Everybody makes mistakes.
But some errors can cost you a lot more than others.
If you are new to crypto, you’ll want to avoid some beginner missteps that could reduce your trading potential.
And that's what this article is designed to do!
Today, I'll be sharing five crucial crypto investment mistakes you need to steer clear of…
So the first mistake is falling for FOMO - Getting caught in the hype
Almost anyone can tell you, the most basic investment advice is to 'Buy Low and Sell High', right?
Unfortunately, it's more common for investors NOT to do that.
In fact, a lot of people end up doing exactly the opposite!
I’m sure it sounds strange… why would anyone let it happen?
But it's actually pretty understandable and something you need to monitor in yourself, too.
FOMO describes feeling like if you don’t buy something now, you might regret it later.
As an example, consider what often happens to Dogecoin when Elon Musk tweets about it.
Immediately, the masses rush to buy into the coin, which pumps the price… and... the cycle continues!
People buy in all the way to the top, believing they are getting into a great deal and eager not to miss the rocket.
But in reality, Dogecoin's price really only peaks for a brief period after the tweet.
Pretty much every time, the price starts its descent, and expectations transform into panic...
If you get drawn in, you end up buying high because of FOMO, and selling low because of panic.
There is an extra technique later in the video I’ll cover to help fight the FOMO mindset.
But the general idea is to keep your wits about you, avoid the hype train, and stay calm when the price bumps hit!
Moving on, the second mistake is setting unrealistic expectations
Have you ever heard stories about people getting rich off of crypto overnight?
Everyone has!
The endless tales like these are exactly why you might build very optimistic expectations about investing in crypto.
But you always need to remember that investing in crypto is inherently risky.
While the upside can be very bright, the downsides can bite just as hard!
Walking into marketplaces expecting overnight results can affect your behavior in a destructive way.
For example, you might easily end up falling for marketing campaigns from projects that really don’t have any serious prospects.
Or, you might also start overtly accepting unreasonable risks, even going so far as to leverage assets to chase additional gains.
It’s crucial that you come back down to earth.
Always go in with a plan when you invest - providing a way to resist your baser instincts and stopping you from giving in to bad decisions.
But, what does that plan look like?
Instead of trying to time the market, take a less risky approach
A lot of beginners hit the markets believing they have the magic formula.
Just trade in the same direction as the line, right?
But, you’re not the only one who's come up with that idea before.
You end up trying to time the market, scrambling to get in on the lows and sell on the highs...
Now, it doesn't always land you in a hole.
But it's far from the safest method and certainly not the most sustainable way to go about investing in crypto.
Trying to keep things going that way, you end up forever looking over your shoulder, waiting for when the market starts to dip.
And make no mistake, the market in crypto can dip very quickly!
Do you really want to be checking Binance a hundred times a day, making sure the price hasn't moved in the wrong direction?
Well, I don't know about you, but that doesn’t sound very appealing to me!
So, what can you do instead?
Well, a very simple way to get started is called Dollar Cost Averaging.
It may sound a bit fancy on the surface, but bear with me…
Let's say you have $1,000 to invest.
If you try to time the market, you might attempt to invest it all, buying the dip.
It may pan out. But if it doesn’t go the right way, it’s game over for your recovery.
The better way to do it would be to split up the $1000, let's say, into 10 $100 investments.
You invest $100 once every three days, no matter where the price is going.
In this way, you are hedging against volatility risk by investing at 10 different price points.
If your target asset dips after the first investment but returns around the second investment, the curve is a lot smoother.
It’s a much simpler and safer way to balance out your performance.
Of course, while Dollar Cost Averaging can bring down potential rewards, the key is that it also brings down your risk.
And if you are a beginner, managing your risk is one of the earliest lessons you need to hammer home.
As you get more experienced, you can swim a bit deeper and play a riskier hand for potentially bigger rewards (or losses).
But even the veterans limit their losses!
Set investment boundaries. If you can afford to lose no more than $1,000, don't invest any more than that.
Never bet the house on crypto, unless you're fine with losing it.
But, how do you really decide which cryptocurrencies to invest in?
Don’t skip on Doing Your Own Research
One of the biggest targets that crypto projects often have on their backs is that they lack actual value.
Just ask Warren Buffett - he'll tell you! He often criticized cryptocurrencies for lacking intrinsic value.
But to be honest, these days, there are plenty of projects with utility out there.
For instance, there’s 'Ripple', which works with financial institutions to make international payments faster and more secure.
That could really make things easier for people across the globe, couldn’t it?
In this sense, it gives the project intrinsic value - beyond just investment hype.
On the flipside, though, there are endless projects that offer ONLY hype.
Many meme coins - or in fact, most of them—could fall into this category.
If you go into a meme coin investment understanding what it is you are buying, that’s fair enough.
But other projects may not be as obvious.
Sometimes platforms pump up the appearance of utility, making promises for the future - when really the premise doesn’t make much sense.
So, when you are looking to invest in a new project, don’t just follow the hype.
Instead, look at it objectively for yourself - especially when it's a new coin undergoing a presale or ICO.
Ask yourself, does it really have something to offer?
Or is it just using buzzwords and heavy marketing to give the appearance of value?
Last but not least, you have to avoid security breaches and scams
Have you ever heard of Mark Cuban? The Shark Tank billionaire guy who helped invent streaming?
He probably knows his way around a computer, right?
Well, even he managed to get stung by a crypto security breach!
By downloading a fake version of MetaMask, he ended up losing around $1 million.
Now, you could apply the same rule when doing anything on the internet, but it’s especially true on crypto…
…so glue yourself to trusted platforms!
This includes steps like bookmarking the platforms you use often (to make sure you don’t enter them incorrectly by hand) and never clicking on links you do not trust.
Not to mention the golden rule - keep your wallet seed phrases strictly to yourself.
There are also antivirus options out there specifically for the crypto realm, like Web3 Antivirus.
Think of this app as the AVAST for crypto...
Another app you might find very useful could be De.Fi.
Besides being an antivirus app, it can also translate smart contracts from programming gibberish to human-readable text.
This can really help you step through where funds are going and make sure there aren’t any pitfalls along the way.
Another aspect to watch out for is how much access you give sites to your wallet.
When you buy or sell NFTs through OpenSea for example - you have to give permission for the site to be able to transact using your wallet.
The trouble is, if you don’t revoke this access later on, you could remain exposed for quite a while!
Luckily, you can use an app like Revoke.cash to remove any permissions you do not want to give particular sites.
It makes the access temporary - which is much safer in the long run.
And speaking of safety, the wallet you choose could end up being the most crucial point.
Newcomers should probably stick with software wallets in the beginning.
But it's pretty much standard practice to switch to hardware wallets as you mature as an investor and build more assets.
The best hardware wallets you can invest in currently are from Ledger.
They’re a lot more secure than software wallets and could save you some stress later on.
Conclusion
So that’s a wrap for this article!
You learned how falling prey to FOMO can lead to impulse decisions and how it's crucial to steer clear of the hype to stay rational.
You also saw the dangers of unrealistic expectations and the importance of using a strategy like Dollar Cost Averaging, to help smooth out volatility.
Don’t forget that conducting research before investing in a crypto project is crucial.
Make sure you don’t just chase trends but locate the true utility or potential of an asset.
Lastly, I showed you how to defeat the major security breaches and scams out there while maintaining robust security practices by grabbing some useful tools.
Remember, the crypto world is filled with opportunities, but navigating it safely requires knowledge and caution.
Good luck out there, and I'll catch you in the next one!
