Consider 5 common mistakes that are most often made when investing in cryptocurrency. We will explain how to avoid them with examples.
Investments influenced by FOMO
Even seasoned investors can suffer from «fear of missing out» — FOMO. This is an obsessive fear of missing a good opportunity. This emotion affects 56% of social media users, according to a survey by MyLife.com. After reading another «success story», the desire to buy cryptocurrencies at the maximum price seizes.
Example. In 2017, Bitcoin grew from $1,000 to $20,000. This information evokes a strong emotional response and makes you regret that you missed out on such an opportunity.
How to avoid. You need to get rid of the idea that someone else is lucky, but you are not. Those who became millionaires in 2017 have endured and believed in bitcoin for a long time. You need to understand the issue, and not act on the basis of emotions and rumors.
Selling the «Bottom»
The opposite situation also happens when investors get rid of coins at a loss to themselves. Looking back, one can come to the conclusion that «the bottom was not worth selling then». In such a sale, complex and intricate human emotions are triggered — more frequently, panic.
Example. Cryptocurrency lost 80% of its value within a few months. Such a picture will make any investor nervous.
How to avoid. It should be understood that the cryptocurrency market is extremely volatile. The rates of digital coins are unstable — their value often rises and falls. Investing in cryptocurrency requires a different approach from traditional investing in stocks.
Sale of long-term investments
The cryptocurrency market is heavily influenced by the media hype. After some negative news, even long-term investors can start selling their assets. Panic is common. On Twitter, information was spread that on October 15, 2020 there will be a massive sale of 140,000 bitcoins.
Example. The contribution is initially planned for a year. A month later, bitcoin grew by 10% and then the thought comes to mind that it’s time to sell it.
How to avoid. Giving into the desire of quick profit is a bad quality for an investor. An important skill to learn is patience. Therefore, if you were planning on making your investment a long-term one, it is better to leave them as such.
Unfortunate choice of wallet
A superficial approach to choosing a wallet can result in not only inconveniences, but also security problems. The easiest way is to register an account on an exchange. This is convenient, but unreliable — 75 cryptocurrency exchanges have closed since the beginning of 2020.
Example. A person bought a token, which is released at the exchange rate a year later. During this time, the wallet manufacturer could go bankrupt or become victim to a hacker attack.
How to avoid. Different wallets are suitable for different purposes. Learn the differences between different types of wallets, for example, in the article «How to choose a wallet for Ethereum». Read reviews of cryptocurrency wallets and test them with small amounts.
Lack of backup
A backup is a copy/backup of information. Unlike other types of investments, in cryptocurrencies, the loss of private keys means that the coins are lost forever. A fire or hard drive failure can destroy a cryptocurrency portfolio 100%.
Example. The investor used a software wallet installed on the computer. After reinstalling Windows, it turns out that «Drive (C :)» was formatted and access to the wallet is no longer available .
How to avoid. Create recovery files. More specifically, you need to copy the private key, with which you can restore the wallet with investments. Alternatively, print it on paper in QR code format or somewhere other than a computer.
The main mistake an investor can make is not taking this matter seriously enough. Before you start investing in cryptocurrency, you should study the common mistakes of investors in order to know how to avoid them:
- Investments under the influence of FOMO;
- Sale of «Bottom»;
- Sale of long-term investments;
- Unfortunate choice of a wallet;
- Lack of a backup.