Top 10 Mistakes Crypto Investors Should Avoid

Crypto Investments: How To Keep Your Funds Safe

Despite the volatility, crypto investments can be exciting and lucrative. However, several new investors make costly mistakes while managing their crypto portfolio which results in losses. Poor security practices, lack of knowledge, scams and more can lead to hard-to-recover losses. Investors should avoid making these mistakes to keep their funds safe and grow them. Here are the 10 most common but costly mistakes that crypto investors should avoid.

1. Not Tracking Fees and Taxes

There are several platforms and ways to buy crypto and plenty of options may cause new investors to jump into buying crypto without understanding how the fees work on exchanges. Depending on the nature of payment, crypto purchases attract different fees. For example, buying crypto with a credit card may come with massive surcharge and additional charges, per Investopedia. Furthermore, crypto investors should be aware of crypto tax laws that depend on their geography. Thus it is best to conduct thorough research on all types of fees and taxes before investing.

2. Falling For Rug Pulls

Rug pulls are a common crypto scam where fraudulent developers set up tokens and websites trading in crypto. These tokens are offered on attractive deals to lure investors. These developers then abandon the project and run away with the investor funds (pulling the rug). Investors who own tokens of an abandoned project, end up losing their money as the price of the token falls to zero. It is advised to always verify the websites and tokens of a project. Gather information about the founding team and if the crypto tokens have existed for a long period. Newly minted tokens that surge in a day should also be avoided.

3. Relying On Online Wallets

Cryptocurrencies are digital currency that can be stored in a digital wallet. While online crypto wallets appear convenient to use, they are also far riskier than storing crypto offline. Online wallets are prone to vulnerabilities, and hackers who can steal sensitive data drain the investor's wallet completely. Thus, the most secure way to store your cryptocurrency, especially for new investors, is to store it in an offline hardware wallet, which is essentially a USB stick with advanced hardware and software encryption that protects crypto private keys.

4. Making Emotional Decisions

Keeping emotions in check while making investment decisions is essential to avoid losses. The two powerful emotions fear and greed can often dictate the decisions of new investors. Greed often leads to investors buying at market tops and selling at market bottoms. It also leads to the purchase of the hottest cryptocurrency, and falling for scams. Further, the fear of missing out (FOMO) can push investors to buy the cryptocurrencies without conducting due diligence. Thus, it is advised that new investors create a sound strategy that doesn’t allow them to make emotional decisions. 

5. Reliance on Technical Analysis

Day traders and short-term investors use sophisticated technical analysis to identify the buying and selling prices of an asset. These technical analysis strategies have been developed with decades of market experience in the equity market, but they may not always work in crypto markets. Cryptocurrencies have unique market forces that shape their performance, thus using the same analysis tools may not yield desired results. New crypto investors must be aware of a cryptocurrency’s nature, history, vesting periods, whale activity, and emission schedules, to determine their investment strategy.

6. Short-term Thinking

The “get rich quick” schemes within the market have many new investors thinking short-term. While there may be a possibility of earning massive gains in the crypto market, there is a greater possibility of losing all funds at once to a bad investment move. New investors should look to make long-term investments choose crypto investments carefully, and pick higher-quality projects with long track records. 

7. Misusing Leverage

Experienced investors use leveraged derivatives such as options and futures contracts to make extra profits from their funds. Thus, they acknowledge the risks and rewards of debt-fueled trading and typically practice risk-management strategies to minimize losses. However, if beginners use leveraged financial derivatives without acknowledging the risk of losses and proper risk-management strategies, they can end up losing all their funds. Thus, for new crypto investors, it is advised to not be enticed by stories of rags to riches and to avoid utilizing leverage to multiply their returns. They may do so only after gaining sufficient trading experience.

8. Falling victim to scams

Apart from rug pull scams, the cryptocurrency market is full of other scammers. As per an Investopedia report, the Federal Trade Commission (FTC) reported nearly $700 million in stolen crypto assets in 2021. Scammers employ sophisticated phishing techniques to steal crypto wallet information from new investors or convince them to transfer their funds to dubious wallets. These scams can happen through email or messaging apps, where scammers pretend to be traders, regulatory authorities, or brokers of tokens. They share website links which can lead to investors’ wallets being compromised. To avoid such scams, investors should avoid making contact with suspicious people and never connect online wallets to an untrusted application.

9. Ignoring Common Risk Management Tools

There are several investment risk management tools like stop-loss and buy-limit orders which have been in existence for years. These tools can be used to protect the assets of new investors from market volatility, and book profits, while limiting losses. A stop-loss order automatically sells tokens if they fall below a specified price, while buy-limit orders ensure investors don’t spend more than a specific price for a token. New investors can take advantage of both tools to help navigate the markets and limit losses.

10. Making Mistakes in Crypto Wallet Operations

Crypto wallets act as the personal vaults that investors alone are responsible for. New crypto investors must safeguard the private keys and recovery phrases of their crypto wallets as they are the only means to get access to crypto wallets. A common mistake that new investors make is mistyping their wallet address. This can lead to them sending tokens to the wrong wallet with no scope of recovering. Investors should use hardware wallets (cold wallets) to ensure the highest grade of wallet safety.