You Should Avoid These Cryptocurrency Mistakes In 2022
Mistakes in crypto may cost you a lot of money, and they can range from losing a few dollars to losing your whole portfolio. The good thing is that they are completely avoidable if you know what to avoid, so let’s go through the top 10 cryptocurrency mistakes to avoid.
The first error is not having a goal or a strategy
Having a goal and a strategy is likely the most crucial thing to do when entering the crypto world. A goal is why you’re investing in crypto in the first place, and you should ask yourself whether your goal is to invest in promising projects that will hopefully yield a good return on your money over time, or whether your goal is to yolo $5,000 into coins and beg Elon Musk’s secretary to tell him to tweet something about that coin. As you may know, people have various aims for different situations. Whatever your aim is, you should figure it out ahead of time so you can make a strategy. So, if your aim is to construct a long-term portfolio, you may develop a strategy once you have one. One approach to achieving that aim is to purchase $100 worth of Ethereum and bitcoin per week. Then, on top of that, your plan may include that if cryptos drop 30 percent in a day, you won’t sell anything and instead increase your buy to 300 for the week. That might be a viable strategy. However, keep in mind that no plan is flawless since we never know what the future may bring. What matters most is that you, like me, just set guidelines for yourself. If there is a gray area, we will undoubtedly fudge and slack. For example, if your plan is to spend a hundred dollars a week, you are not going to buy it every week. Let’s be honest, I don’t think so. I need to be truthful with myself. To truly accomplish anything, I need to write things down. So choose a goal and a guideline for yourself, and stick to them until you decide to change them later, at which point you should commit to the new goal and guideline. It’s truly that easy, but here’s the issue: individuals purchase crypto without a strategy, looking for unlimited profits, and then they wake up one morning to find their portfolio down 15%, and these people are much more inclined to panic sell at the worst possible time. So go ahead and make a goal and a strategy, and then write it down. If you do this, you will instantly become a better investor. It’s just that simple. Joining a club of investors is another strategy to minimize emotional selling and purchasing.
The belief that price = value is the second most prevalent error to avoid
It’s a popular fallacy that a coin’s worth is determined by its price. It’s a simple error to make, so I don’t blame those who make it if they’re new to cryptocurrency. Because bitcoin is the top dog, and bitcoin is fifty thousand dollars per coin, give or take twenty thousand dollars depending on which side of the bed China woke up on that particular day, but that’s neither here nor there because many people assume that something like Cardano, whose native token is Ada, is only a couple of dollars, is 125.000 the size of bitcoin when it’s only about one-tenth the size of bitcoin. This is due to the fact that coins are merely pieces of a very large pie, with some pies having more portions than others. It doesn’t matter how much a slice costs; what matters is the total amount of the pie. This is known as the “market cap,” and it is the market cap that allows us to compare the sizes of different coins. It’s this, not the price per coin, that you should focus on. So, if bitcoin is 50 000 per coin and Ada is two dollars and change per coin, bitcoin is not 25 000 times larger than Ada. Instead, you’d divide Bitcoin’s market cap, or their entire pie, by eight to get a market cap, which would be around 10 or 11, implying that Bitcoin is ten times larger than Ada.
Mistake number three we’re calling this “coin to the moon”
So you know what a market cap is, and you go to the tenth page of coin market caps and find a crypto with a market cap of only 500.000 dollars, compared to bitcoin’s 900 billion dollars. So you think to yourself, “I could purchase this for 1.8 million times my money.” In theory, you are correct. Yes, it is conceivable, but it is quite unlikely; most likely, no. Almost every coin in the top 100 or 200 will come and go at some point, and you may be thinking to yourself, “But Sheba blew up, and Dogecoin blew up, too.” What if I choose a different one that accomplishes the same thing? You could, but it’s doubtful. You only have to keep in mind that it’s rare, and we also have to account for “survivorship bias.” Basically, we hear about the projects that go to the moon because they go to the moon, and it appears that there are always projects going to the moon, but we don’t hear about the 10,000 projects that didn’t go to the moon. As a result, this is how people lose a lot of money in the crypto world. They pour money into modest initiatives in the hopes that one of them will become the next Bitcoin, allowing them to retire early. And you know, there’s nothing wrong with trying to invest in coins early on; you just have to understand that they’re extremely high risk, and doing so when you’re new is generally not a good idea, especially if you’re only investing in very small coins; it’s kind of like betting your entire bankroll on the number 69 on the roulette table.
Fourth, when it comes to the stock market, people make the mistake of purchasing and selling too much
Buying and selling is a terrible idea since it quickly increases your tax liability, which may eat into your earnings. Buying and selling crypto is even worse. You’ll not only accrue taxes, but you’ll also pay a lot of fees, which may cut into your earnings. Unless you intend on day trading and profiting on every trade, the buy and hold technique will save you a lot of taxes in most cases. So, let’s assume you invested $100 and it increased in value from $30 to $130. First and foremost, congrats. That is a significant rise. However, you later sold your investment for a profit of 130 percent. You now have a profit of $30. You’ll have to pay capital gains tax on that short-term capital gain, which is likely to be approximately $20, plus a few dollars in transaction costs, so your $30 has now become $22. There is only one deal, so it doesn’t take much for it to wipe out all of your gains.
The fifth blunder is a lack of leverage
Leverage is no longer a good or negative thing. When it comes to investment, it’s just another instrument. It’s just a really effective tool. If you’re unfamiliar with the term “leverage,” it’s defined as “loan money used to enhance your exposure to an investment.”So if you bought $100 worth of cryptocurrencies using 2x leverage, you’d actually be spending $200, with $100 of that being borrowed money, so if your investment goes up 10 percent, you’ll earn $20 instead of $10, and if it goes down 10 percent, you’ll lose $20 instead of just $10.So leverage basically multiplies both your risk and your reward, so it can be a very powerful tool for making you a lot of money just raking in the dough, but it can also completely wipe out your investment in the blink of an eye, so it’s not something to trifle with. It’s not something to touch unless you really know what you’re doing and you understand the risk that you’re taking on, so it’s not something that an absolute beginner should be touching to quit.
Fomo is at number six
As you put more money into crypto, you’ll almost certainly see some returns on one of your investments. I certainly hope so, and it’s critical that you do it with a cool, collected demeanor. Many newcomers are aware that panic selling isn’t always the ideal strategy, but there’s also thrill purchasing, or more often known as Fomo, or the fear of missing out. So similar to how someone might panic sell when their investment drops to 20, someone might get excited when their investment jumps up to 20, and then you start getting these thoughts in your head like, what if it keeps going? What if it goes up to 60? Should I buy more? You know, if it doesn’t last when the time comes that you see some gains. So again, just make sure that your decisions align with your original goal and the plan that you set for yourself. You will know the answers to all of those questions, so again, just stick to your investment plan and that’s it. Stick to your investment plan.
The seventh blunder is to select exchanges with a good reputation
The error is that, while most beginners use something secure and well-known like Coinbase, there are a lot of scam exchangers out there, so make sure you’re joining up with a reputable one when you’re first starting out. Before entrusting your money to them, do your homework and make sure it’s entirely safe. There’s a chance you’ll end up in jail. Many investors’ funds have been lost as a result of exchanges. Before entrusting your money to them, be sure it’s fully secure.
Do your own research, is number eight
Crypto has been a hot topic with everyone, including Influencers and celebrities, and not long ago, Kim Kardashian, who has like a quarter of a billion followers on Instagram, promoted EthereumMax on her Instagram story, which hasn’t exactly performed well over the past few months, and I’m not saying it’s a scam, but you know, watch Coffee Zilla’s video on it if you want some more context here. There’s also a large incident with well-known YouTube Gamers advocating a scam currency to their followers and then selling it as a method to save children, so the moral of the tale is to always conduct your own research and be skeptical of individuals who just claim it’ll happen. The greatest Influencers, you know, have a little bit of click bait in their titles and thumbnails for the YouTube algorithm, but they provide level-headed, non-hyped advice in the video. That’s the kind of thing you should look for. That’s the kind of thing you should look for. So the lesson of the tale is to do your own research because you’ll have more confidence in your investments since you’ll know why you’re purchasing it rather than just because someone instructed you to.
“Oops, incorrect address,” we say to number nine
Some of you may know what occurred now that all of your crypto has disappeared, but you’ll find out. As you’ll see today, crypto transactions are supposed to be permanent and irreversible. This means that there is no one in command of the network. If someone had the ability to reverse transactions, the entire premise of decentralization would be undermined. It’s recommended to always send a test transaction when moving crypto from one wallet to another, especially if you’re sending a substantial amount of money and don’t want to lose it. This is even recommended by certain wallets. They presumably recommend that you don’t immediately email them and ask, “Where did my safe moon go?” Another approach to preventing this error is to solely use QR codes, which are far more difficult to misread. When copying and pasting a wallet address, or even worse, physically writing it down, errors might occur. Therefore, always double and triple check your wallet addresses to avoid losing money.
Number 10 is not using 2FA
So the crypto space is full of hackers, and not all of them are going to have good intentions, like that one guy who just gave back 600 million dollars that he stole. Who knows if he had good intentions in the first place, but either way, there is nothing more appealing to a hacker than stealing money that cannot be tracked. One of the most simple and effective measures to take in preventing your account from getting hacked is two-factor authentication. Some exchanges force you to do this; some provide even more security measures than this. But regardless, everyone provides the option of 2FA, or two-factor authorization, and you need to take advantage of it. If you don’t know what that is, it’s a form of security that requires two forms of identification before it gives you access to your account. This is most commonly done with a text message code, but even that isn’t always perfect, so I would highly recommend setting up an Authenticator app like Google Authenticator. If these apps produce a new code every few seconds that you then enter into a website that you’re trying to log into, then you will get access. This means the only way that someone could get into your account is if they both have your password and they physically have your phone and access to your phone, and let’s be honest, if someone has both of those things, you have way bigger problems to deal with than your cryptocurrency and where it’s sitting on an exchange. You’ve got big issues.
And that concludes my list. I hope you found it useful, and I would like to thank you for taking the time to read it. I wish you a prosperous day.