New to crypto investing? Avoid these common mistakes to protect yourself from scammers
Here is a list of the five most common mistakes that newbie crypto investors, and even some relatively experienced ones, should avoid.
Investing in crypto can be an exciting but challenging experience, especially when venturing into the volatile market for the first time. While the potential for significant returns is undeniably appealing, there are several risks involved.
Unfortunately, many new investors fall into traps that can cost them their hard-earned money. The pitfalls are many, ranging from a lack of basic knowledge to the use of inappropriate trading tactics influenced by social media users.
Here is a list of the five most common mistakes that newbie crypto investors, and even some relatively experienced ones, should avoid.
Using an online crypto wallet
Choosing a digital wallet to store your cryptocurrency is not only primary but also important when investing in crypto. Mainly, there are two options for storing your cryptocurrencies: online or “hot” wallets, and offline or “cold” wallets. While electronic wallets are more easily accessible than their counterparts, they leave your crypto vulnerable to hacks and theft.
The safest way to store your cryptocurrencies is in a cold wallet, which is not accessible via the Internet. A cold wallet stores your private keys in a cold storage device, which can be accessed via Bluetooth or a USB connection.
Additionally, it is important to remember to never keep all your cryptocurrencies in one place, such as exchange wallets or hard wallets. As the saying goes – don’t put all your eggs in one basket.
Design a trading strategy based on social media trends
There is always some degree of misinformation circulating on social media. Many new crypto investors get carried away and start their trading journey after listening to an influencer who claims to have built a portfolio worth millions by investing in relatively unknown projects. There can be times when such projects can turn out to be Ponzi schemes, trapping even the most veteran investors.
While it is fine to take opinions from those who have invested in cryptocurrencies, it is important to conduct your own research as well. Reading a project’s whitepaper, scanning key employees and learning about funding rounds can give you better insights instead of relying solely on what social media users have to say.
Another common mistake people make while trading crypto is chasing trends due to FOMO (fear of missing out). FOMO trading is extremely risky as it ignores the fundamental and technical aspects of a coin. For new investors, the same is not a sustainable tactic for long-term stable gains.
In the fast-paced crypto market, it is common for a token to increase by triple digits overnight. However, such price pumps can be temporary, and those who buy too late in the rally can be left with heavy losses. Therefore, it is better to analyze a project yourself before investing in it.
Losing grip on basics
Lack of fundamental research on cryptocurrencies can topple any investment strategy. In fact, one should make it a habit to analyze a cryptocurrency’s fundamentals even before setting up their crypto wallet.
New investors must take the time to familiarize themselves with how various crypto projects work and what benefit they provide in the long run. For example, a look at a coin’s supply concentration can provide greater insight into its sustainability. As a general rule of thumb, you should stay away from coins whose supply is concentrated in the hands of a few, as such coins can be vulnerable to pumping and dumping.
Remember, it only takes one bad investment to paint your portfolio red. Therefore, understanding the basics and having a long-term mindset is key to picking up good crypto projects and avoiding scams.
Ignores technical analysis data
Investing in cryptocurrencies requires keeping abreast of price patterns, external developments and general market trends. Conducting technical analysis, such as studying price charts, identifying support and resistance levels and predicting potential market movements are important aspects to consider before making informed investment decisions.
For example, some coins are driven only by hype and follow no laws of technical analysis. This is especially true for some meme coins. The same does not mean that any coin where technical analysis does not apply is a scam. However, following this technique can save you if and when a coin turns out to be a scam.
Invest more than you can afford to lose
Alas, one can still fall victim to fake projects even when following these strategies. Therefore, it is always a good idea to create a trading strategy by considering your risk tolerance levels and how much you can afford to lose in the worst case scenario. Many amateur investors often oversell their positions, which can lead to large losses.
This is the most common advice you can get, but it applies to any investment. One must remember that the market is extremely volatile, and investing in even legitimate projects involves a certain degree of risk.
Conclusion
Sifting through cryptocurrencies can be a daunting experience for new investors. Each investor’s financial goals may differ from each other, and not everyone can afford to buy Bitcoin and Ethereum.
While measuring relatively lesser-known crypto projects, one can use the techniques mentioned in this list to steer clear of scam projects to the best of one’s ability. Keeping these points in mind can help new investors become more confident rather than jumping blindly into a storm.
