Investing in cryptocurrency can provide a tremendous opportunity to make a profit – but it can also result in massive losses. It is important that you remember that as much as some people have made millions from cryptocurrency, others have lost everything too.
Although there are never any guarantees when investing in cryptocurrency, if you want to minimize the risk and improve your chances of making a profit – a good place to start is by avoiding some of the more common mistakes.
1. Relying on Cheap Coins
In theory it may seem like a good idea to buy cheap coins and wait for their value to appreciate – but what do you do if it doesn’t? The fact of the matter is that cheap coins are often cheap because they are either unproven, or because there is no demand for them.
While there is no harm in investing in cheaper cryptocurrency that you feel has good future prospects, you should not rely on that approach too much. The cases where the value of cryptocurrencies are truly underestimated are few and far between.
2. Succumbing to the Fear of Missing Out
The Fear Of Missing Out (FOMO) can affect your cryptocurrency investments in a very real way. For example you may end up buying coins that are already inflated because you feel you’ll miss out on the possibility that the value continues to rise.
Similarly you may over-invest in a new cryptocurrency or take on other risks due to the FOMO. Suffice to say if you succumb to it, you will probably end up making poor decisions that could have disastrous consequences.
3. Investing in Only One Cryptocurrency
Ever heard the phrase ‘putting all your eggs in one basket’? It definitely applies to cryptocurrency as well, and it is never a good idea to invest in just a single coin.
Ideally you should diversify your investment and split it up over several different cryptocurrencies. That diversity will help to reduce the overall risk, and if the value of one plummets you won’t end up losing everything in a single go.
4. Falling for Hype and Misinformation
How many times have you heard that a certain cryptocurrency is going to be the ‘next bitcoin’? Needless to say it is all just hype, and you shouldn’t fall for it – and certainly must not make decisions based on it.
Keep in mind that although there are many ‘experts’ out there, you should never take what they say at face value. Instead, you should always do your own research and try to find as much solid information as possible before making a decision.
Without solid information, investing in cryptocurrency is really just a gamble and you might as well just find a cryptocurrency bookmaker and place bets on random sports.
5. Not Setting a Budget
As you may know the most important rule when investing is: Do not invest more than you can lose.
It holds true when you invest in cryptocurrency as well, and you should always be prepared to lose what you put in. Although it can be tempting, you must try not to get greedy and invest any more than that – otherwise if the market drops you may end up in dire straits.
6. Overlooking the Fees
Beginners often overlook the fact that transaction fees are charged when buying or selling cryptocurrency. As a result they end up making a loss simply because they failed to factor in the amount of fees they’d have to pay.
Suffice to say, you cannot afford to overlook the transaction fees. To calculate the profit that you make you need to find the difference in price, and subtract the fees that you will be paying.
All in all it should not be too difficult to avoid the mistakes listed above – especially now that you are aware of them. At most you’ll just need to be careful, and make a few preparations in advance.
It should be noted that avoiding mistakes is still no guarantee that your cryptocurrency investments will turn a profit. That being said if you are careful enough you’ll stand a much better chance of ending up with a profit when all is said and done.