Cryptocurrencies are digital currencies that use a technology called a blockchain. The blockchain is a public ledger of all transactions in the currency. Cryptocurrencies are decentralized, so they don’t have a central bank or government regulating them.
Some well-known cryptocurrencies include Bitcoin, Ethereum, and Litecoin. Each cryptocurrency has its blockchain. Some blockchains, like Ethereum’s, can be used to create new cryptocurrencies or build apps that run on the blockchain network.
The main difference between cryptocurrency and fiat currency is that fiat money has been designated as legal tender by a government. In contrast, any government entity has no involvement in cryptocurrencies (although this may change).
A cryptocurrency exchange is a platform where you can buy and sell cryptocurrencies using U.S. dollars or other fiat currencies. Sometimes even other digital currencies or assets. Always opt for genuine cryptocurrency exchanges like OKX, Binance, CoinBase, etc., for hassle-free and safe transactions.
Not Learning About the Cryptocurrency Market
You must study the market and as many facets of it as possible, such as its history and how exchanges work. You should also familiarize yourself with blockchain technology, which allows cryptocurrency to function.
Knowing about the different regulations and laws about cryptocurrency is also essential. The rules change depending on where you live, so it’s vital to be up-to-date on all laws that pertain to your area.
Finally, understanding the pros and cons of cryptocurrency will help you assess whether or not this form of investment is for you. For example, one advantage of investing in crypto is that it offers anonymity, while a downside is that there’s a high risk for fraud or theft due to its decentralized nature. Knowing about these advantages and disadvantages will inform your decision-making process when it comes time to invest in cryptocurrency.
Worrying Too Much About Price Fluctuations
Cryptocurrency is a new market, and as with any market, there will be volatility. It is particularly true for the cryptocurrency market because it’s still tiny. For example, ripple has a total market cap of $11 billion, but Apple has a value of more than $870 billion.
In other words, the cryptocurrency market doesn’t move in tandem with stock markets because they’re two very different beasts. Unfortunately, that means you can’t expect the same kind of stability from crypto prices.
Not Diversifying Investments
Don’t put all your eggs in one basket if you’re investing in cryptocurrency. While you might be tempted to focus on the high-risk cryptocurrencies, don’t ignore low-risk ones—it’s good to diversify. The best way to go about that is by splitting your investment up into different types of currencies with cryptocurrency.
One strategy would be to keep it simple: Put the whole $1,000 into Bitcoin (BTC). It is a low-risk move because BCH is pretty stable right now and has been for some time. But if you think that something else might perform better (or worse), then Bitcoin Gold (BTG) could be another option—but keep in mind that it has gained significantly less value than BTC did over time. You could also invest in Ripple (XRP) or Ethereum (ETH). It’s up to you!
A good strategy would be to split up your investment between multiple coins to avoid losing everything should something go wrong with one of them in particular. This type of diversification will provide security against those issues while allowing for more significant returns overall due to being spread out among different investments.
Having Unrealistic Expectations
When it comes time to invest, it’s important to remember that the cryptocurrency market is very volatile. Some risks come with all types of investments, and this market is not the place for someone with a low-risk tolerance. That said, there are many ways to minimize your losses if you decide to invest in cryptocurrencies. Here are some tips for avoiding common cryptocurrency investment mistakes:
Research before you invest! Know what you’re getting yourself into before you buy a coin. Have some background on the coin and its creators and an idea of what their goals for the future are. Be sure that its technology is sound, and look into whether or not this coin is truly solving a problem or providing a service (or simply creating hype around itself).
Do your due diligence when researching coins—learn about the team behind the project and read up on their track record. If they have no experience or limited experience in blockchain technology, then it might be best to think twice before buying their token. You should also consider researching whether or not this company has been accused of fraud previously (a Google search will do).
Buying into a Pump and Dump Scheme
One of the most common mistakes people make when investing in cryptocurrency is getting caught up in a pump and dump scheme. Organized groups or individuals often run these operations intending to trick investors into buying a cryptocurrency at an artificially high price, only to immediately sell it off themselves once they’ve made all they can. The result is that many investors get stuck with tokens worth substantially less than what they paid for them.
Failing to Protect Your Investments
You’re one of the estimated 35% of Americans who’ve invested in cryptocurrency. Unfortunately, perhaps you’re also among the 25% of those who store their crypto in a digital wallet, which is prone to hacks and other security breaches. The lesson? Don’t make the mistake of not protecting your investments!
Following are some things you can do to help keep your investment safe:
- Use a hardware wallet. Unlike software wallets, hardware wallets aren’t connected to the internet and don’t expose your private keys to potential hackers. Because of this, they’ve generally considered a safer option for storing your crypto assets securely.
- Use two-factor authentication (2FA). 2FA is an extra layer of security that requires users to enter two different types of information when logging into an account. Something they know (like a password) and something they have (such as their phone or another device). It safeguards against potential hackers from gaining access to your accounts by stealing only one piece of information, your password.
- Enable multi-sig transactions. Multi-signature (multi-sig) means that more than one key is required to authorize transactions or access funds within an account. The “signatures” referenced here are cryptographic keys used for these functions. Multi-sig addresses provide additional security because if one key is compromised, it won’t be enough for someone else to gain access; you need multiple keys for a successful transaction or access request.
- Use a password manager like LastPass or 1Password, so you don’t have to remember all the passwords yourself; just remember the master password. A good password manager will generate strong passwords and keep track of them, so all you have to do is remember the master password. In addition, many have built-in 2FA capabilities as well as options.
Cryptocurrencies Also Have Risks. Research Before You Invest.
The point of this article is not to dissuade you from investing in cryptocurrencies. Instead, it’s to inform you of some common cryptocurrency investment mistakes so that you can avoid them. Of course, the biggest mistake would be investing in cryptocurrencies without doing your homework first.
Although there are benefits to investing in cryptocurrencies, you should also consider the risks when evaluating your options. Cryptocurrencies are very volatile, with prices fluctuating wildly from one day to the next, and scammers may use them for illegal activities (like tax evasion or money laundering). In addition, many types of cryptocurrency wallets are scams that pose as legitimate investments.
The best way to avoid mistakes is by studying all the whereabouts of the cryptocurrency before investing.