After 12 months of financial uncertainty caused by the novel COVID-19, many are optimistic that things will begin to go back to normal in 2021, thanks to the introduction of vaccines in some countries. But despite the pandemic-related financial downturn, the cryptocurrency sector is one that has bucked up the trend and is projected to reach higher heights this year. If you are looking to invest in high risk and high yield markets, cryptocurrency is the sector you should have your eyes on. However, you need to know the basics of crypto before investing in it.
Cryptocurrency (also known as crypto) is a digital asset that is highly volatile. There is an equal chance of earning big and going burst on cryptos and so, you need to educate yourself on crypto investing to minimize mistakes in the market. Below are 5 crypto investment mistakes you should avoid in 2021.
1. Investing without proper research
The worst mistake you can make when investing in cryptocurrency or any other assets is investing in it without knowing the basics or doing proper research. Cryptocurrency is highly volatile and investing in it is risky. If you do not understand what you are doing, you will end up losing money. Before investing a penny, you must take out time to learn the basics of crypto investing. You should get all relevant information about how the market works; this will help you invest wisely.
2. Thinking cryptocurrency is foolproof
Cryptocurrencies are digital assets that are encrypted. However, that cryptos are encrypted does not mean that they are secure. Avoid the mistake of believing that the encrypted nature of a digital currency makes it secure. Encryption only makes them confidential. It doesn't mean that they cannot be stolen or hacked. So, you must take responsibility to keep your digital money safe. To protect your investment, you must avoid sharing your keys or codes with anyone. Also, do not leave your crypto coins in an exchange for too long, no matter the popularity of the exchange. Use a digital wallet to store your crypto coins.
3. Not paying attention to the math
Investing is all about making a profit and so, you should focus on the profit potential when investing. To know if you are making a profit from an investment, you must understand numbers. Without paying attention to numbers, you'll never know whether you are making a profit or not. Cryptos are highly volatile; you can see varying price changes in an hour or within a day. To take advantage of these price changes, you’ll need to consider transaction fees. Transaction fees can take out a large portion of your gains and so, you must take a look at them.
Another thing you should pay attention to when investing in cryptos is taxes. If you fail to include taxes and fees in your computations, your crypto profits may turn into losses, especially if you trade excessively.
4. Making investment decisions based on emotions
In crypto investing, you’ll encounter acronyms like FOMO, HODL, and FUD. These acronyms represent some emotion-driven crypto strategy. You must not let these emotions drive your investment choices.
FOMO simply means “fear of missing out”. Don’t make the mistake of investing in a crypto coin because it is on the hype or is trending.
FUD simply means “fear, uncertainty, and doubt”. FUD prevents people from investing even when market sentiments or research stats are pointing that it may be a good time to invest.
HODL is an acronym that means to “hold on to your investment”. What it is saying is that you should keep your investment even when you observe high volatility in the market. While it is okay for you to hold on to your investment at times, there are other times that you won’t have the time to wait for a very good return on your investment. At such times, you may have to cut off your losses.
5. Invest in only one crypto
Bitcoin is the most popular crypto and is one crypto you should consider investing in. The volatile nature of cryptocurrencies means that a particular crypto can experience a bull run in one moment and trigger huge losses another moment. As a result of this volatile nature of cryptos, it would be a mistake for you to invest in only one crypto. The wise thing to do when investing in cryptos is to invest in different coins - diversify your investments. Coins like Ethereum, Litecoin, Sonergy, and Bitcoin Cash can also offer you profitable returns on investment.
Just like with other kinds of commodities, you can run into losses investing in cryptocurrency. The market is extremely volatile; you can make profits within a few minutes and lose it all the next minute. To ensure you get good returns on your investment, take out time to learn the right way of investing in crypto assets.
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