Investing in cryptocurrencies can be exciting, but many new investors fall into common traps when it comes to trading and investing in cryptocurrencies. From poor security practices to a lack of knowledge of the cryptocurrency markets, new investors can quickly lose money.
Here are the 10 most common mistakes new cryptocurrency investors make and how you can avoid them.
1-Lack of basic knowledge of cryptocurrencies
*New crypto investors may be drawn in by 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 donât understand or trying to trade crypto without understanding how it works is a recipe for disaster. Educating yourself about the different crypto projects and the goals of each crypto company will make you a better investor.
2-Ignore the fees
While there are many ways to buy cryptocurrency, new investors may rush into buying without understanding how blockchain fees, exchange fees, and other charges work. For example, buying cryptocurrency with a credit card may come with a hefty surcharge (3% or more), require a 1% transaction fee from the exchange, and require blockchain fees to process the transaction. Depending on the average blockchain fees at the time of your crypto purchase, you could end up paying hundreds of dollars in fees to various entities.
**Note: Before purchasing, it is best to familiarize yourself with the fees you may encounter and find the exchange and times when the purchase cost is lower. This can save you a lot of money in the long run.
3-Short-term thinking
*The promise of âget rich quickâ in the market makes many new investors think only in the short term. While there is the potential to make huge gains from investing in cryptocurrencies, there is also the potential to lose all your money due to a bad investment move.
Having a long-term investment mindset will help you choose your crypto investments more carefully. Focus on choosing projects with higher quality and long track records. Trying to get rich in 90 days is a quick way to lose everything, but thinking about crypto investing as a multi-year process will help you build a more thoughtful crypto portfolio.
4-Storing cryptocurrencies in online wallets
*Cryptocurrency is a digital currency that requires a digital wallet to store it. While using an online wallet is more convenient, it is also riskier than storing your crypto offline. Online wallets are more vulnerable, and hackers can drain your wallet through cryptocurrency scams or hacks. The safest way to store your crypto is in an offline hardware wallet, which is essentially a USB stick with advanced hardware and software encryption to protect your crypto private keys.
5-Forgetting cryptocurrency passwords or key phrases
*Since cryptocurrencies are held in a digital wallet, these wallets require passwords to access them. If you forget your password, you may not be able to recover your cryptocurrency. Even if you donât forget your password, you will need to remember (or store and access) your private keys to the cryptocurrency. These are long alphanumeric sequences that are difficult to memorize. If you lose or forget these keys, you will lose your cryptocurrency because they cannot be recovered.
Most wallets have a backup seed phrase to access your funds, but if you lose or forget this seed phrase, there may be no alternative option to recover your funds.
6-Invalid wallet address
*Transferring cryptocurrencies between digital wallets is the way you can get your cryptocurrency from an exchange or send funds from one party to another. But a common mistake that new investors make is trying to transfer cryptocurrency funds to a wallet, then typing the wallet address incorrectly.
*When this happens, the cryptocurrency is sent to the wrong wallet address and may not be recoverable. While expensive recovery service providers claim to be able to help, their services can only go so far â the recipient must choose to cooperate.
7- Exposure to fraud
*As a new asset class, the cryptocurrency market is full of scammers. Chainalysis, a blockchain analysis firm, found that in 2021, scammers made off with $10 billion worth of cryptocurrencies. The number dropped in 2022 ($6.5 billion) and 2023 ($4.6 billion), but a significant amount of money was still stolen.
These criminals use sophisticated techniques to gain access to your cryptocurrency wallet or convince you to transfer your cryptocurrency to them. Their preferred tactics include romance scams (piggy slaughter), Ponzi schemes, phishing, extortion, giveaway scams, and charity scams.
Cryptocurrency scams can occur via email or messaging apps, with perpetrators pretending to act on your behalf or someone elseâs behalf. Wallets can be hacked simply by connecting the online wallet to an app and allowing it to access the funds. While this is a common practice for many crypto apps, scammers can use this technique to drain a crypto wallet of funds.
*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.
8-Using leverage
*New crypto investors may be attracted to the rags-to-riches stories of crypto trading, and try to leverage their returns. The problem is that leveraged trading requires collateral up front; if the trade goes badly, you could lose all your money. Remember, leverage works both waysâit can multiply your losses just as easily as your gains.
*It is best for new cryptocurrency investors to avoid trading with leverage, and only use it after gaining sufficient trading experience.
9-Very complex trading strategy
*New crypto investors who try to jump into complex trading strategies because a YouTube influencer said it was a great idea can quickly lose money. Learning technical analysis, conditional orders, and how the crypto markets work takes time.
Investing in cryptocurrencies can be really simple. Thereâs no need to create a complex trading strategy to try to grow your portfolio. Like traditional investing, you can use a dollar-cost averaging strategy without having to actively trade and get stuck in cryptocurrency charts 24 hours a day.
10- Order errors
*While some cryptocurrency exchanges, like Coinbase, specialize in simplifying the process of buying crypto, many have complex order forms and trading platforms that confuse new users. When placing an order, a simple mistake in a decimal point can cost thousands, compounding losses. For example, a mistake cost a seller nearly $300,000 when he sold a unique NFT for 0.75 Ether instead of 75 Ether.2
**To avoid these costly mistakes, always double-check your orders or transfers before submitting them. Cryptocurrency transfers are irreversible unless the person you're sending them to is willing to return them, so it's best to be sure before submitting a transaction.
Reference links:
https://www.investopedia.com
