11 Top Crypto Investment Mistakes And How To Avoid Them |

Investing in cryptocurrency has never been easier before. With so many available exchanges, it just takes a few minutes to set up an account and start trading. Investing in crypto is exciting, but there are many pitfalls along the way that you must be aware of especially when you are a beginner. There are some common mistakes that even veteran investors make that can completely ruin your gains or worse, put you in losses. However, if you avoid these mistakes, half of the battle is already own.

I have been investing in crypto for the last 4 years and I made many of these mistakes. If I could start over again, I definitely could have been in a better position. So, in this article, I will share from my experience, the 11 most common crypto investment mistakes that beginners tend to make and how you can avoid that. So, let’s get started.

Mistake #1: Lack of fundamental knowledge of cryptocurrency

Before investing in any asset class, you should know the fundamentals. Many beginners are drawn into crypto because of all the buzz and hype surrounding Bitcoin and other Cryptocurrencies. When I started investing in crypto, I invested in a lot of bad projects without understanding anything, just because some random guy on the internet said so. No wonder, my portfolio was all red soon after.

Before you get into crypto, you should understand the fundamental concepts like what is a cryptocurrency, how it works, do they have any practical use case. You can refer to my beginner’s guide article where I summarized basic crypto concepts in simple language.

Taking time out to educate yourself on different crypto projects will make you a better investor.

Mistake #2: Investing without a plan

Most newbies start their crypto investment journey without any plan on how to reach their goals realistically. Most of you might be investing in cryptocurrency to make money and improve your financial position. However, that is an objective and not a strategy.

It is important to have an investment strategy in place to drive your investment consistently and systematically. It limits you from making quick and emotional decisions which can lead you to a disaster. So, how to go about devising a strategy?

Step 1: Set your goals. It should be well-defined, measurable, realistic, and time-bound.
Step 2: Know your risk tolerance. If you are young and have few commitments, you can take up more risk compared to an older person with many commitments. That said, you should never invest more than what you can afford to lose. You should be able to survive if your crypto portfolio crashes to zero tomorrow, hypothetically speaking.
Step 3: Find out what strategy works best for you. One great strategy to grow your wealth slowly and consistently is the HODL strategy or holding coins for the long term. In this strategy, you should allocate the majority of your portfolio to established cryptocurrencies like Bitcoin and Ethereum. The remaining part you can fill with different Altcoins based on your risk appetite.
Step 4: Stick to your strategy and don’t change it too frequently
Step 5: Measure the performance of your strategy annually. Review how it performed, measure the returns and project them in accordance with your goal. At this point, you can make the necessary changes to your strategy to improve it for the next year.

Mistake #3: Not doing your own research

I can’t stress enough the importance of doing your own research. Once you start exploring crypto, you will come across so many influencers on different social media platforms advising you to buy some XYZ coin which will give you a 100x return. It is easy to fall for such promises especially when you are a beginner.

Before investing in any crypto asset, you should always know exactly why you are investing in that particular coin or token. Before jumping into investing, you should spend some time learning about the fundamentals, how different cryptocurrency coins/tokens works, their use cases, community, future roadmap, etc. Doing your own research has the following benefits:

You will have full ownership over your investment decisions
You will be able to make better decisions
You can find out some hidden gems which can actually give you that 100x gain
You will have the required knowledge in the crypto space

Mistake #4: Taking too much risk

You should never take too much risk while investing in crypto. When you allocate the majority of your portfolio to risky assets, you tend to make emotional and suboptimal decisions because of the high stakes that are involved.

That’s why it is very important to have a risk management plan in place. If you follow the HODL strategy i.e. holding your investment for the long term, risk management is easier. You invest in good projects, review them periodically, and hold them. However, if you are an active trader, you must have a more decisive risk management plan. Some suggestions-

Always set a stop-loss in your trades
Never add to a losing trade
Avoid high-leverage trading

Formulate your risk management strategy based on your investment pattern.

Mistake #5: Keeping crypto in online wallets/exchanges

You need a crypto wallet to store, send or receive cryptocurrency. While keeping your crypto coins and tokens in an online wallet or a crypto exchange is very convenient, it is risky. You might have found some reputed exchanges to keep your holdings, but that does not guarantee security. There have been multiple instances when crypto exchanges got hacked and users lost all their crypto. Online wallets are also susceptible to hacks and fraud.

To ensure maximum security for your crypto, take them offline and store it in a hardware wallet. These devices store your crypto offline, all key signing is done on the device and private keys never leave the device. This makes them almost unhackable.

Hardware wallets can be a bit inconvenient for many users, but they are totally worth it if you want to keep your investment safe for the long term. Think of it as an insurance policy for your investment.

Mistake #6: No proper backup for passwords and seed phrases

Crypto wallets require passwords to access them. If you happen to forget them, you may lose access to your wallet forever. Most wallets have some backup seed phrases to regain access in case you lost your password. But, if you lose or forget that too, you will lose your investment forever. You must have seen so many times in the news that someone lost millions worth of Bitcoin because he forgot his password. You don’t want to be in that position.

So, here are some best practices to keep your wallet safe-

Write down your passwords and seed phrases in a hard copy and keep it in a safe location.
Write down your Exchange account credentials in a hard copy. If you use 2-factor authentication to access your exchange account, write down the ‘backup key’ that is needed to reset the 2-factor authentication. This way, you will be able to access your exchange account, even if you lose your mobile device.
Do not keep your passwords and seed phrases as a word or text file on your computer. If your device gets stolen or damaged, you will lose all your access.

Mistake #7: Sending crypto to the wrong address

You must be extra careful while transferring your crypto to another wallet or exchange. If you send it to the wrong address it can not be recovered in most cases. Suppose you are holding your crypto in your wallet for years, and now you finally decided to send it to an exchange to realize the gains. If you mistype the wallet address or send it to an unsupported blockchain, you may lose it forever.

Therefore, always double-check the wallet address. Also, the address you are sending to should be on the supported blockchain. For example, if you are sending an ERC-20 token, verify if it is an Ethereum address. Always do a test transaction with a smaller amount before sending the bigger chunk.

Mistake #8: Thinking a low token price must be an opportunity

New investors tend to make the mistake of sensing opportunity by looking at the per-unit price of a coin. Dogecoin is a classic example of it. 1 DOGE is currently priced at around 0.08 USD. Just looking at the per-unit price, it may look like a great bargain. You may think, the price can easily hit 1 USD and you will make a fortune. But, if you dig deep, you will realize it is not that simple.

Dogecoin has a market cap of $11.17 billion, making it one of the top 10 largest coins by market cap. Roughly speaking, it will require another $10 billion investment (which is huge) for a DOGE to reach $1. Dogecoin token price is set low intentionally to fool the investors.

So, instead of looking at the per-unit price, you should always look at the Market Cap. You can check the list here: https://coinmarketcap.com/

The coins which are at the top (like Bitcoin, Ethereum, Tether, and BNB) are less volatile because a lot of money needs to be pulled out for the price to fall. If you go down the list, the volatility and risk will keep on increasing. The smaller the market cap of a coin/token, the more potential it has for growth because it needs less money to push the price up. On the flip side, less money needs to be pulled to crash their price.

So, the top 10 cryptocurrencies (by market cap) could be considered low-risk investments. Risk keeps increasing as you go down the list. Ideally, you should stay away from any cryptocurrency that is beyond the top 200 list.

Mistake #9: Indulging in leverage trading

New investors often think of crypto trading as a magical shortcut to getting rich. Many exchanges offer lucrative leverages that can multiply your gains. However, the reality is far different that that. When you are new to trading, it is nothing but a gamble. More often than not, your bets can go the wrong way and you may end up losing all your funds. Remember, if leverage trading can multiply your gains, it can multiply your losses as well.

Use leverage for your trading only after you gain some significant experience in trading.

Mistake #10 Not setting stop-loss while trading

If you are an active trader, you should always set a stop-loss in your trades. The crypto market is highly volatile. It moves way faster than you can react to it. That’s why it is very important to set a stop-loss limit in your trades so you don’t end up losing all your investment on a bad day.

However, if you are planning to hold your crypto for the long term, you worry less about stop-loss and focus more on picking good projects.

Mistake #11: Falling for scams

Being a new and unregulated asset class, the crypto market is full of scammers. As per some estimates, hackers stole $4.3 billion worth of cryptocurrency in the year 2022 only. There are many different types of scams –

Investment Scams – Fraudsters pretend to be an investment manager, some influencer, or a love interest and promise huge gains if you transfer your crypto to their wallets.
Phishing Scam – Scammers lure users into clicking links to fake websites where they steal the user’s personal information, login credentials
A scammer can trick users to give up their private key as part of some wallet upgrade or steal their private key by hacking devices through malware
Many Fraudsters open up fake crypto exchanges, and fake wallets and trick users to transfer their funds there in exchange for great returns.
Scammers sometimes pretend to be social media influencers and scam the followers

You need to keep your eyes open for all these frauds. Try not to fall for lucrative promises, keep your funds in reputed exchanges and hardware wallets and never share your private key. Just remember, if it sounds too good to be true, it is probably a scam.

Conclusion

Before getting into investing in Crypto, learn the fundamental concepts like what is cryptocurrency, how it works, practical use cases, blockchain technology, different crypto projects, etc.
Prepare your investment strategy to drive your investment consistently and systematically.
HODL strategy or holding coins for the long term grows your wealth slowly and consistently over the long term.
Avoid taking investment tips from friends or influencers and instead, do your own research.
Don’t take too much risk, balance your portfolio wisely for better risk management.
Do not store your crypto in online wallets or crypto exchanges and store them offline in hardware wallets.
Write down your passwords and seed phrases in a hard copy and keep it in a safe location.
Always double-check the wallet address before making any transactions.
While identifying a buying opportunity, instead of looking at the per-unit price, you should always look at the Market Cap.
Do not Indulge in high-leverage trading unless you are experienced.
Always set a stop-loss while trading.
Never add to a losing trade.
Keep your eye open for frauds and scams.
Don’t brag about your crypto holding to anyone.