Although investing in cryptocurrencies can be thrilling, many novice cryptocurrency investors make typical mistakes when trading and purchasing cryptocurrencies. New cryptocurrency investors run the risk of losing money quickly due to lax security procedures or a lack of understanding of bitcoin marketplaces. In this post, we’ll discuss the 10 worst errors that novice bitcoin investors make and how to avoid them.
We will talk about the risks of investing in cryptocurrency and how to avoid them. These risks include not knowing enough about crypto, not paying attention to commissions, thinking short term, storing crypto in online wallets, forgetting crypto passwords or seed phrases, choosing the wrong direction for your portfolio, getting scammed, using leverage, using a trading strategy that is too complicated, making ordering mistakes, and more. You can succeed as an investor and get the most out of your cryptocurrency investments with the appropriate information and understanding of the crypto market.
In a Nutshell
- Lack of basic knowledge of cryptography
- Ignoring fees
- Short term thinking
- Storing cryptocurrencies in online wallets
- Forgotten cryptographic passwords or seed phrases
- Incorrect wallet address
- Being scammed
- Use of leverage
- Excessively complicated trading strategy
- Errors in orders
1. Lack of Basic Knowledge of Cryptography
New cryptocurrency investors may be attracted by all the hype surrounding Bitcoin and other cryptocurrencies, but investing in cryptocurrencies requires understanding the asset class and how it works. Investing in an asset you don’t understand, or trying to trade crypto without understanding the basics of how cryptocurrencies work, is a recipe for disaster. You will be a better investor if you take the time to learn about the different cryptocurrency projects and the goals of each cryptocurrency company.
2. Ignoring Fees
While there are many ways to buy crypto, new cryptocurrency investors may jump into buying crypto without understanding how exchange fees work. For example, buying crypto with a credit card can carry huge surcharges (3% or more) and could also carry additional fees from your card company. Learning which crypto exchanges offer low commissions and what is the best method to buy and trade crypto will save a lot of money in the long run.
3. Short Term Thinking
The promise of “getting rich quick” in the market makes many new cryptocurrency investors only think short term. And while there is the possibility of making huge profits with a cryptocurrency investment, there is also the possibility of losing all of your funds due to a bad investment decision.
Cryptocurrency is the most disruptive invention since the Internet.
Having a long term investment mindset will help you choose your crypto investments more carefully, and focus on picking higher quality projects with a long track record. Trying to get rich in 90 days is a quick way to go broke, but thinking of crypto investing as a multi year process will help you build a more thoughtful crypto portfolio.
4. Storing Cryptocurrencies in Online Wallets
Cryptocurrency is a digital currency and requires a digital wallet to store it. Although using an online wallet is more convenient, it is also much riskier than storing your cryptocurrencies offline. Online wallets are more prone to vulnerabilities, and hackers can empty your wallet through scams or hacks. The safest way to store your crypto is in an offline hardware wallet, which is essentially a USB stick with advanced hardware and software encryption to protect your private crypto keys.
5. Forgotten Cryptographic Passwords or Seed Phrases
Since cryptocurrencies are kept in digital wallets, these wallets need passwords to be opened. If you forget your password, you may not be able to retrieve your cryptocurrency. Most wallets have a backup seed phrase that lets you get to your money, but if you lose or forget that phrase, you may not have any other way to get your money back.
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6. Incorrect Portfolio Address
Transferring crypto between digital wallets is how you take custody of your crypto from one exchange, or how you send funds from one party to another. But a common mistake new cryptocurrency investors make is attempting to transfer crypto funds to their wallet, only to misspell the wallet address. When this happens, the crypto is sent to the wrong wallet address and may be unrecoverable. While there are recovery services that can help with this, it could be very costly.
7. Being Swindled
As a new asset class, the cryptocurrency market is rife with fraudsters. In fact, the Federal Trade Commission (FTC) reported nearly $700 million in stolen cryptoassets in 2021 alone. These thieves use sophisticated phishing methods to get into your cryptocurrency wallet and get you to send money to their wallet.
Cryptocurrency scams can occur via email or messaging apps, with perpetrators pretending to act in your best interest. Wallets can be compromised simply by connecting the online wallet to an app and giving it permission to access the funds. And while this is a common practice for many cryptocurrency apps, fraudsters can use this technique to drain funds from the cryptocurrency wallet.
To avoid these scams, never connect your online wallet to an untrusted application, and keep most of your cryptographic funds in physical offline wallets. Also, never reveal your wallet password, seed phrase or private keys.
8. Use of Leverage
Some new cryptocurrency investors may be interested in hearing about people who got rich by trading cryptocurrency and try to use leverage to increase their profits. The problem is that leverage requires collateral up front, and if a trade goes wrong, you can lose all your funds. Remember that leverage works both ways and can also multiply your losses.
New cryptocurrency investors would do better to avoid trading with leverage, using it only after they have gained sufficient trading experience.
9. Excessively Complicated Negotiation Strategy
New cryptocurrency investors who try to jump straight into complicated trading strategies because some YouTuber told them to can quickly lose money and abandon crypto all together. It takes time to learn technical analysis, conditional orders, and how cryptocurrency markets work.
Investing in cryptocurrencies can be really simple. There is no need to create a complicated trading strategy to try to grow your portfolio. As new cryptocurrency investors you can dollar cost average in cryptocurrencies, just like traditional investing, without having to actively trade or be glued to cryptocurrency charts 24 hours a day.
10. Ordering Errors
While some cryptocurrency exchanges, such as Coinbase, specialize in simplifying the purchase process for cryptocurrency investors, many have complicated order forms and trading platforms that can confuse new users. When placing an order, a simple decimal point error can cost thousands, multiplying losses. In fact, a recent error cost one seller nearly $300,000 when he sold a premium NFT for 0.75 ether instead of 75 ether.
To avoid these costly mistakes, always double check your orders or transfers before sending them. Cryptocurrencies are irreversible, so it is best to be sure before sending a transaction.
Wrap Up | Cryptocurrency Investors
Cryptocurrency investments can be a terrific way to diversify your portfolio and possibly make money. But it’s important to be aware of the common mistakes that new cryptocurrency investors make, like not knowing the basics of crypto, not paying attention to commissions, thinking short term, storing cryptocurrencies in online wallets, forgetting crypto passwords or seed phrases, putting your portfolio in the wrong direction, falling for fraud, using leverage, using a trading strategy that’s too complicated, and placing the wrong orders.
If you know about these mistakes and take the right steps to avoid them, you can become a more confident investor and avoid losing money because of your lack of knowledge. You can make wise judgments and maybe profit from investing in cryptocurrencies if you have the necessary information and understanding of the market.
FAQs | Cryptocurrency Investors
You can save a lot of money over time by learning which cryptocurrency exchanges have cheap commission rates and the best way to buy and trade cryptocurrencies.
An offline hardware wallet, which is essentially a USB stick with cutting edge hardware and software encryption to safeguard your secret crypto keys, is the safest place to store your cryptocurrency.
Never link your online wallet to an untrusted program, and keep the majority of your cryptocurrency cash in offline hardware wallets to prevent these scams.
The majority of the European Union (EU) has legalized cryptocurrencies, although how exchanges are run varies by member state. In the meantime, taxes in the EU vary from 0% to 50% depending on the jurisdiction.
Cryptocurrency investors are individuals or entities that allocate capital to digital currencies like Bitcoin, Ethereum, and others, with the aim of achieving financial returns.
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