5 Mistakes to Avoid when Investing in Crypto

Are you considering investing in cryptocurrency and are looking for the best ways to succeed as a beginner? Digital currencies are highly volatile. Besides, we are emerging from a year of economic difficulty that the COVID-10 pandemic caused.

So, anyone who wants to invest in crypto must avoid several common mistakes to increase their success chances. Read on for the 5 most common investment mistakes and how avoiding each of them could change your success prospects in 2021.

Mistake #1. Investing Without Understanding the Topic

The biggest mistake you can make is to invest in crypto without having the basics of the cryptocurrency investment. The industry has unique rules, procedures, and strategies that users need to master to achieve their goals. So, before you start investing, you should educate yourself about crypto investment. It would be best if you focused on enhancing your ability to:

  • Choose viable investment strategies that you are most comfortable with
  • Understand the volatility of different digital assets
  • Learn to identify cryptocurrency scams
  • Discover the right time to invest
  • Use secure crypto exchanges and wallets
  • Understand the pros and cons of using a crypto trading robot

If you understand these basics, you will have more control over your investment. You will also appreciate that you have the full responsibility to manage your business and use the right strategies to increase your income.

Mistake #2. Not Paying Enough Attention to Security

Many beginners mistakenly think that cryptocurrency is foolproof. The widespread belief has misled them that blockchain is secure. However, encrypted cryptos are only confidential. Criminals can hack or steal the assets if you ignore the security basics.

Cryptocurrencies are decentralized, meaning it is your sole responsibility to keep them safe.

When you want to mitigate the security risk, do the following:

  • Secure your private keys: Codes or keys represent a cryptocurrency. So, it would help if you kept them to yourself.
  • Store your coins in digital crypto wallets: Choose wallets that offer the required security features. Also, ensure that the manufacturer has a credible track record. If possible, buy a cold wallet.

Mistake #3. Not Doing the Math

The reason you want to invest in cryptocurrency is to make a profit. However, some investors fail to do the math. Instead, they rely on the numbers that they see online and from other sources.

Experts have projected the rise of Bitcoin in 2021. However, that information is not enough to help you understand how much money you will be making. So, before you start investing, you should consider the following:

  • Transaction fees: Cryptocurrencies are highly volatile so that you can see numerous price changes within as short as one hour. Investors take advantage of these changes to make profits. Nonetheless, since you need to pay a small fee to buy or sell cryptocurrencies, consider the transaction fees before entering into any trade.
  • Taxes: If your government taxes the proceeds of cryptocurrency, this is another essential thing to consider. In the US and Canada, the law considers crypto as a property. In other words, if you are a resident or citizen of any of these nations, you should pay capital gains per transaction. This means if you trade excessively without considering the tax requirements, your profits may turn into losses.

Mistake #4. Making Crypto Investment Decisions Based on Emotions

It can be emotionally draining to lose a valuable investment. At the same time, the thought of making huge profits within a short period can be thrilling. The only challenge is that cryptocurrency is both an art and science. If you rely on emotions, you are highly likely to make the wrong investment decisions. That means you should choose a strategy that can help you to make objective decisions.

Some of the most common emotion-driven strategies that you should avoid are FOMO, FUD, and HODL.

  • FOMO: Stands for Fear of Missing Out. Investors that follow it buy on the hype for fear of making losses. This strategy is the riskiest option as it can make you susceptible to scams.
  • HODL: This refers to the practice of holding on to the investment regardless of the market volatility. It is a long-term strategy that can work in your favor. So, you should not use it if you have to wait for a good return.
  • FUD: This acronym stands for Fear, Uncertainty, and Doubt. It prevents investors from taking any profitable action even when figures from credible sources show an appropriate time to invest.

Overall, if you avoid FOMO and FUD, you are highly likely to make more money from cryptocurrencies.

Mistake #5. Investing in Just One Asset

There are thousands of digital currencies on the market right now. Since all of them are volatile, you cannot invest in only one and expect huge returns. Remember that some were promising during their early days but eventually failed.

The good news is that some assets like Bitcoin have remained in the market for more than a decade. They are the cryptocurrencies’ Holy Grail. However, from experience, their prices rise and fall too, so they can also trigger losses at any time. That is the reason we advise people to invest what they can afford to lose.

The practice of diversifying investments is a fantastic strategy that you can adopt. By putting your money in different cryptos, you minimize your chances of losing your entire investment.

Wrap Up

During the onset of the COVID-19 pandemic, the price of Bitcoin and many altcoins significantly dropped. However, that has changed in 2021. The prices are rising, and investors project that the trend continues for the better part of this year. This projection is likely correct, but we know that it is speculative, and cryptocurrency is volatile.

Without a doubt, investing in cryptocurrency can still lead to huge losses. So, you still need to do the due diligence to increase your odds of making a kill. Start by learning the right way to invest in the assets, follow the right security procedures, and use the recommended investment strategies. This way, you will avoid the above mistakes and invest in crypto successfully.