The cryptocurrency market offers unprecedented access to investment opportunities. However, with great opportunity comes great responsibility. Each investor will invariably make mistakes in their journey.
Risks of Making Mistakes in Crypto Investment
An investor in the cryptocurrency space could make countless mistakes, but it is important to remember that they are not irreversible. The investor should be able to learn from the experience because they are not permanent. Mistakes are part of the journey and must be properly understood to be fully appreciated.
Common Cryptocurrency Investment Mistakes to Avoid
When investing in a cryptocurrency, an investor should be mindful of the following mistakes:
Investing Directly in Cryptocurrency
Direct investment in cryptocurrency is an unwise decision because it is hazardous with low chances of success. Unlike the stock market, crypto markets are largely unregulated with no supervision. People can lose their investments due to malicious attacks, manipulation of data by whales, and hacking of exchanges. The coins are also highly volatile and can lose most or all value instantly.
Investing in A Single Cryptocurrency
An investor should not buy a single cryptocurrency. Doing so is an unnecessary risk as the market is too volatile, and there are many cryptocurrencies. If any coin crashes, it may take down the entire crypto market. You should invest in a diversified portfolio of 5-8 cryptocurrencies because each one has its strengths and weaknesses.
Investing in the Top Cryptocurrency
By investing in the top cryptocurrency, investors expose themselves to a high degree of risk. The coins with the highest daily volume and highest trading volume are also the most volatile and risky. It is therefore important to diversify across several cryptocurrencies to limit losses in case a particular coin crashes.
Investing in Initial Coin Offerings
In many cases, ICOs are legitimate, but they can also be fraudulent. Some ICOs in the past have been in the scam in an attempt to defraud investors. There are several red flags that an investor can watch out for to avoid falling into the hands of scammers.
Buying High-Risk High-Volatility Cryptocurrencies
Many investors buy high-risk high-volatility cryptocurrencies because they think that if they choose a coin with higher volatility, they will make more money when it rises in value. High-risk, high-volatility cryptocurrencies can be profitable, but they can also lose their value or gain less than expected. Investors should research and choose a cryptocurrency they understand and can grow over time when choosing a coin.
Buying Crypto Before Going Through an Exchange
Some people decide to buy their first cryptocurrency from a friend or a total stranger because they believe it is trustworthy. It is a mistake as it exposes the investor to fraud and even theft. If you are wondering where to buy crypto, you need to use an exchange. According to SoFi Invest, “These exchanges have a third party that helps conduct transactions to make sure they go through as intended—sort of like a bank.”
Using the Wrong Crypto Wallet
Cryptocurrency wallets are similar to bank accounts. Still, they do not have personal information attached to them, just a public address and a private key that the account owner uses. When choosing a wallet, it is important to select one compatible with the investor’s currency. Remembering the private key is also important as loss or exposure of this information could result in total loss of investment.
Failing to do Research Before Investing
There are plenty of cryptocurrencies in the market. Every investor can’t read the white paper of every cryptocurrency. It is therefore important that an investor finds reliable sources to do their research before making any investment. It will save time and avoid unnecessary regrets after investing by ensuring that the cryptocurrency has potential for growth.
Each of these mistakes can cause an investor to lose money on the cryptocurrency market. By avoiding making these mistakes, an investor can properly allocate capital and reduce risk while maximizing earnings.