Entering crypto space seems like a piece of cake, right? After all, the market is accessible to everyone as long as they have a device and a couple of dollars. Except that things are a bit more complicated than what they look like. To succeed in the crypto industry (which can often feel like a genuine emotional rollercoaster), investors must put in a lot of effort.
Let’s say you’ve decided to buy Bitcoin after hearing all those stories about its potential to make you rich. While it definitely sounds tempting, it’s essential to remember that crypto is a risky investment, and it requires comprehensive research and a smart approach. Hence, you want to take the time to understand how the industry works – otherwise, you can make costly mistakes and lose your capital very easily.
Let’s take a look at the most common mistakes that beginner investors make when they first get into the crypto world, as well as how to avoid them.
Not creating a strategy
Many people join the crypto market hoping they will get lucky and become billionaires. But this approach is unrealistic and only sets investors up for disappointment. While some small earnings may appear from time to time, you shouldn’t expect to make substantial profits overnight.
Before investing in crypto, you must create a clear and detailed plan which includes some essential aspects. Firstly, you want to consider which crypto platform you will use, as there are many options available, and it is important to find one that works best for your needs and goals. Also, it’s crucial to look for some features when choosing a crypto platform, including the available cryptos and the requirements for depositing and withdrawing your assets.
Another vital aspect when planning your strategy is deciding how much money you will put into crypto. It is essential to consider this step carefully – the last thing you want is to invest too much of your capital into crypto only to realize that you need it for more important things! And obviously, you should only invest the amount you’re comfortable losing.
Allowing emotions to influence their decisions
Truth be told, navigating the crypto space is tough, so understandably, even seasoned investors can have difficulty keeping their composure when making transactions. Sometimes, emotions take over them, and they succumb to FOMO, panic, and greed. Emotional trading is one of the most common – and worst- mistakes beginner investors make. The reason is simple: it has a devastating outcome because it prevents you from keeping a cool head and analyzing the facts. Eventually, this only leads to losses because you end up making irrational decisions that don’t necessarily align with your goals.
It can seem difficult to manage your emotions when investing in cryptocurrency, but it is something you can learn if you commit yourself to it. The first step to take in this direction is to recognize your triggers and their impact on your behavior. For instance, a sudden price drop may trigger fear, leading to panic sell. Or, you may experience greed when a profitable opportunity arises and risk too much only to ensure you won’t miss it. To recognize your emotional triggers, a useful idea is to keep a journal where you write all your thoughts and feelings related to your investing journey.
Neglecting risk management
It is no secret that the crypto industry is marked by high volatility, making it essential for investors to mitigate potential risks to avoid major losses. Fortunately, some helpful tools have been created to this end, such as stop-loss and buy-limit orders. Hence, it only makes sense for beginner investors to take advantage of these tools and protect themselves from market fluctuations. However, crypto investors often overlook these risk management strategies, which only leaves their investments susceptible to potential wipeouts.
The crypto world is tumultuous, so to navigate it successfully, it is essential to act with prudence and adopt disciplined risk management strategies. This allows investors to safeguard their assets and preserve their mental health. Here is a checklist for reducing risk while investing in cryptocurrency:
- Educate yourself;
- Make sure your goals are realistic;
- Assess your risk tolerance;
- Diversify your portfolio;
- Use stop-loss orders;
- Stay up-to-date with the latest market trends;
- Practice discipline;
- Secure your investments.
Not diversifying their portfolios
Diversification plays a considerable role in protecting your crypto investment and withstanding volatility. As an old adage says, you should not put all your eggs in one basket when investing in cryptocurrency. The market is volatile and still in its nascent stages, so there’s a lot of market uncertainty. To avoid exposing your portfolio to this uncertainty, you shouldn’t only invest in one token. There’s no guarantee that a project you invest in won’t lose market share or become obsolete. So, it is always safer to diversify because this allows you to stabilize the overall value of your portfolio.
There are different ways to diversify your crypto portfolio:
- By use cases. Currently, there are around 22,932 cryptocurrencies out there, and this number is only growing as new projects are created. The immense potential of FinTech, with its promise of a decentralized ledger that fuels the development of DeFi, has resulted in many use cases besides financial transactions; for instance, some coins are designed for payments, others for smart contracts, governance, supply chain, and so on.
- By market cap. This factor indicates a digital asset’s security, so investing in cryptocurrencies with a large market cap, such as Ethereum and Bitcoin is recommended.
- By industry. You can also diversify by investing in several sectors, like NFTs, DeFi, and payment networks. Digital assets that address real-world problems are a great addition to an investor’s portfolio.
- By risk levels. Your risk tolerance should be your guide when looking to diversify your portfolio, but it is recommended to find a balance and have all categories of investments, including high, medium, and low-risk ones. Adding only high-risk investments is not a good idea – although it can offer more significant gains, it can also lead to substantial losses.
You get the message: when investing in crypto, you must not have unrealistic expectations and dream that you will make substantial gains overnight. Be disciplined, have an effective strategy in place, and keep your emotions in check. These things can make a significant difference in your experience as an investor.