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20 Common Mistakes of Cryptocurrency Investors

20 Common Mistakes of Cryptocurrency Investors

Cryptocurrency trading has continued to attract lots of investors as more people made enormous amounts of money on Bitcoin and other coins.

Cryptocurrency trading has continued to attract lots of investors as more people made enormous amounts of money on Bitcoin and other coins. While this is a positive development, there are numerous risks which investors are exposed to. On top of that, when trading cryptocurrencies, stocks, bonds, derivatives or other instruments, investors should also avoid mistakes which are common among young investors. Below are 22 mistakes you should be aware of when investing money on all kinds of markets.

  • Lack of diversification
    Most Crypto investors keep their eggs in one bag whereas diversification is the key to every successful investment, cryptocurrency included. Investing in more than one cryptocurrency will enable investors to diversify their portfolio to be more stable for gains and losses when there is sudden fall in one of the crypto coin. There should be a minimum of 5 different cryptocurrencies in investor’s portfolio. Investors should also endeavor to split their cryptocurrency in the market caps. Splitting in high, middle and lower cap is a good strategy. Young investors should avoid investing in Bitcoin only.
  • Investing in project you don’t believe
    Most young investors don’t believe in Crypto investment despite being obsessed with them. They invested either because their friends tipped them on a particular cryptocurrency, but most often with the aim to sell once the price goes up. They failed to do their background research to know more about the project, and once the value of the particular cryptocurrency they invested slightly goes down, they tend to sell their coin since they don’t know what is going on in the market coupled with their overall disbelief. Young investors should endeavor to do their research; seeking expertise knowledge and considering fundamentals of considered crypto projects.
  • Not taking profit from cryptocurrencies
    Young and long-term investors should learn to take out the profit of their cryptocurrency to secure themselves. You don’t have real money until you take out your investment. There might be a second Mt.Gox or another massive blow in the crypto world. Taking out your profit to re-invest or to engage in investment in other platform, or move to another asset classes to build a diversified portfolio is not a bad idea.
  • Selling cryptocurrency at a loss
    Failure of investors to understand the development paths and obstacles of cryptocurrency makes them vulnerable to selling at a loss when something bad but not terminal has occurred. If investors have done a proper research before investing, they would be able to keep their coins during hard times and sell when the price rises, of course in case of a project which is feasible and viable. Selling at a loss is often an indication of bad research, as cryptocurrencies are being designed and developed with long term goals in mind.

  • Lack of decision
    Young investors often fail to decide whether the purpose of their investment is for a short term or long, whether the aim is to accumulate more coin or dollar, or how to allocate capital among asset classes. They are also unable to realize that Bitcoin and dollar values are two different things. There are situations where the price of Bitcoin rises, falls or remain steady. You may gain a lot of money in $ value and end up losing in Bitcoin value since BTC also goes up and down. Young investors get stuck since they don’t know what they are doing. They end up losing, swapping BTC when its rise faster than the $ value. Young investors should note that if the $ value rises greater than the Bitcoin value, they are gaining and if the Bitcoin value increases faster than the dollar value when the dollar value goes up, they are losing. If the purpose of your investment is for a short time or you are a day trader, accumulating more Bitcoin would be a better strategy. However, if your goal is for long-term investment, accumulating more dollar value is a better decision to make.

  • Investing money you can’t afford to lose
    Most beginners and young investors coming now into the Crypto World fall into this mistake. They thought if they had invested a few years back, they would have been a potential billionaire by now thereby feeling guilty with the thought that it's already too late. Then they begin to obtain loans and engage in other financial debts due to their need to compensate for the time lost, and as soon as possible to become billionaire through cryptocurrency. This is a horrible idea as young investors may end up selling up their cryptocurrency in the long run just to cover the cost of their debts, and therefore lose all capital. Beginners and young investors should instead try to invest a small portion of their earnings. The money should be what they can afford to lose, and money they don't have emotional connections to. Moreover, use only excessive cash, best if saved on alcohol, tobacco or excessive entertainment, and never more than 10% of monthly earnings.
  • Not sticking to your goal As mentioned above
    If your goal is to sell IOTA at $40 gain level, don’t sell when IOTA hits $20 gain level due to your lack of patience and determination. Don’t panic while your friends are selling, stick to your goal to make a better profit, of course if the project is still fundamentally viable.

  • Lack of research
    Most of the Crypto based projects are not yet finished. As young investors, we need to know the aim of the crypto developers and their promises to investors. By doing background research, you will be able to know more about the development team, their ideas, and whether they can be able to achieve well enough to deliver their promises. Proper research would broaden your knowledge to be able to roughly estimate what kind of dollar or Bitcoin value the cryptocurrency can hit. Doing thorough research on NEM for instance, you can roughly deduce the maximum dollar value it can hit, and this won’t allow you to sell at 5 cents or $2.

  • Buying cryptocurrency on a “FOMO” and selling on FOUD”
    As said already, most young investors buy cryptocurrency on Fear of Missing Out (FOMO) and sell due to Fear of Uncertainty and Doubt (FOUD). Within 23rd of October to 4th of December 2017, the price of IOTA was moving steadily at about $0.2 and began to rise suddenly. Most young investors felt they were missing out and started to buy while some bought when the price was at its peak. Eventually, the price relaxed a bit for a specific period before an undulated movement. Young investors should be aware that there are people in the crypto space making money by causing panic on the crypto market since that is what they are paid to do. They will basically be buying from people that are afraid. If you don't believe in your project, you will end up selling to them at FOUD.
  • Lack of patience and being greedy
    A lot of young investors are impatient when investing in cryptocurrency. They don’t want to invest in a long-term and want to become an instant billionaire since some investors had already made millions of dollars. They failed to realize that these billionaires were once like them investing for a minimum of a year, when times were even more uncertain than today. Young investors procrastinate by aiming to invest on long-term and few months of their investment; they noticed that all other cryptocurrencies are going up except the ones they invested in, then they change to buy the other rising cryptocurrency. After this had happened, their previous cryptocurrency begins to move up. This act is very prominent among young investors, and it’s quite annoying. You should never be greedy because cryptocurrency investment gives a maximum return on investment when compared to other forms of investment like the stock market.

  • Ignoring supply and looking only at cryptocurrency prices
    Young investors tend to ignore supply or the market cap of a coin and focus their investment on the price of the cryptocurrency. They thought if they invest to a lower price cryptocurrency compared to a higher price, there is a tendency for the lower price to go 10x up unlike the higher price counterpart. Considering the market cap which is the value of all projects is crucial in cryptocurrency investment. Take for instance, if the price of Litecoin is $233.71 and the supply is 54609058 LTC, the market cap would be the price of the Litecoin multiply by the supply which is $12,762,682,981. Being aware of the market cap and supply would make you invest in the right crypto project as there are possibilities for investors investing in cryptocurrencies with lower market caps than that of the higher market caps.

  • Avoid buying cryptocurrencies now because the prices are too high
    This is a mistake common among both young and old investors, and it’s still happening now. Looking at the current market from the old perspective is a bad idea. There are possibilities for the continuous increase in the price of a presently high price cryptocurrency. Investing in such project right now when people are fearful to invest can give you an upper edge in the crypto space.

  • Investing in cryptocurrency with a tiny market cap
    On the other hand, buying cryptocurrencies with a little market caps is also a risky investment decision most investors engage in. They tend to buy cheap cryptocurrencies far below a cent having an undulated chart like a wave where it goes up today and falls the next couples of days. The fact remains that: this kind of cryptocurrency can’t be sold on exchange or to any company, and since the chart is not stable, no one will be willing to buy the cryptocurrency when it rises since they are aware that the price will fall in the next coming days. They will want to buy when it drops. The rise you notice in this kind of project is due to the money you and some other novice investors pumped into the project.

  • Buying all cryptocurrencies at once
    Short-term investors and day traders should ensure to always cost-average when investing in cryptocurrency. For instance, if the price of Bitcoin is going up, ensure you don’t sell all your Bitcoin at that moment, exercise patience by selling some portion and when you notice a further rise, ensure you sell too. Using this method would allow you to avoid losing in the long run. This method is also applicable when buying; endeavor to buy your cryptocurrencies as it continues to go down to be able to cost-average your investment. However, long-term investors that are well acquainted with the market and knows what the crypto project could later hit should focus on achieving their long-term goals.
  • Not double-checking wallet number when sending cryptocurrency
    When sending cryptocurrency to your wallet or some other investors, always double or triple check the wallet number. Avoid sending Ethereum Classic to Ethereum wallet or Bitcoin classic to Bitcoin wallet. Endeavor to double check properly or your transfer may be gone.

  • Being too emotional
    Some investors not only young ones are too emotional thereby buying more cryptocurrencies when the price of the one the invested in suddenly goes down. If you lose money presently on a project, be calm. Price goes up and down, wait for the period that the price will go up and avoid trying to break-even by investing in another project. Don’t make a risky investment because you lost on a project. Stick to your plan.
  • Not researching before reinvesting in an already known project
    It is quite understandable that you know much about the project you are investing but at times, you need to carry out well-detailed research before reinvesting. There might be an instance where the massive drops in the project you are familiar with is due to some disastrous reasons like the death of the CEO in a car accident or the partnership the developmental team set was not real. Series of issues might occur. Your lack of research before re-investing might make you buy the cryptocurrency at the low rate thinking that when it rises, you will sell. In the actual sense, you are purchasing a cryptocurrency that is worthless. Ensure you research the reasons behind the drop in price before reinvesting.

  • Lack of strategy
    Some people invest in cryptocurrency just to get more money one-off. However, bringing excessive profits is not the long term aim of cryptocurrency. Young investors should not be too emotional either. Define your goal and strategies on how you deal with your crypto project. For instance; if your goal is to invest on IOTA at $4 level, you should decide the gain level you intend to sell, or year(s) you plan to sell. Having a strategy would allow you to breakthrough.
  • Not writing down your password and the seed to your wallet in a secured place
    This little mistake can make you lose all your investment. A lot of investors have their cryptocurrencies in their wallets but forget their passwords. Ensure you write down your seeds, passwords and all other vital info crucial to your wallet in at least four different secured places.

  • Making decisions based solely on technical analysis
    Long-term investors should desist from using just the technical analysis such as resistant levels, supply levels, trend lines, etc. to make investment decisions because this won’t help when there is an announcement in the cryptocurrency project. Using IOTA chart within 26th of June to early December 2017 as a case study, IOTA suffers a massive drop to about $0.2. Around 11th of December 2017, they announced a partnership with Microsoft and the price rises tremendously to approximately $5.70. Investors who based the decision on the technical analysis and sold when the price was going down with the fear of uncertainty and doubt regretted their decisions and those that were greedy while others were fearful enjoyed the project.

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I think you should update article and name it 19 common mistakes as "13. Avoid buying cryptocurrencies now because the prices are too high " is not valid anymore ;)
But anyway, great job. I see it can be even expanded to stock market, especially when it comes to patience, research, emotions and GREED of course. A lot of my friend bought bitcoin at 15-20k levels, what made them those famous HODLers haha. They never took an advantage of 24/7 market, which allow to for perfect money management and SL execution anytime. No price gaps, no day off. Crypto market is perfect for trading - all time open, volatile, even with leverage. Pity they called themselves investors, not speculators.
Maybe not distinguish yourself from investor and speculator is also common mistake. Mistake that blocks you from taking advantage of this 24/7 market. Speculators paradise.

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Actually, all these haters help the market establish a solid bottom. It all comes too late, always: people moan (or beam, for that matter) post factum. That's the error they make: reacting to past events AND price development. Your friends should consider buying to lower their average. Just every month take some dough off their salary and keep buying. That's an execution of a rational decision. Or was it not rational? Then sell immediately and never purchase on FOMO in the first place.

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More than agree. But buying more at the deep or buying just on regular basis, is investors domain. Cost averaging works for long term investors. They were short term speculators. Maybe even not speculators. Just random greedy people. I bet they don't hodl anymore as they don't speak about their bitcoin and lambos ;)
People should be more reasonable and think before buying. Pity it applies to me too. Greed is strong :D