4 Common Cryptocurrency Investment Mistakes and How to Avoid Them
|Cryptocurrency Investment Mistakes: Here are the 4 Common Mistakes To Avoid When Making an Investment in Cryptocurrency|
For many novice investors, cryptocurrencies and digital assets represent a more appealing and accessible inroad into investing than more conventional investment products such as stocks, bonds, and mutual funds. Crypto traders can buy and sell digital currency through online brokers and centralized or decentralized crypto exchanges. These platforms often give them much more flexibility and have much lower barriers to entry than traditional financial institutions.
Ease of access to crypto trading platforms has many new traders jumping at opportunities to invest, especially among the youth. However, this escalating hype coupled with cryptocurrencies’ price volatility can lead investors to make costly mistakes if they aren’t careful. Above all, it’s important for crypto investors to do their research and start by investing conservatively. This will help them avoid incurring hefty losses from ill-conceived crypto trades.
Cryptocurrency Investment Mistakes: The following mistakes, in particular, are common among cryptocurrency investors:
Losing the Keys to Your Digital Wallet
Crypto assets are most often traded through digital wallets, which are protected by a set of unique cryptographic keys. Transactions with some coins even operate exclusively through these wallets. One example is the privacy coin Monero, which can only be sent and received with a dedicated XMR wallet. Because crypto wallets are such an important part of crypto trading, it’s essential to always keep your wallet keys safe and secure.
Cryptographic keys are used to create and sign transactions on your chosen cryptocurrency’s blockchain. Each set of keys serves as a unique identifying code for its user, preventing unauthorized parties from accessing and using your crypto wallet. It’s important to bear in mind, however, that you can’t recover or reset your wallet keys in the same way that you might with a password or PIN code. Losing your keys thus means losing access to all digital assets kept in your wallet.
Unfortunately, it’s quite common for investors to lose or forget their private keys. In fact, a lot of today’s cryptocurrency remains inaccessible due to this costly error. A report from Chainalysis reports that over 20 percent of the 18.5 million Bitcoin (BTC) mined to date has been lost due to misplaced keys.
You can avoid this mistake by storing your keys in a safe place, such as on an external hard drive. Some investors even save their keys by printing them out or writing them down on a piece of paper rather than in a digital document. For extra protection, they may keep this paper on them at all times or store it in a locked vault.
Rather than putting all your eggs in one basket, diversifying your portfolio is considered a smart financial move when dealing with traditional investing products. That said, doing so is almost a must for building a strong crypto portfolio given digital assets’ extreme price volatility. However, it’s also possible to over-diversify your cryptocurrency portfolio given the sheer number of coins available on the market today.
A crypto investor who puts money down on too many coins may find themselves holding a large number of poorly performing assets, which can lead to significant losses in the long run. Rather than buying up every coin you see, invest in coins with promising growth trajectories. At every turn, it helps to carefully research any tokens you’re interested in and how they’re expected to perform under a variety of market conditions.
Mistyping Trade Orders or Addresses
Be very careful when typing out trade orders on crypto investing platforms, as investors are often prone to “fat finger errors.” Mistyping decimal places, adding additional zeroes, and other similar errors can cause you to lose a lot of your investment money in the blink of an eye. Thus, it’s in your best interest to double- and even triple-check each transaction thoroughly before confirming it.
Investors should exercise an equal amount of caution when sending crypto to other users, as there’s no way to retrieve assets that are mistakenly sent to the wrong address. Unlike traditional bank transfers, transactions on the blockchain are immutable and can’t be reversed. These kinds of mistakes can deal painful blows to your investment portfolio, so take your time entering your transaction details to make sure they’re accurately encoded.
Storing Your Coins Online
Most crypto investors, especially those new to trading crypto, access their coins through centralized exchanges. These platforms operate similarly to traditional banks in that they store your coins on their servers for you rather than giving you access to your own digital wallets. Because the exchange will continue to hold any tokens you own, your assets may be vulnerable to hacking operations and other cyberattacks.
Even high-profile crypto exchanges have fallen victim to attacks from cybercriminals multiple times, leading to millions of dollars’ worth of stolen assets that had been stored on these platforms. To protect your assets, the best option is to store them offline. Set yourself up with either a software or hardware wallet so that you can withdraw and store your coins securely after you buy them.
Investing in crypto can be an exciting and profitable venture. However, as cryptocurrencies are a fairly young asset class and are therefore highly speculative, crypto trading remains quite risky. As with more traditional assets, exercising caution and researching thoroughly before investing can help you minimize losses and make the most of your investments.