Common Mistakes of Cryptocurrency

Whatever method you adopt before investing in crypto, there might be a prospect of portfolio losses if you don't follow common guidelines.

kanta ma

2021-07-16 3 min read

Common Mistakes of Cryptocurrency

Over the years, many crypto enthusiasts have made millions investing in cryptos. At the same time, several people have lost fortunes. That's why it's vital to avoid bad moves when buying cryptos. Unlike in currencies, stocks, and other assets, cryptos are speculative networks and have price volatility correlated to market reports and adoption.

Whatever method you adopt before investing in crypto, there might be a prospect of portfolio losses if you don't follow common guidelines.

Continue reading to find out common mistakes to avoid when investing in cryptocurrency.

 

Common Mistakes of Cryptocurrency

Low Price Doesn't Entail Cheapness

Crypto investors often buy coins when their prices are low, thinking that it would turn to million dollars one day. They look for meme-inspired coins to purchase in volume. Like early Dogecoin traded at a low price with a corresponding massive growth, investors believe that low prices mean it's cheap. 

However, a low price doesn't entail that the coin trades at a discount. It just reflects its actual worth and demand. Unlike Dogecoin, many coins that were traded at a low price eventually disappear due to low volume and demand. Hence, leading to investor losses.

Remember the Golden Rule- Don't Invest the Funds You Can't Afford to Lose

Like the golden rule in investment, invest with caution; invest the funds you can afford to lose. Often, it can be hard to analyze what digital token's market capitalization could be. Thus, trade and tread carefully. You can reduce losses by allocating investments astutely with some level of risk tolerance.

Purchasing cryptos by using other investments is unwise. You can stick to long-term investments and allocate a small percentage of the portfolio to your crypto journey.

Purchasing on Speculation

Purchasing cryptos on speculation is a grave mistake to avoid. Buying on speculation can often make investors purchase high and trade low. Several newbies wish to ride on the rally and maximize profits without pondering about the coin's prospects or the parameters that drive the price of the coin higher.

For instance, in early 2021, many investors purchased different coins at higher costs due to speculation on the huge crypto adoption with broader cryptocurrency market rallies.

As hinted, the crypto industry is volatile, and it can be hard to predict its future price. Particularly, investors purchased cryptos, including bitcoins, on the latest surge and later lost their investment following a shocking crypto market collapse.

Tesla's bitcoin ban, increasingly Chinese and other nation's interference have contributed uncertainty to crypto space since the turn of 2021.

Not Diversifying Your Portfolio

This non-diversification has become a common mistake, especially among the new investors. It is wise to spread your investments across several diversification strategies. If you focus funds on just one type of crypto investment, you increase loss risk.

If any issue or event disturbs the crypto sector, it might distort your investment, making it hard to recover the amount invested. A great way to mitigate or reduce it is to split your money into various asset categories, like Ethereum, Bitcoin, Tether, Dogecoin, and other altcoins.

Several options abound on crypto; however, you have to analyze the opportunities before taking any action critically. It's also essential to comprehend why any bear or bull run before you initiate a huge position.

Not Having Exit Strategy Before Purchasing

Purchasing cryptos without an exit plan can be a grave mistake. You should first have stop losses and a framework to achieve your main aim. You shouldn't allow the losses to pile up when the market space keeps on tougher. Having an exit strategy can help you to reduce extreme losses.

At the same time, having an exit strategy at hand is vital when you win bets. If you don't have extensive market psychology knowledge, you can lose money when you don't sell during the rise because of more price growth expectations. Identifying the right time to sell is a perfect approach to capitalize gains or squeeze losses.

Conclusion

Crypto investment can make or mar you. Thus, it's important to follow the above rules and avoid the stated mistakes. It's great to be aware of your investor profile, work with a clear-cut plan, and look for more knowledge.

Finally, have the emotional wit to approach unexpected issues and diversify your portfolio with diverse digital assets.

 

 

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