset, but how to invest in it, so the lack of knowledge about the details of the coin is magnified many times over. Many people invest in cryptocurrencies simply because it is a trend or for reasons such as: FOMOyou end up reacting emotionally to short-term movements without doing any analysis, which leads to losses.
Doing your own research, reading the whitepaper, and visiting the coin’s official website are all necessary before entering the market. Before you start investing, create an investment strategy that includes clearly defined goals, risk tolerance, and investment range.
ignore market volatility
Experienced investors expect a certain level; volatility In the market over a period of time, beginners tend to completely ignore this part. This is due to lack of proper market knowledge. Due to the highly volatile nature of the cryptocurrency market, you may see fluctuations of 10%, 20%, or even 30% in a very short period of time.
Investors need to be prepared for constant market fluctuations, and those seeking safer investments are advised to invest in less volatile assets. It is best not to panic and sell your assets prematurely, just locking in your losses. If the market is not favorable, you can HODL the asset and wait for market conditions to improve before selling it.
fall for a scam
Even experts can fall for scams without realizing it. The unregulated and complex nature of cryptocurrencies attracts many scammers and creates new types of scams every day. With proper knowledge and precautions, you can protect yourself from scams to some extent. The most common scams in the crypto world include crypto romance scams, Ponzi scams, pump and dump Conspiracy, rug pulling, phishing attacks, and more.
It is your responsibility to be careful not to get scammed by scammers, which could result in you losing your savings. If something feels too good to be true, trust your instincts because it probably is. Maintaining a healthy level of skepticism and performing due diligence before engaging with any cryptocurrency platform or service can prevent you from falling victim to scams and scams.
Lack of diversification and over-diversification
Beginners often consider an all-in strategy, where they put all their investment into one project. Just as cryptocurrencies can rise quickly, they can also collapse quickly, and the market has already seen many promising projects fall into the abyss.
Also, while diversification is important, some investors tend to over-diversify their investment portfolios, which can have significant consequences. Over-diversification indicates that investors hold too many assets that are underperforming, resulting in large losses.
Investors should diversify their portfolios by investing in underlying cryptocurrencies with clear fundamental values. Understand how each asset performs in the market before investing. You can diversify your portfolio by investing in smaller, more promising coins and tokens in addition to larger, more established projects like Bitcoin and Ethereum.
Emotional investing and panic selling
Violent market movements can lead to emotional decisions based on fear, greed, despair, and ecstasy. These emotions can cause investors to panic sell for fear of incurring huge losses, or make impulse purchases in hopes of making higher profits. In most cases, decisions based on emotion do not lead to beneficial outcomes.
Instead of making investment decisions based on emotions, stick to a predefined strategy. Invest only the amount you can afford to lose. Track the market analytically, keeping in mind that cyclical booms and busts are natural and occur in alternation.
Blindly following rumors and social media trends
There are a number of ‘sure-fire tips’ in the world of cryptocurrencies that promise quick profits from social media influencers and crypto experts. Several pump-and-dump groups have emerged to manipulate the market, and beginners often fall into these traps, buying assets based solely on trends on social media.
The truth is that social media is full of creators with no actual expertise who claim to be crypto experts and take no responsibility for what they profess. So always approach tips on social media with caution and skepticism, check the sources, analyze the data, and make sure you’re investing in projects that actually have value.
Lack of long-term planning and strategy
Without clear goals, investing can become volatile and impulsive. This is another common mistake new investors make and leads to failure in the market. Many buy and sell cryptocurrencies based on temporary values, resulting in inconsistent performance, poor returns, and meager profits.
Develop a clear strategy that properly defines your reasons for investing in the project. Is your goal to make a profit, achieve financial freedom, save for retirement, or simply explore new areas of technology? Review your portfolio regularly and set realistic and achievable milestones. Proper planning will prevent you from making impulsive decisions and enduring market fluctuations.
ignore security measures
Advances in technology employed by trading platforms may have simplified the investment process, but holding cryptocurrencies is much more than just buying and selling. It is important to implement the right security measures to keep your digital assets safe and in full control.
The best way to manage your risk is to manage your wallet. Among storage mechanisms, hardware wallets are the best choice. If you select centralized exchange When handling assets, be sure to use additional security measures such as two-factor authentication.
excessive trading
Many crypto beginners believe that they can earn higher profits by buying and selling frequently. But they don’t realize that every transaction incurs fees, costing them a lot of money over time. These fees and tax charges can reverse the situation and reduce your profits.
Due to lack of proper planning and strategy, people tend to over-trade. Always have a clear plan that includes a long-term profit strategy before making any investment decisions. Setting clear entry and exit points and a maximum number of trades per day or week can help alleviate problems. Also, value quality over quantity and focus on projects that have high profit potential and align with your trading strategy.
forget to declare
Many new investors are unaware of the fact that cryptocurrencies are subject to capital gains tax in most countries where they are legal. All income or profits derived from the sale of cryptocurrencies are taxed as capital income, and all activities related to cryptocurrencies, such as sales, trades, and purchases, are taxable events.
Keeping track of all your transactions is the best way to avoid forgetting to file a return or reviewing your financial reports on time. If you manage your portfolio on multiple exchanges, consider using a tax reporting tool to generate accurate reports. Additionally, familiarizing yourself with a country’s income tax laws and guidelines will give you a better understanding of how different transactions affect your taxes.
conclusion
Investing in crypto assets offers a great opportunity to gain wealth, but requires proper knowledge through research and long-term planning before embarking on an investment. It is entirely your responsibility to avoid falling for scams and traps while avoiding losses.
Emotional trading, forgetting tax obligations, and careless trading can also increase the risk of loss. A proper understanding of technology, realistic risk management strategies and long-term profit planning are the keys to success in the fast-paced crypto market.
