The Crypto market, like any other financial market, is often viewed as a big casino. The marketing tactics of market makers and greed will lead most investors to believe that anyone can become rich quickly. However, ironically, this 'casino' is ready to punish all those who do not clearly understand the rules of the game. Any mistake will cost you money, and a lot of it.
Have you ever asked yourself about the consequences of participating in the Crypto 'casino' without principles and strategies?
To minimize risk and avoid unnecessary mistakes when participating in a high-risk investment field like Crypto, you should not overlook the following 3 mistakes when investing in Crypto.
Mistake in Crypto investing: Investing without principles
Mistake 1: Not managing risk
Risk consists of events that happen in the future. Therefore, investors often find it difficult to control risk, even overlooking it, and the consequence is facing significant losses. However, risk is a part of investing, and failing to manage risk often leads to regrettable consequences. Here are 2 mistakes that new investors often make.
Putting all money into one project
In Crypto investing, decisions like putting all your eggs in one basket or betting all on a particular project are among the signs of lacking risk management. To date, cryptocurrency is still considered an attractive investment channel. However, the reality is that this market is too volatile. Even during strong uptrends, Crypto still has short-term corrections. When you put all your money into one project, the potential risks include:
First, when the coin price drops, you will incur losses at least on paper.
Secondly, you will have no capital left to continue buying more tokens if it is a good token.
Finally, you will also lose the opportunity cost when you have no capital to invest in other good projects.
The fact that you bet your capital in a 'all or nothing' manner on a project is truly too risky. Even investments that were previously considered extremely safe, such as long-term UK bonds, have recently been on the brink of collapse. Those individual or institutional investors holding too many bonds in their portfolios are also sitting on a pile of fire.
No protection of results
In the investment journey, once you have made a profit, we also need to think about how to protect our results.
You may get lucky in Crypto investing by turning a capital of $1,000 into $10,000 in just a few months (this is entirely possible if you enter the market during a growth season). However, if you don't know how to repeat that luck and bet all $10,000 you just earned to continue participating in the Crypto casino, then... good luck! You may lose everything you have accumulated before, not just money but also time and effort.
Mistake 2: Investing in what you do not truly understand
A common mistake among newbies is the fear of missing out (FOMO). New investors often fear missing opportunities, missing trends, missing information... This anxiety about missing out leads new investors to make seasonal decisions and forget to analyze thoroughly and deeply.
You might always imagine that you will buy a good token at a low price and sell it when the price peaks. But the truth is that the market often goes against the crowd's desires. The things you do not clearly understand here may relate to how the Crypto market operates or about a specific Crypto project.
Not understanding how the Crypto market operates
Suppose you have no idea about the seasons in Crypto. You step into the market right in summer and watch all your 'paper' investments soar. You excitedly think this growth will last for a long time, so you wait patiently without taking profits to secure the gains you have.
Unfortunately, summer is too short. Autumn begins, and you watch your account gradually decrease but still hold out hope that the market will recover. But no, the harsh winter suddenly arrives at the least expected moment. That is when you witness your assets fall apart and begin to panic. You accept losses and try to sell off your investments as quickly as possible and curse this market.
The above is just an example of how the Crypto market operates. You see, one of the consequences of lacking knowledge is choosing the wrong timing to enter capital or take profits.
Not understanding the Crypto project
Many newbies entering the market are often whispered about a project of some monumental stature that could change the world. However, life is not a dream; many projects are just pie in the sky.
Looking back to 2017, when scam ICOs like Onecoin and Bitconnect flourished. I witnessed many people selling their houses, cars, or even borrowing money to invest in those gambles. And the result was bitter; they lost everything.
Those who have experience can just skim through to assess the accuracy of a project. Criteria such as the founding team, the products and services that the project creates to serve the community's interests... although not the holy grail, will help us initially filter out the projects we can invest in.
Billionaire Warren Buffett is dubbed one of the most successful investors in history. This legendary investor always follows the golden rule of '20 holes'. Warren shares: 'I can help you improve your financial situation by giving you a card with 20 holes to use throughout your life. With each investment decision, that card will have one hole punched. Once you use up those 20 holes, you will not be allowed to make any more investments.'
You see, to avoid consequences, Warren always learns to save time, effort, and money to research what he deems most worthwhile. You might be right twice before, but if you make the wrong choice the third time, all your efforts will go to waste.
Mistake 3: Not cultivating knowledge every day
You might be very eager to learn when you just start investing in Crypto because you are like a blank slate. However, at some point, you feel you have learned enough and stop cultivating knowledge. But in a fast-changing digital world like today, if you do not self-cultivate, you will fall behind. This is even truer with cryptocurrencies, where developments in this market happen extremely quickly.
If you have been exposed to Crypto long enough, you will surely recognize the tremendous 'evolution' of both projects and technologies in this market. From initially being able to trade just a few Crypto pairs on some exchanges, now you have endless options. For instance, you can trade on both CEX (centralized exchanges) and DEX (decentralized exchanges).
Not cultivating knowledge in the Crypto market will lead you to make wrong choices. For example, you might choose the wrong project or trade on a 'shoddy' exchange... And of course, every mistake will come at a cost.
Investing without strategy
Strategy is a term that originated from the military, referring to the method of achieving victory in battle or creating positive outcomes at critical areas and times. Each general will apply their own unique tactics when going into battle.
In investing, strategy refers to a set of rules, behaviors, or principles that guide investors in their selection and portfolio design. The strategy needs to align with the personality, skills, and strengths of each individual, balancing risk and return. If you have a personality suited for long-term holding, you cannot be forced into a short-term trading strategy and vice versa.
As such, it can be seen that if you invest without a specific strategy, or the strategy you implement goes against your personality, then you are likely to incur losses. Therefore, your participation in the market is no different from a gamble, as I mentioned above.
Choosing the right strategy
In this article, I would like to introduce you to a strategy that, in my experience, I find easy to use for most people, even newcomers, which is the standard dollar-cost averaging strategy (DCA).
With this method, regularly weekly or monthly, investors will buy a certain amount of assets over a long enough period to gain profits. Anyone can apply this Crypto investment strategy regardless of how much capital they have.
At first glance, it seems simple, but in reality, not everyone has the patience and discipline to follow this strategy to the end. I have met some people who dollar-cost averaged for a while but then still did not see results. They gave up and turned to learn technical analysis, hoping to 'buy low, sell high' and win big.
Consequences of giving up halfway
The effort they used to accumulate before will go to waste. The essence of the DCA strategy lies in accumulating a good asset over a long enough time. When the accumulation reaches a tipping point, that is when you reap the rewards.
Secondly, jumping tobecome a tradercan lead to your capital being eroded because you will have to learn how to cut losses. I believe that with the mindset of a new investor, your chances of cutting losses will usually be greater than taking profits. If you don't believe it, you can verify for yourself the number of skilled traders who can consistently win in the market. With dwindling capital, the opportunity for you to rectify mistakes will significantly decrease.
Thus, I have shared with you some mistakes in cryptocurrency investing that investors need to avoid. Of course, these do not cover everything, but I hope through this, you will understand the importance of principles and strategies in investing. I wish you could choose for yourself the most appropriate principles and strategies to earn deserving results.
