Cryptocurrency investment has continued to draw many investors as more people made huge amounts of money on Bitcoin, Ethereum, and some other altcoins. As good as this seems, there are many risks which traders are exposed to. Apart from that, when making bitcoin investment or trading Altcoins, stocks, derivatives, bonds, or other financial instruments, traders should be able to avoid some common mistakes.
In this article, we will talk about 20 common cryptocurrency mistakes an investor should be aware of when investing money in all kinds of markets.
Most cryptocurrency investors put all their eggs in one basket, forgetting that the key to every successful investment, including cryptocurrency trading, is diversification. Investing in more than one digital assets will allow an investor to diversify his/her portfolio to be more stable for profits and losses when there is a sudden drop in the value of one of the digital assets.
Investing in a bootless project
Despite being obsessed with cryptocurrencies; most young investors don’t believe in crypto investment. They either invested because their friends tipped them on a particular coin, or because they planned to sell once the price surges. They failed to do due diligence, conduct and conduct background research to get a better understanding of the project, and once the value of the particular coin they invested slumps slightly, they tend to sell their cryptocurrency since they have no idea what’s going on in the market coupled with their overall disbelief. Investors should try as much as possible to do their research; seeking expert knowledge and analyzing fundamentals of considered cryptocurrency projects.
Failing to take out the profit in the right time
Investors, both young and long-term, should learn to secure themselves by taking out the profit of their cryptocurrency in due time. Until you take out your investment, you don’t have real money. You don’t know if your exchange is the next Mt. Gox, or there is going to be a massive blow in the crypto world. Taking out your profit to engage in investment in another platform, or move to a different asset class to create a diversified portfolio is not a bad idea.
Selling cryptocurrency at a loss
Failure of investors to equip themselves with adequate knowledge on the development paths and impediments of cryptocurrency makes them vulnerable to selling at a loss when something terrible but not terminal has happened. Traders who buy cryptocurrency after doing proper research before investing will be able to keep their coins during hard times and sell when the value increases if the project is visible and viable. Selling at a loss is often a sign of bad research, as cryptocurrencies are being created and developed with long-term purposes in mind.
Inadequate investment strategy
Inexperienced investors often fail to decide whether their investment is a short or long term, whether the goal is to gather more coin or dollar, or how to designate capital among asset classes. They also don’t realize that values of Bitcoin and dollar are two different things. There are cases where the price of Bitcoin increases, decreases or holds. You may profit big in dollar value and end up losing in Bitcoin value since BTC also rises and falls. If you are making a short-term investment, or you are a day trader, gathering more Bitcoin would be a better tactic. However, if you are making a long-term investment, accumulating more dollar value is a better strategy.
Lack of analysis and research
Most of the projects based on cryptocurrencies are still in their developmental phase and not yet finished. As a young investor, you need to know the aim of the developers of the cryptocurrency and their obligations to investors. Proper research would widen your knowledge to be able to estimate what kind of Bitcoin or fiat currency value the cryptocurrency can hit. Doing meticulous research on NEM for example, you can deduce the maximum dollar value it can hit, and this won’t let you sell at 5 cents or $2.
Investing money you can’t afford to lose
Most new entrants coming now into the cryptocurrency market often make this mistake. They believe if they had invested some years back, they would likely be a billionaire by now thereby feeling guilty knowing that it’s already too late. Then they start getting loans and putting themselves in other financial debts as a result of their need to make up for the time lost, and as soon as possible to become a billionaire through digital currency. This is a horrible idea as investors may end up selling up their coins, in the long run, to cover the cost of their debts, and hence lose all capital.
Failing to stick to your goals
If you aim to sell IOTA at 40 dollars gain level, don’t sell when IOTA hits $20 gain level because you’re impatient and lack determination. Don’t panic while others are selling, stick to your goal to profit big, of course, if the project is still viable.
Buying cryptocurrency on a “FOMO” and selling on FOUD”
As said earlier, most people buy cryptocurrency on Fear of Missing Out (FOMO) and sell because of Fear of Uncertainty and Doubt (FOUD). Within 23rd of Oct. to 4th of Dec. 2017, the price of IOTA was moving steadily at around $0.2 and started rising suddenly. Most investors felt they were missing out and began to buy while some purchased when the price was at its peak. Finally, the price eased a bit for a certain period before an undulated movement.
Impatient and greedy investor’s behavior
Many investors are lacking patience when making cryptocurrency investments. They don’t want to make a long-term investment but want to become an instant billionaire. They fail to realize that crypto billionaires were once like them investing for at least a year when things were even more uncertain than today. Some investors procrastinate by trying to invest on long-term and some months of their investment; they discover that all other cryptocurrencies are rising except the ones they bought, then they change to purchase the other rising cryptocurrency. After this had happened, their previous cryptocurrency starts to rise. This act is common among young investors, and it’s pretty annoying. You should never be greedy because digital currency investment gives a maximum return on investment in contrast to other more traditional investment vehicles like stocks and bonds which commonly generate not more than 6% return on the annual basis.
Ignoring supply and looking only at cryptocurrency prices
Some crypto investors often ignore supply or the market capitalization of a coin and concentrate their investment on the price of the digital currency. They believed if they invest in a lower price digital currency instead of a higher price, there is a high chance for the lower price increase ten times, unlike the higher price equivalent. Considering the market capitalization which is the value of all projects is essential in crypto investment. For example, if the price of Litecoin is $233.71 and the supply is 54609058 LTC, the market capitalization would be the product of the price and supply which is $12,762,682,981. Knowing the market cap and supply would let you invest in the right cryptocurrency project as there are prospects for investors investing in cryptocurrencies with lower market capitalizations than that of the higher market capitalizations.
Avoid buying cryptocurrencies now because the prices are too high
This is a quite rampant mistake among both young and old investors. Viewing the current market from the past perspective is a bad idea. There are chances for the continuous rise in the price of a presently high price digital currency. Investing in such project right now when people are fearful of investing can give you an upper edge in the cryptocurrency world.
Investing in cryptocurrency with a tiny market cap
Purchasing digital currencies with a small market capitalization is also an unsafe investment decision most investors make. They tend to purchase cheap digital coins far below a cent having a wavy chart where it rises today and falls some days later. The truth there is, this kind of cryptocurrency can’t be sold on an exchange or to any company, and since the chart is unstable, no one will want to buy the cryptocurrency when the price increases since they know that the price will fall some days later. They will want to purchase when it falls. The increment you notice in this kind of project is as a result of the fund you and some other inexperienced investors pumped into the project.
Buying all cryptocurrencies at once
People who make short-term investments and day traders should make sure to always cost-average when investing in digital currency. For example, if the price of Bitcoin is rising, make sure you don’t sell all your Bitcoin at that time, be patient and sell some portion and when you discover there is a further rise, make sure you sell too. Using this tactic would let you avoid losing in the long run.
On the other hand, long-term investors that are familiar with the market and knows what the cryptocurrency project could later hit should concentrate on accomplishing their long-term goals.
Not double-checking wallet number when sending cryptocurrency
When transferring cryptocurrency to your digital wallet or other investors’, make sure you double or triple check the wallet number. Do not send Bitcoin classic to Bitcoin wallet or Ethereum Classic to Ethereum wallet. Try to double check correctly, or your transfer may be gone.
Being too emotional
Some young and old investors are too emotional thereby buying more digital currencies when the price of the one they purchased suddenly falls. If you lose funds presently on a particular investment, be calm. Stick to your plan, and make sure you don’t make a risky investment because you lost on a project.
Not researching before reinvesting in an already known project
It is quite natural that you know a lot about the project you are investing but at times, you need to do proper research before reinvesting. There might be a situation where the huge drops in the project you are accustomed to are due to some calamitous reasons like the death of the CEO in an accident, or the partnership the developers established was not real. Series of problems might occur. If you don’t research before re-investing, you will purchase the cryptocurrency at the low rate speculating that when it increases, you will sell. In the real sense, you are buying a worthless cryptocurrency. Make sure you research the causes of the drop in price before reinvesting.
Lack of strategy
Some investors make cryptocurrency investments to get more money one-off. However, making excessive profits is not the long-term purpose of cryptocurrency. Investors shouldn’t be too emotional either. For example; if your goal is to invest in IOTA at 4 USD level, you should decide the gain level you expect to sell, or when you plan to sell. Having a strategy would give you breakthrough.
Not writing down your password and the seed to your wallet in a secured place
You can lose all your investments with this tiny mistake. Many investors have their digital currencies in their digital wallets but forget their passwords. Make sure you write down your passwords, seeds and all other necessary information essential to your wallet in at least four separate secured places.
Making decisions based solely on technical analysis
Investors should stop using only the technical analysis like resistant levels, trend lines, supply levels, etc. to make investment choices because this will not help when there is an announcement in the digital currency project. Using IOTA chart within June 26 to December 8, 2017, as an example, IOTA suffers a huge drop to around $0.2. On December 11, 2017, they partnered with Microsoft and the price increases remarkably to about $5.70. Investors who made choices based on the technical analysis and sold when the price was falling with the fear of uncertainty and doubt bemoaned their decisions, and those that were greedy while others were afraid profited big.