Cryptocurrency has gone from an obscure financial tool to a mainstream investment. Many people thought it would be a fad, but instead, 45 million Americans now use cryptocurrency.
But getting started in crypto is easier said than done. You need to do your research to avoid making bad investment decisions.
Do you want to avoid errors for new cryptocurrency investors that are common? Read on to learn what those errors are and how to avoid making them.
1. Not Learning About Crypto
It’s tempting to jump straight into trading cryptocurrency. You hear about all these people making money and turning small amounts of cash into millions. The problem is that these are the exception and not the rule.
It’s hard to make intelligent crypto investments when you don’t understand what you’re buying. Cryptocurrencies are a technology, and each crypto product has different features that make it worth buying.
Make sure you understand these features before investing.
Bitcoin, for instance, is largely for holding and making simple transactions. On the other hand, Ethereum is a smart contract cryptocurrency that allows users to make crypto applications on the network and build new crypto coins.
2. Trying to Time the Market
Some people see the huge swings in cryptocurrency prices and think they can take advantage. Instead of investing now, investors try to wait for the perfect opportunity to buy cryptocurrency.
The problem is that this doesn’t usually work. Many people wait for giant dips that never come — and miss a lot of potential profit in the process.
Most people are better off investing smaller amounts of money over time. The dollar-cost averaging strategy is excellent for gaining exposure at different prices. Over time, this usually leads to a more significant profit.
3. Picking the Wrong Trading Platform
The crypto exchange platform you use plays a vital role in your success. There are many platforms out there — and not all of them have the best reputation.
Make sure you research trading platforms carefully before signing up. Make sure your choice is legal in your country and does enough to safeguard customer holdings.
If you can, stick with the largest platforms with the highest volume. These websites are already vetted by the crypto community and will normally look after users.
4. Holding Crypto in One Place
It’s not uncommon for crypto holders to store their cryptocurrency on one website. Typically, it’s the trading platform they use to make the purchase.
Unfortunately, this decision can come back to haunt you. Even if a website has an excellent reputation, things can go wrong that compromise your account.
Ideally, move the crypto you don’t plan to sell to a private wallet. In this situation, you’re responsible for your holdings. You won’t lose anything if the platform you purchase from suffers from an attack.
There are also other crypto-holding websites available to spread your risk. Check out Etana Custody if you want to see one of your options.
5. Failing to Diversify
It’s tempting to try and go all in on a single cryptocurrency. Something seems like a sure thing, so you put everything into one bet.
Although this can sometimes work, it can lead to disaster. If something goes wrong and your investment fails, you have nothing to fall back on.
Try to diversify as much as possible in the crypto market. Stick with a few of the biggest cryptocurrency products for most of your investments. You can invest smaller amounts of money into riskier plays to try and get bigger earnings.
6. Ignoring Earning Opportunities
Many people make their money by purchasing crypto and holding. This works great, but you’re always at the whim of the market.
Luckily, some cryptocurrencies have other earning opportunities.
A proof-of-stake cryptocurrency is the perfect example of this. A proof-of-stake coin uses validation servers to validate transactions. Crypto holders stake their holdings on these servers and get a portion of the transaction fee.
Over time, this leads to a regular yield on your staking portfolio. Different servers and coins have different returns, so examine your options.
7. Trading on Emotion
It’s not uncommon for people to panic in the crypto space. Whether it’s news from the traditional financial world or product issues, countless variables can result in a cryptocurrency losing value.
A common reaction in this situation for inexperienced investors is to panic. Investors don’t want to lose more money, so they panic and sell everything they have.
If you don’t invest more than you can lose and don’t need immediate cash, this is usually a bad idea. You cement your losses when you sell. In many cases, it’s smarter to hold on to your crypto until the future when the market recovers.
8. Not Taking Profit
There may be many situations when you’ll be in a lot of profit with crypto. You make a good investing decision and see your money increase by a lot.
But in the excitement of seeing that profit, some investors try to hold on for too long. The problem is that prices aren’t guaranteed to stay high. If you want too long to trade for cash, you’ll lose some of your crypto investment profits.
Make a plan for taking a profit. Gradually withdraw your earnings over time to make sure a cryptocurrency’s price doesn’t return to where you purchased it at.
Avoid Errors for New Cryptocurrency Investors
Buying and selling cryptocurrencies can be intimidating to new traders. You’re entering a new market that’s volatile and has more risk of causing a loss. If you make the wrong choice, you can lose your investment.
But that doesn’t mean it isn’t worth trying. There are many common errors for new cryptocurrency investors that result in the biggest losses. Now that you know the errors, find a platform to trade cryptocurrency and make your first investment.
Do you plan to make any more investments outside of the crypto market? Check out the blog to find more investing tips.