10 Mistakes New Crypto Investors Make
Investing in crypto can be exciting, but many new investors fall into common pitfalls when it comes to trading and investing in cryptocurrencies. From poor security practices to a lack of knowledge about crypto markets, new inventors can quickly lose money. We’ll cover the 10 most common mistakes new crypto investors make and how you can avoid them.
Lack of basic cryptography knowledge
New crypto investors may be drawn to all the hype surrounding Bitcoin and other cryptocurrencies, but investing in crypto requires understanding the asset class and how it works. Investing in an asset you don’t understand or trying to trade cryptocurrencies without understanding the basics of how cryptocurrency works is a recipe for disaster. Taking the time to learn about different crypto projects and the goals of each crypto company will make you a better investor.
While there are many ways to buy crypto, new investors might just jump into buying crypto without understanding how gas fees work on exchanges. For example, buying crypto with a credit card can incur massive additional fees (3% or more), and may also incur additional charges from your card company. Knowing which crypto exchanges offer low fees and what is the best method to buy and trade cryptos will save a lot of money in the long run.
The promise of “get-rich-quick” in the market makes many new investors think only in the short term. And while it is possible to make massive gains on a crypto investment, it is also possible to lose all of your funds to a bad investment.
Having a long-term investing 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.
Keeping Crypto in Online Wallets
Cryptocurrency is 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 crypto offline. Online wallets are more prone to vulnerabilities and hackers can empty your wallet through scams or crypto hacks. The safest way to store your crypto is in an offline hardware wallet, which is basically a USB drive with advanced hardware and software encryption to protect your crypto private keys.
Forget crypto passwords or seed phrases
Since the cryptocurrency is kept in a digital wallet, these wallets require passwords to access them. If you forget your password, your cryptocurrency may not be recoverable. Most wallets have a backup seed phrase to access funds, but if that seed phrase is lost or forgotten, there may be no other option to recover your funds.
Wrong wallet 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 investors make is trying to transfer crypto funds to your wallet, only to mistype the wallet address. When this happens, the crypto is sent to the wrong wallet address and may be unrecoverable. Although there are recovery services that could help you, it could be very expensive.
As a new asset class, the cryptocurrency market is full of scammers. In fact, the Federal Trade Commission (FTC) reported nearly $700 million in stolen crypto assets in 2021 alone. These criminals use sophisticated phishing techniques to gain access to your crypto wallet and convince you to transfer funds to their wallet.
Crypto scams can happen through messenger or messaging apps, with perpetrators claiming to act in your best interest. Wallets can be compromised by simply connecting the online wallet to an app and giving it permission to access the funds. And while this is a common practice for many crypto apps, scammers can use this technique to drain funds from the crypto wallet.
To avoid these scams, never connect your online wallet to an untrusted app and keep most of your crypto funds in offline hardware wallets. Also, never give out your wallet password, seed phrase, or private keys.
Use of leverage
New crypto investors may be lured into stories of rags to riches through crypto trading and try to use leverage to multiply their returns. The problem is that leveraged trading requires upfront collateral, and if a trade goes wrong, you risk losing all your funds. Remember that leverage works both ways and can also multiply your losses.
New crypto investors better avoid trading with leverage and only use it after gaining sufficient trading experience.
Overly complicated trading strategy
New crypto investors who try to jump straight into complicated trading strategies because some YouTuber told them can quickly lose money and abandon crypto altogether. It takes time to learn technical analysis, entry orders, and how crypto markets work.
Investing in crypto can actually be simple. You don’t have to create a complicated trading strategy to try and grow your portfolio. Similar to traditional investing, you can calculate the average cryptocurrency cost, without the need for active trading and being glued to crypto charts, around the clock.
While some crypto exchanges, like Coinbase, specialize in making buying crypto simple, many have complicated order forms and trading platforms that can confuse new users. When placing an order, a single decimal point error can cost thousands of dollars, multiplying losses. In fact, a recent mistake cost a seller almost $300,000 when he sold a premium NFT for 0.75 Ether instead of 75 Ether.
To avoid these costly mistakes, always check your orders or transfers before submitting them. Crypto is irreversible, so it is best to make sure before submitting a transaction.
Investing in crypto can seem overwhelming, especially when you’re just getting started. But avoiding these mistakes can help you become a more confident investor and prevent you from losing thousands of dollars due to a lack of know-how.
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