Mistakes made in Crypto investment

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Some of the common mistakes made in crypto investment:

Whenever the price of cryptocurrency is rallying, people start spending a lot more.” – Erik Voorhees
  1. Understanding the crypto market: Like any other crypto investors I would repeat the same thing, Crypto markets are very volatile, why is it volatile? Just like any fiat currency, a country’s central bank and government has control over its currency. They have different measures to manipulate and control over it, hence makes it stable or decides the value of the currency. Whereas, cryptocurrency is decentralized which mean it has no central government or entity to control over it, hence there is volatility. Unfortunately, a lot of investors are unable to understand this concept.
Source: Robinhood

2. Buying High and selling low “Whenever the price of cryptocurrency is rallying, people start spending a lot more.” – Erik Voorhees. Buying it low and selling it high is always the concept whether stocks, crypto or any other investments an obvious concept but the majority of beginner crypto traders simply do the opposite. Within the last few days the price has fluctuated for Bitcoin for almost $3000 in average, but when the price of Bitcoin was $60,000, a lot of investors did a quick purchase and now the prices tumbled they are selling it back at $38,000. Not just Bitcoin, other coins like Ethereum and Dogecoin and etc.

Source: Yahoo Finance

3. Either all or none – Most inexperienced investors tend to sell all of their crypto when the price surges and an experienced trader sells 15% when prices surge and wait for the dip to buy back. Experienced trader sells another 10% -15% of their crypto when there is a more gains whereas the inexperienced trader does the opposite. Hence, unable to time the market.

4. Diverse Portfolio – Diversification is the key. Never hold just 1 or 2 coins. In short, don’t put all eggs in one basket. Hold different coins at the same time, if one or 2 are making losses, the other coins may be doing better which can cover up the losses.

Source: Coinbase

5. Exchange/ Wallet – Never put all coins in one wallet or exchange. Have the coins Putting all their coins on 1 wallet. Have them distributed through different exchanges and wallets so if it one gets hacked or password lost then you don’t loose everything.

Source: Stock Photo

6. Overtrading – Many new investors make this mistake after watching Youtube or hearing from others how they made money in crypto trade, they tend to put all their life savings or even take loan to invest in crypto. Rule of thumb, invest only you can afford to lose.

Source: Stock Photo

7. Market Cap – After the surge of Dogecoin by 1000% , many new investors have bought coins like AMP, EOS and Tron which hyped artificially and there is no substantial improvement in tech. Buying coins that are hyped without any substantial improvement in tech, resulting in not understanding the market cap of the coin.

What is Market cap? Market cap refers to market capitalization, refers to the total value of all a company’s shares of stock. This is important because it represents the valuation of the company’s stock price versus another. The formula of market capitalization is :

Market Capitalization = Outstanding shares * Market price of each share.

Source: Coinbase

8. Panic Selling – “FEAR KILLS MORE DREAMS THAN FEAR EVER WILL” This happens to many new crypto traders, they feel they are missing out and end up buying assets at a higher price and then when the same asset prices drop they panic sell everything which is no good. On October 2020, I bought Ethereum at a price of $256 -$450 and on March 2021, the price surged to $4500 approximately which ended up bringing more new investors to Ethereum but some recently the price dropped to $1200 on May 24th, 2021 (Wednesday) which resulted in panic selling for many investors. In this situation patience is the key since the price of Ethereum to $2700. Below is the Ethereum price chart since July 2020 to current price as it can be seen the surge and drop.

Source: Refinitiv

9. Dollar cost Average – This is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. For example: If Doge is $0.36 and an investor is planning to buy $100 worth of Doge, the investor receives 277.77 worth of Doge, whereas if Doge surges to $0.65 then the investor only receives only 153.8 worth of Doge with the same $100. There is a difference of 123.9 Doge, in that same manner higher the investment amount the higher the impact. Therefore, this is an important concept which most new investors overlook.

Source: Investopedia

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