Whether you are entirely new to investing or you’re a seasoned trader in other financial markets, the cryptocurrency space has some pitfalls that need be carefully avoided. While trading a new asset can be scary, with the right knowledge and proper planning most of these mistakes can be avoided almost entirely, allowing investors young and old to benefit from adding a cryptocurrency investment to their portfolios.
#1: Falling prey to FOMO
FOMO is the “fear of missing out”, and unfortunately it’s the biggest trap for most new investors, but even more seasoned traders can let their emotions get the better of them and fall prey to it. Many times investors will see a coin going up in price, and they will begin to get anxious.
Unfortunately, a lot of these people end up buying in at the top, and they lose a significant portion of their capital when the coin comes crashing back down to Earth. It’s often advantageous to wait for a dip, but if you are truly concerned that you may miss out, buy some now and then plan to buy later if the price drops.
#2: Panic selling
Panic selling is what happens after the “fear of missing out” phase has ended. A new investor who has just lost a significant portion of his portfolio becomes panicked, and he begins to sell, hoping to not lose anymore. Unfortunately, he has already lost, and selling at the bottom has simply removed his ability to regain his investment capital.
In the coming weeks, he cringes as the price of his recently sold coins recovers. There is certainly a time and place for selling, but the end of a dip is typically not it. Most investors would do better to wait for their chosen coin or token to tick back up before selling.
Also, read: Busting 5 Most Common Bitcoin Myths
#3: Investing without doing any research
Investors who are new to space may be confused by many aspects of cryptocurrency. It’s important that new investors research every investment opportunity properly before putting any money into them. Taking financial advice from random internet denizens is not generally advisable, as they likely are only trying to boost their own investments.
When choosing an investment you should ask yourself several questions, such as what are the use cases for a coin or token? How well put together is their marketing plan? Who are their competitors? There are many online tools that can help you easily gather this information, there’s no reason to go into an investment unprepared.
#4: Buying more than they can afford
Many investors who are hoping to make the quick returns that many have expected to receive from cryptocurrency may be tempted to invest money which has no place being invested in the first place. Numerous people who are new to space have tried betting their rent money, college tuition or even mortgaging their house! Cryptocurrencies are very volatile, and it’s unwise to put money which you may need to access in the short term here.
Instead, find an investment which you can afford. There are many, promising projects in the space, some of which are extremely undervalued. It’s possible to begin investing with only a couple hundred dollars, a number which most anyone can afford. There’s no need for risky expenditures here.
#5: Not diversifying their investments
Diversifying your investments is important. That means not only investing in cryptocurrency assets but also in other less volatile ones as well. If you’re lucky enough to make a significant gain on your cryptocurrency assets then it would be a smart idea to pull some of it out and place it somewhere else.
Whether that means diversifying it into additional coins in different sectors or into something more stable like gold, silver or property is up to you, however, it’s never a great idea to have all your eggs in one basket.
This could be useful not only for preserving wealth in the case of a disaster but having assets outside of the crypto market could also provide you with greater buying power during a dip to pick up quality coins or tokens that are now trading at a large discount, such as what we experienced the recent dip.