October 8, 2024
Cryptocurrency

7 crypto investing mistakes — and how to avoid them

The common mistakes people make when putting their money into cryptocurrency

Cryptocurrency is a newer type of asset class and, therefore, a novelty for many people. The price of crypto behaves differently than stocks, which requires an investment strategy to be adjusted accordingly. However, investors often end up making mistakes because they sometimes base their judgment on half-baked or incomplete information. To overcome this, let’s take a look at the common mistakes that crypto investors make.

1. Lack of knowledge about crypto

Many people mistakenly think that “crypto” refers only to Bitcoin. In reality, there are thousands of cryptocurrencies, each with its own specific use cases, and their prices can fluctuate significantly. Before delving into cryptocurrency investment, it’s crucial to gain at least a beginner-level understanding of cryptocurrencies and not be swayed solely by the buzz surrounding Bitcoin.

2. Don’t believe everything you read

When it comes to crypto, it’s important to do your own research (DYOR). There’s a lot of information out there, but it’s not always accurate. You might come across conflicting information on social media, at family gatherings, and on various websites. To avoid making the wrong decisions and getting confused, it’s crucial to fact-check everything you come across. Look for reliable news websites and educational platforms to verify the information. Moreover, don’t invest simply because a friend did. FOMO (fear of missing out) in crypto can be harmful.

3. Short-term goal for investing

Cryptocurrency trading is available 24/7, and investors from around the world pour their money into it. As a result, the price is volatile, and it goes up and down rapidly. Many new crypto investors aim to make quick profits and believe that crypto can make them millionaires within a few years. However, it’s important to understand that crypto is neither a magic wand that can make you rich overnight nor a shortcut to wealth. Like any other asset class, crypto requires a sound strategy and time, and it’s crucial to have long-term goals when investing in crypto.

4. Forgetting the crypto wallet password

When making cryptocurrency transactions, an investor must have a crypto wallet. These wallets are accessed using passwords or private keys. Forgetting your password can lead to the loss of your cryptocurrency, as it may not be recoverable. The private keys are long alphanumeric sequences that are difficult to memorize. If these keys are lost or forgotten, the cryptocurrency cannot be recovered and will be permanently lost. Most wallets include a backup seed phrase for accessing funds. However, if this seed phrase is lost or forgotten, there might be no way to recover your funds.

5. Error while trading crypto

For new users, navigating the extensive list of cryptocurrencies and their details can be intimidating and may lead to placing incorrect orders, resulting in financial loss. For instance, when attempting to send someone cryptocurrency, a simple mistake in typing the crypto wallet address could result in the funds being sent to the wrong address, making it unrecoverable.

6. Not considering fees and taxes

It’s important for new crypto investors to understand the various fees associated with buying crypto, such as blockchain fees, exchange fees, and other charges. It’s crucial to choose the right credit/debit card or bank account to minimize these fees. Before making a purchase, it’s best to research the potential fees and find the most cost-effective times and exchanges. This could result in significant long-term savings.

In addition, it’s essential to be aware of crypto taxation. Simply buying and owning crypto isn’t taxable. However, tax implications arise when you sell it, and the tax amount depends on how long you hold the crypto in your wallet.

7. Not diversifying the portfolio

It’s often advised to investors not to put all their eggs in one basket. This also applies to cryptocurrency. Sometimes, investors keep buying one cryptocurrency because of the hype around it, thinking that since everyone is pouring money into it, they should do the same. However, this isn’t the right strategy and may hinder long-term growth. It’s wise to invest in different types of cryptocurrencies and also consider cryptocurrency-linked securities such as ETFs.

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