Did you know that cryptocurrency is worth over $3 trillion at the current moment?
There’s a reason that investors continue to flock to cryptocurrency year after year. Crypto investment profits are skyrocketing, and everyone is trying to get a piece of the pie. But if you’re not careful with your crypto investment strategy, you could hit rock bottom.
Newbies who mistake the crypto exchange platform for being just like stocks are in for a surprise. The errors for crypto investors are not as apparent as the mistakes you might make with other investments.
We’re here to make sure you don’t stumble. Join us as we discuss all the common mistakes that new crypto investors tend to make.
1. Errors for Crypto Investors: a Lack of Understanding What Crypto Is
Crypto trading is similar to forex trading in that it’s about currency speculation, but that’s where the similarities end. Experienced investors make the mistake of assuming they can apply the same techniques as they usually do. Those investors are the ones who suffer the dearest consequences.
Take the time to understand what cryptocurrency is, because the name can be misleading. Cryptocurrency does a lot more than just make discrete payments. This technology has its roots in the blockchain and may be the future in powering automated, decentralized systems.
As with any asset, you need to understand what role it plays. Take a deep dive into the crypto community and learn the lingo. Anything you can learn will be a boon when you try for your future return on investment.
2. Keep Fees in Mind
As we discussed in the previous segment, cryptocurrency is quite different from fiat currencies. One of the ways it differs from anything before it is gas fees.
Cryptocurrency does not function like dollars or euros. In the case of those currencies, governments, payment processors, and banks make it function. But since cryptocurrency has no central authority, they can’t rely on a big governing body.
Cryptocurrency works by employing thousands of “validators.” These are individuals or organizations that supply the mining operations that validate transactions. Without them, there would be no transactions to speak of.
Incentivizing Miners
There needs to be an incentive for cryptocurrency miners to fork over their system resources. And that incentive is gas fees. Learn more here about BitCoin ATMs and other incentives that keep the market running.
Put simply, gas fees are the “transaction fees” that cryptocurrency uses to run transactions. They make it worth it for those big crypto-mining server farms to keep running.
In short, don’t forget to factor in gas fees. This isn’t like buying a stock where the only additional fees are to your stock broker. You will need to pay for those gas fees, and that will eat into your investment budget.
3. Don’t Look at Cryptocurrency as a Get Rich Quick Scheme
Chances are you’ve run into a successful crypto investor. Perhaps they’ve shown you how they went from owning a few hundred dollars in crypto to a few thousand. But what they forgot to tell you is that you should never rely on luck.
Let’s get one thing out in the air right now: cryptocurrency is extremely volatile. Price fluctuations in the hundreds of dollars can happen on any regular Monday. This isn’t like fiat currencies that remain stable for months, years, or even longer.
Granted, you can get rich quickly on crypto. But chances are 0.01% or less. Those are very poor odds as far as your dollars are concerned.
In short, this is no different than any long-term asset. You need to think in weeks, months, and maybe years. If you’re wishing on a star for a Warren Jeffs lifestyle, you’re mistaken.
4. Make it a Priority to Store Your Crypto Well
Cryptocurrency is like fiat currency in the sense that there is a finite amount. However, cryptocurrency works a bit differently. Since there is no central authority, you cannot ask for help if you lose access to your crypto.
For starters, cryptocurrency is digital. You store it in a “wallet” that you can have online, or offline. But if you lose that wallet or the credentials to it, that crypto is gone forever.
Further, people can steal your wallet. If they gain access to your credentials, they can take it right out of your hands.
Cryptocurrency doesn’t allow for refunds or chargebacks. There’s no further recourse for you to take when you lose access.
Backups
Make multiple backups of your crypto wallet. You’re welcome to try an online service that stores it for you. However, keep in mind that data breaches are on the rise and you never know if/when it will be stolen.
Don’t just rely on the cloud for your backups, either. Those are vulnerable to hackers as well. Make physical backups.
Keep as many physical backups as you can. You should have at least three, and you should store them in multiple locations. Make sure these are encrypted and that you have a strong password.
5. Use a Password Manager to Keep Track of Your Wallets and Passwords
Following the last point, you will access your wallet with the following:
- A password
- A seed phrase
If you forget the password, then the seed phrase is your backup. But if you forget that too, you have no further recourse.
However, you don’t want a password that’s easy to guess. Hackers use brute force attacks where they try every password combination imaginable to access your wallets. It may take only a few hours at most to crack a simple password.
Password Manager Benefits
A password manager solves all of the above problems. It creates strong passwords and stores them so you don’t have to remember them. Then you just have to keep track of one strong master password.
Keep this master password fresh in your memory. Enter it on a regular basis so that you don’t forget it. If anything, write this password down and store it in a safe where no one can get it except for you.
Most importantly, make sure you use two-factor authentication to secure this password. This means that even if hackers gain access to your password, they cannot access your account.
6. Avoid Crypto Scams
While the crypto exchange platform is a great way to invest, it is riddled with scams. From NFT scams to confidence scams, there are a lot of people who want to hoodwink you.
For starters, educate yourself on the common types of scams in the internet age. Many people will try to imitate authorities, such as in phishing emails. They may present offers that are too good to be true.
In short, use your common sense. Don’t fall for someone who presents a limited-time opportunity. Report those who you suspect may be engaged in some sort of confidence game.
Some Tips to Avoid Scams
Do not trust your wallet to anyone, and don’t connect it to unknown apps. Avoid groups of people that apply extreme pressure on you to buy a new coin. The concept of pump-and-dump is a tried and tested crypto scam that continues to work to this day.
Do not fall victim to the tactics these scammers employ. A common one is what is known as FUD (Fear, Uncertainty, and Doubt). FUD is essentially a way for scammers to make you feel guilty for not taking advantage of a good opportunity.
Keep up with the news. Scammers are always on the lookout for new ways to steal your money and trick you. It’s a lot harder for them to do that if you know what they’ve been up to.
7. Avoid Investing in New Coin–But if You Do, Research its Creators
We mentioned pump-and-dump already, and for good reason. This is one of the ways that scammers operate.
Here’s how a pump-and-dump works, step by step:
- Scammers create a new coin
- They promote this coin as being the next big thing
- They enter discord channels and other communities promising big returns for investors
- They do a pre-mining operation to buy up all the existing coins for themselves and their associates
- They trick hundreds or thousands of people to invest everything in this coin on release day
- The price of the coin becomes artificially inflated for several days, weeks, or even months
- The primary investors with pre-mined coins sell everything at once
- The coin loses its value and crashes, leaving the tricked investors with a worthless cryptocurrency
You should avoid investing in a new coin at all costs. 99% of the time is it likely to be a pump-and-dump scam.
How to Invest in New Coin Wisely
However, that isn’t to say you can’t or shouldn’t invest in new coins. You can, provided that you use caution.
The best way to do this is to research the creators. You want to look for a few key things here:
- Make sure they weren’t involved in any previous scams
- Make sure they have some experience in cryptocurrency
- Make sure they aren’t using the aforementioned scammer tactics to promote the coin
Assuming you’ve done your research, this could be a profitable venture. Don’t just buy the new coin, though. Promote it on all your channels and convince other investors to buy in.
8. Pay Close Attention to Decimal Points
Suppose you buy stock for $25 a share. Then a week later, you want to sell that stock for $75. But in the process of selling it, you accidentally enter $0.75.
This is a discouraging loss, but it’s not the end of the world. Most people can recover from losing a few hundred dollars. But not everyone can recover from losing several thousand.
Decimal points matter in cryptocurrency. This is because, while volatile, 1 crypto coin is usually worth thousands of dollars. At the current moment of writing, one Bitcoin is worth $20,000.
When you’re buying crypto, you need to double, triple, and quadruple-check. Make sure you are absolutely sure you have the right amount of decimals. This could cost you a lot of money, either by buying too much or underselling.
Well-known crypto investors have made this mistake while salivating over a hefty return on investment. Your crypto investment strategy should include some fair measure of caution. Don’t get caught up in the moment to the point where you don’t pay attention to these details.
9. Don’t Dismiss Gimmick Coins
Not many years ago, a coin arose named DogeCoin. This coin had its origins in a meme and was a coin that its creators made purely as a joke. But look at DogeCoin now and you’d hit yourself for not buying it.
Gimmick coins, like new coins, are a dime a dozen. This tip isn’t here to say that you should invest in gimmick coins uncritically. However, you shouldn’t dismiss them outright.
Any cryptocurrency that rises in value is a cryptocurrency you want. You wouldn’t dismiss a stock from a company you dislike if its stock kept rising.
The same rules apply to investing in a new coin. Do your research. Find something out about the investors to ensure this isn’t a run-of-the-mill pump-and-dump.
But further, get a lay of the land. Check what’s going on in the active crypto communities and discord servers. You may get a whiff that this coin is about to go big.
In other words, invest in anything that promises a return. Don’t be shy; you never know, the new CatCoin could end up being the biggest investment you ever make.
Enjoy the Crypto World
Cryptocurrency is an exciting new technology with a promising future. Ever since the creation of Bitcoin in 2009, it has grown into a multi-trillion-dollar market that many investors have bought into. Keep these errors for crypto investors in mind before you take the dive, though!
Follow our blog for more tips on the crypto world.