Cryptocurrency is groundbreaking, and innovative, and has the potential for big returns on investments. However, it’s also largely unregulated, very different from any other form of investment, and there is a proliferation of scams that investors need to avoid. Below, we look at some of the most common mistakes novice investors make, and what you can do to avoid them.
Investors need to do extensive research into the entity they are investing in and avoid buying on a whim or jumping on a social media bandwagon. Stock investors spend a lot of time researching a company before buying shares, and foreign exchange investors pore over socioeconomic news. Crypto investors need to do the same.
Avoid buying on a hunch or because you like the logo of a new meme coin. Use details of 2024’s most anticipated crypto presales and act quickly, but do your research. According to crypto writer Alan Draper, investors need to check the whitepaper, determine use cases, and research the team behind the project to ensure they’re backing a solid project.
Don’t ignore fees. Cryptocurrency proponents point to the minimal fees required for cryptocurrency transfers, but there are still fees, and some major crypto exchanges have quite high levies when exchanging coins.
There may also be fees associated with some payment methods – a 3% fee for buying crypto using a credit card is common and instantly puts your investment on the back foot. Some fees are unavoidable, but you need to know how much you will be charged to be able to determine the efficacy of an investment.
Don’t expect to get rich overnight. During Bitcoin’s significant bull runs, investors have made substantial gains in a matter of days. Similarly, presale investors have found coins that have multiple 100x or even 1000x after their launch.
However, these opportunities are scarce, and the current high price of Bitcoin means that they are becoming less likely when investing in major coins.
Cryptocurrency’s potential gains also come from the high level of volatility in the market. This volatility also brings with it the potential for substantial losses, and you need to account for these.
Only ever invest money you can reasonably afford to lose, and be prepared for the fact that you could lose a significant portion of your investment even in the first few days.
Exchanges are where you will change fiat currency for crypto and then trade cryptos for one another. They serve an invaluable purpose. But they aren’t designed for the long-term holding of your cryptocurrency portfolio.
You should use a wallet to hold crypto, and ideally, a cold wallet that isn’t connected to the Internet all the time. Wallets are more secure than exchanges and there are plenty of options, depending on the types and exact currencies you hold.
Unfortunately, the unregulated state of the cryptocurrency market does mean that scams are more commonplace in cryptocurrency than in a lot of other investment markets.
Whether you’re investing in an Initial Coin Offering (ICO) or are looking for the best wallet or exchange, do your due diligence. Research any entity you are going to use to check its background, and the team behind the project, and read genuine user reviews to ensure its legitimacy.
Finally, avoid panic buying or panic selling, because this usually means that you are trading without doing research and it can compound losses and diminish your investment bank. It can be difficult to stay level-headed, especially during bear markets, but if you have a clear goal and an investment strategy in place, this will help.
The fast-moving cryptocurrency market needs a level head. Set your goals before you invest, do your research, and be prepared for ups and downs.
