This article - written by Mary Ann Callahan, an expert on Bitcoin-related topics for Cex.io, cryptocurrency exchange - will give you an insight into the 5 most common mistakes made by cryptocurrency investors and how to avoid them.
When investing in cryptocurrency, some pitfalls can be incredibly damaging to the sustainability of your portfolio. With this in mind, this list helps you ensure your crypto investing experience is safe and you are on your way to cryptocurrency success.
Social media has a big impact on cryptocurrency trading and investing. So, it is no wonder that investors and crypto creators do their utmost to hype up a token. This happened a lot during the 2018 crypto market crash and still has an impact on investors to this day.
When using social media, be cautious of things that appear too good to be true. Common news articles like “Bitcoin made me Millions” or “Bitcoin is going to Rocket in Value” are often misleading. This doesn’t mean that it can’t make you millions or that the price of Bitcoin won’t change. But more often than not, media hype causes a bubble in investment that makes a cryptocurrency jump in value. As a result, the long-term investors sell to make a huge profit, leaving other investors with a stock that isn’t going to be profitable.
This hype caused many fortunes to be made when Bitcoin surged in 2017, but for those who hadn’t sold before the bubble burst it caused financial misery. In fact, Bitcoin still hasn’t bounced back from that huge drop in investor confidence almost a year later.
Another thing to be wary of is new crypto tokens that seem to be the latest craze. Again, this hype will likely push up the value and may be considered an attractive investment prospect, but oftentimes when the dust settles it turns out not to be.
The best thing to do to combat hype is familiarize yourself with the crypto world by reading expert blogs as well as information available online. This will allow you to invest in cryptocurrency that you fully understand and will help you make informed investment choices.
This one is simple, yet many investors choose an exchange without first reading up on the fees or practices of that exchange. Some of the largest and most popular crypto exchanges also have the highest fees.
High fees mean lower profit margins and, as an investor, you want to be seeking out low-fee secure exchanges to make your portfolio more profitable. With high fees, your investment will have to grow further for you to sell at a profit. Making sure that you’re using the best exchange for your portfolio is vital.
Security is crucial for sustainable cryptocurrency investment. You should consider investing in hardware wallets to keep your investment away from thieves and hackers, and always employ best practices when it comes to security.
A recurring problem is investors trusting “Exchange Wallets” and simply keeping their assets within the exchanges. Although reputable exchanges have a longstanding history of protecting investor funds, the online systems are never so airtight. They can still be exploited, and hackers are always looking to do this.
Transfer your cryptocurrency funds into your secure hardware wallet and only plug this in when you need to transact. Relatively low-cost security measures like this allow you to invest with confidence and without worry.
Many of those Bitcoin stories we mentioned earlier are where investors held on to coins for a very long time (many years) and sold off at a much higher value. Cryptocurrency can be very turbulent and you will notice prices changing drastically in short time frames. This is because many investors are buying and selling in short spurts before moving onto another coin and doing the same.
Diversify your trading options and look at long-term growth projections to make the most of your investment. Short trading is a fantastic tool as part of a wider arsenal, but you should also explore long trade potential.
The cryptocurrency market attracts a lot of amateur investors. This means that a lot of people sell very quickly because they get jittery over a fluctuation in the price. As an educated and seasoned investor, you will want to look for signs that indicate whether it is the right time to buy or sell, and then stick with your overall knowledge to trade effectively.
Get to grips with the market you’re trading in - learn as much as you can at the outset and then build your knowledge as you go. In the cryptocurrency world, the expression “knowledge is power” has never been truer.
Understand the price charts, know where your investment window is and then use historic information alongside your carefully sought out projections. In this case, your investment life will not only be easier, but it will be more lucrative.
Good exchanges will be geared towards ease of investment, using clear charts and tracking the trade prices in as near real-time as possible. They will also be working to ensure that fees are fair and as low as possible whilst maintaining the integrity of their platform security.
To conclude, trading in a position of knowledge, scrutiny and security and having a diverse portfolio will yield the best long-term outcomes for your cryptocurrency investments.
If you would like to learn more about cryptocurrencies and the future of currencies and be part of demistifying the next paradigm shift in global financial services, download the course brochure for our 2-day Understanding Fintech and Cryptocurrencies course taught by Petros Geroulanos