As of March 2022, the crypto market is said to be worth over $2 trillion.
If you're reading this right now, chances are that you've seen the headlines. You read the stories. And you know, deep down in your gut, that cryptocurrency is your ticket to financial freedom.
But there's just one problem:
You're still familiarizing yourself with the crypto market. And the more you read up on the subject, the more confused you get.
Should you purchase that coin or the other? Are there cryptocurrency tips you can use to sidestep all the usual pitfalls? Keep reading to find our list of common crypto investing mistakes.
When you sit down and ask the question, "What coins are people investing in?", you'll find that the popular cryptocurrencies fall under three general categories:
Whether folks are investing in Ethereum or Dogecoin, however, cryptocurrency is an area where it pays to diversify. Why? Because for every coin that transcends the internet and gets promoted by Elon Musk, there's another one that will tank.
The last thing you want, as an investor, is to be throwing all your money at a coin that's doomed to fail.
You might be thinking, "But wait! What if I invest everything into a more reliable coin like Bitcoin?". While there's no question that the bigger cryptocurrencies have generated tremendous returns over the years, going all in on the larger coins could limit your portfolio.
For these reasons and more, you'll want to spread your funds out across several coins.
Imagine someone going to the grocery store with no cash, no shopping list, and no credit cards. Nobody would blame you for looking at that person and wondering if they were ever serious about making a purchase.
Believe it or not, there's a similar dynamic at play with cryptocurrency. It's not enough to decide that you're going to be a crypto investor. You need a strategy that will make it possible for you to get the coins that you're looking for.
Cryptocurrency exchanges have their uses, but they often require sensitive data while also being vulnerable to hackers. Mining was how people generated cryptocurrency in the beginning, but if you don't have an army of computers and an endless supply of electricity, this isn't a realistic option for most people.
In terms of bang for your buck, Bitcoin ATMs give you a combination of privacy and convenience that's hard to beat. All you have to do is find a network and use their map to locate an ATM near you.
If you spend enough time hanging out with crypto investors, you'll start to notice that everyone has really strong opinions on the whole hot wallet vs cold wallet issue. Putting aside the question of who's right, this non-stop debate speaks to the larger reality of owning crypto:
You have to function as your own bank. And to make matters worse, cryptocurrency exchanges and wallets are often in the headlines for being hacked.
On that note, you'll want to make a habit of practices like:
Along with figuring out how to buy and sell Bitcoin, there's another concern for new crypto investors that can't be overlooked — you need a plan that will allow you to keep your coins secure. Fortunately, the crypto market is maturing in many ways. As such, the best crypto wallets have had time to build themselves a solid reputation for being secure and privacy-oriented.
In 2021, CNBC reported that a $100 Bitcoin purchase in 2009 would have been worth more than $48 million by February 2021. And while it's only natural to look at those numbers and think, "Wow. I could have been a millionaire by now!", you don't want your investment ambitions to be clouded by your search for the next Bitcoin.
By the numbers, the majority of cryptocurrencies are doomed to fail. New projects and ICOs debut every day. And if you're not careful, bad coin investments can quickly bring down the rest of your portfolio.
So what's a new crypto investor to do? You create a dedicated research process.
Between YouTube and the various newsletter services available, you can quickly find cryptocurrencies that are likely to go places. In addition, you can also read white papers and look at social media to get a sense of how legitimate a project is.
Crypto investment portfolios are kind of like Hollywood studios. Your greatest hits will likely account for a disproportionate amount of your profits. But even so, you can give yourself a better shot at success if you stick to coins that have a solid chance of breaking out.
If there's one thing that all investors can agree on, it's that the crypto market is unbelievably volatile.
For traditional traders, a stock with rapid plunges and insanely high growth would quickly be seen as day trader material. But in the crypto market, one-day 30 percent drops aren't particularly unusual. And that's before mentioning that Bitcoin is one of the more stable cryptocurrencies available on the market.
When you're watching your portfolio dwindle down to nothing during these sell-offs, it can be tempting to let all your biggest fears take over. However, panic selling is a classic rookie mistake.
The standard advice of buying low and selling high still applies to your crypto investments. When prices go down, don't be too quick to start cutting your losses. It might sound counterintuitive, but these downturns are a great opportunity to pick up some coins at a discount.
Have you ever wondered why some people are able to reach their fitness goals while others struggle to get out of the gate? In many cases, it's because folks are signing up for diets they don't enjoy and workout schedules they don't have time for.
When it comes to your overall crypto trading strategy, you don't want to be the investment version of the carb lover who's hopping on the keto diet. That's why so many cryptocurrency trading tips will tell you to sit down and consider your personal lifestyle.
Are you so strapped for time that even five-minute delays aren't impossible to accommodate? Then you probably don't have time for a crypto strategy that involves watching the charts and making technical moves.
If you're the type of person who likes to see quick and easy wins, you might be better suited to swing trading your coins. And if you're simply a crypto fanatic, a multi-pronged approach could be exactly what the doctor ordered.
In crypto and in life, compatibility matters. You want to build a set of sustainable trading rules that will allow you to be consistent over time.
Everybody knows someone who has a bad habit of copying trends while failing to be original. Maybe you or a friend were that person in high school.
Being a trend follower is fine when you're talking about musical preferences or clothes. But when you've got several thousand dollars on the line, however, the stakes are a bit higher than that latest pair of trendy jeans.
A wrong choice here could cost you big.
The crowd might be using a different investment strategy than you are. They could be overestimating the impact of future events. And, in some cases, folks can be wrong about the value of their coins.
This is where having a trading strategy can come in handy. Sometimes the crowd can tip you off to a hidden gem. But when you make a point of following the rules that you've established, you'll be able to apply your own vetting process.
In the traditional stock market, nearly every investor can tell you about a company that they wished they'd bought shares in. For some folks, Facebook or Amazon might be the stock that makes them say, "I can't believe I missed that!". For many others, Bitcoin is very much the one investment that got away.
And that's a problem. Here's why:
Many would-be crypto investors, in their quest to make up for lost Bitcoin profit, can quickly find themselves purchasing currencies against their better judgment.
The internet is in many ways like the Wild West. Anyone can say anything. And it's not unusual for people to hype up currencies with the intention of cashing out and disappearing with their newfound wealth.
So naturally, you don't want to be in the habit of routinely purchasing coins in the hopes of retiring tomorrow. Not only is it often difficult to predict short-term performance in the crypto market, but it's also easier and more sustainable to focus on generating steady returns over the course of several years.
If you've invested wisely, your crypto portfolio will be around for years to come. Don't feel like you have to become an instant millionaire to be a success.
Although a lot of digital ink has been spilled on all the ways that cryptocurrency is the way of the future, it's important to remember that these coins still belong to a very new asset class. If strict regulations are enacted or if new investment vehicles become available, the value of your portfolio could dwindle down to nothing.
For these reasons and more, you don't want to be using your main retirement funds or your down payment money to fund your crypto portfolio.
According to Investopedia, an individual who's making $50,000 should be saving roughly $500 a month for retirement.
Are you paying down debts and staying on top of your savings goals? How do your 401k contributions look?
There's nothing wrong with wanting to put more money into your crypto investments. But if your day-to-day financial situation is looking precarious, you may want to consider making lifestyle changes to free up additional cash. And if worst comes to worst, you should be prepared for the possibility of losing everything that you've invested.
So let's say that you hit the ground running as a cryptocurrency investor.
You've built a balanced portfolio that includes Bitcoin, Altcoins, and a few more speculative cryptocurrencies. You've got a consistent funding schedule. And you've done so well that you're looking to cash in some of your profits.
How will you do it?
Crypto exchanges are great in terms of convenience. But the verification process can take a long time while also exposing you to potential hackers and theft attempts.
Peer-to-peer lending platforms can be great if they offer escrow services. However, meeting strangers in person can be dangerous and a bit of a hassle if you're looking to cash out a relatively small amount.
In any case, here's the bottom line:
As with most things crypto, each withdrawal strategy will have its own set of pros and cons. You'll want to consider the security, safety, and ease of the different methods available to you. By creating financial targets and crafting a plan around how you'll collect your profits, however, you'll quickly be on your way towards building more wealth.
At this point, it's clear that cryptocurrency isn't just another trendy internet fad. It's a legitimate asset class that has singlehandedly turned people into millionaires. As a future cryptocurrency investor, you're giving yourself a shot at getting ahead.
Many people have been able to retire comfortably, pay off debts, and grow their savings through crypto. And if you play your cards right here, that could be you.
Despite all the financial positives associated with making cryptocurrency investments, it's surprisingly easy to lose money on the market. But if you keep the cryptocurrency tips we've just provided in mind, you can reach your financial goals in less time than you think.