Investing in cryptocurrency can make you gain or lose money. The cryptocurrency market is highly unregulated which means, your account can get hacked and no one will help you recover it.
Another downside of cryptocurrency investment is also related to the volatile market.
For example, bitcoin’s value dropped 58% in the second quarter of 2022. This is by far the worst performance for bitcoin since 2011. On top of that, ethereum, which is considered a strong competitor of bitcoin, has also dropped 69.3%. Ethereum’s drop is considered to be its worst since it was launched in 2015.
In spite of all this, investing in cryptocurrency is a profitable business. However, you need to be aware of the major mistakes people usually make when they start their investment journey. In the crypto market, just like in life, we need to learn from those who’ve been where we want to be and become aware of the losses they’ve experienced.
Here are 5 mistakes you can make as a newbie cryptocurrency investor:
Buying high and selling low
There is this preconception that if a coin’s value is high, you need to buy it because it will make you a lot of money. However, the next day, its value can decrease significantly. Those who start investing in cryptocurrency usually buy high (when the coin’s value is at its peak), wait for a short while and sell it fast when the value drops.
However, experienced cryptocurrency investors know that when a coin’s value is high, it means it is not the time to start investing. They usually wait for things to cool off before betting their money on this coin.
Buying cheap coins
Another mistake to avoid in cryptocurrency investing is buying a coin because is cheap. Newbie investors think that just because litecoin, for example is cheaper than bitcoin, it doesn’t mean you’ll be successful at investing in it. The problem here is that you’re looking at the unit price of the coin. The unit price of litecoin for example is $50 as opposed to bitcoin that is priced at $20.000. That is because there are more litecoins in the crypto supply than bitcoins, which makes them more affordable, thus, more attractive to beginner investors.
Starting to invest in cryptocurrencies is not easy, just because one reads conflicting advice. Should you sell the coin as soon as your coin’s value goes down? Or should you wait for a while until the crypto market stabilizes itself?
Many beginners think that they’re taking a big risk waiting until their coin increases in value. This may mean they need to wait weeks, even months for their coin to become more expensive. Thus, they usually pull off earlier in the ‘game’. That means that, as soon as their coin’s value plummets, they sell and close their accounts.
However, experts in cryptocurrency investment say that, any kind of investment is a long-term process. Their advice is to hold your crypto for a long period of time (months, even years). That is because, it is more likely for you to make considerable amounts of money this way. Other advantages of this method is that you’ll pay lower taxes and it will require less of your time.
The safest, wisest method of dealing with the fluctuations in your cryptocurrency is to not dedicate your time to constantly check the market. Once you start investing, take a few months and wait for your coin to increase its value and stabilize itself. If you see the coin’s value at an all time high after six months, you can wait some more time or sell if you want.
However, there are experienced investors who stay in the crypto ‘game’ for years. They know that, in order to make a significant amount of money, they need to spend years learning about the best way to invest in cryptocurrency. Yes, they lose money in the process but, as we all know, it’s impossible to learn something new without making a lot of mistakes.
Not looking into diversification
Cryptocurrency experts believe that a big mistake newbie investors make is to not diversify their portfolio. Meaning that, they will put all their money on litecoin for example, ignoring other cryptos that are doing really well.
A rule of thumb would be to split your investment portfolio in two. You can, for example put half of your money on bitcoin and the other half on ethereum. Or, you can put 75% of your money on ethereum, 20% on bitcoin and the rest on altcoin.
Cryptocurrency experts go as far as to suggest going outside the crypto market to make more investments. You can, for example put a part of your money in the stocks or the real-estate market. That way, if your cryptocurrency investment flops, you’ll have money coming in from your real-estate portfolio.
The idea is to not put all your eggs in one basket. We all know that cryptocurrencies are volatile and their value can drop from one minute to the other. You can then mitigate this risk by investing in safer and more regulated markets.
This mistake is usually done by people who have accumulated a lot of debt or have saved up to make a big and important puchase like a home, a car or equippment for their brick and mortar business.
If you put your hard-earned money into cryptocurrency and you then lose it, your life will be negatively impacted by it. Imagine losing the money that would have bought you a brand new home! The amount of guilt and shame that come with this loss will be hard to deal with.
Consider spending a smaller amount of money on your cryptocurrency investment. This amount of money should not affect your life negatively if you lost it. However, remember the fact that it is hard to be successful in the crypto market if you don’t make a big investment.
All in all, investing in cryptocurrencies is a long-term process. You can’t just throw a hundred bucks on a bitcoin today and expect a thousand dollars by tomorrow. Experienced crypto investors who have accumulated a small fortune have been trading digital coins for years. They’ve learned from their own mistakes on how to best invest in cryptocurrencies without losing their hard-earned money and you should learn this as well.
Marlena is a freelance writer and technology enthusiast with an interest in business, health and cryptocurrencies. She has written for Thrive Global, Life Hack and other publications. You can say ‘hi’ to her on Twitter at @MarlenaEeva.