We all want to avoid them. But mistakes happen, especially if you have taken a step in the crypto industry. According to the sources, Investors have lost billions in cryptocurrency scams. Mistakes can be mitigated or avoided with the right planning and information. Let’s see what the common mistakes are and how to avoid them. Get to know more on IBTimes.
Understanding The Basics
There are three ways to acquire cryptocurrency:
- After opening an online account, you can choose among a staggering number of cryptocurrencies to purchase through a brokered exchange. Your purchase and sale of the “coins” will look very similar to any other security, except that the market never closes and the price fluctuation is highly volatile and completely untrustworthy.
- You can establish a “wallet” to hold crypto that you buy from someone else using one of many peer-to-peer online access points. This type of ownership carries much greater risks from price manipulation, scammers, and a total lack of privacy (later on) but provides the free capitalist environment promised by an unregulated and decentralized exchange.
- Finally, you can create new coins for yourself by “mining” crypto.
Every unit of a cryptocurrency, the “coin,” is the product of a created “block” (and every coin consists of a million smaller digital units). The block is created when someone, a “miner,” applies a significant investment in a series of highly sophisticated and interconnected computers and servers (the hardware alone may cost more than $12,000) and in computing power (sources report as much as 86,000 kWh in electricity expended per coin, costing as much as $5,000 in some states) to solve a puzzle that is automatically presented following the successful solution of the puzzle before it.
Any number of miners attack the puzzle simultaneously, and the miner who solves it first adds a “block” to the “blockchain” that evidences the coins the winner received for the solution. Blockchain puzzles get solved about every 10 minutes, and the difficulty level and coins won for each new puzzle are dependent on the number of miners who attempted the previous one.
1. No Proper Planning Before Investing
Any investment needs to be in line with your financial goals. How much money do you wish to make, and for what term (long-term or short-term)? What is your risk-taking capacity? etc. Even after investing, you must plan-do you want to take the profit or completely withdraw the coins?
For example, it doesn’t count how much you pay for a cryptocurrency if you plan to hold it long-term. The value will likely go up for popular cryptocurrencies such as bitcoin, ethereum, etc. Sure, there are better and worse moments, but the returns are mostly positive when you invest for the long term.
On the other hand, you may gain potential returns if you invest in cryptocurrencies with a low market cap. But if you invest at a higher price, you may have to wait a long time for it to gain substantial profit, or maybe you will even ever recover the amount invested.
2. Influenced Through One-Sided Opinions
How did you get keen on crypto? What are your sources of gaining information? Maybe you will follow a YouTuber who has excellent knowledge about cryptocurrency or is connected to an organization. Still, It is always better to collect different opinions instead of gaining knowledge through only one source of information. It will help you better understand the crypto world and a better image of the market situation.
You need to gather information because, what may be a wise option for one individual, may not be appropriate for others because of different risk tolerance or goals regarding that investment.
3. Purchasing High
When you see the value of your assets skyrocketing in price, you react and sell them immediately. The desire to sell the asset is even more so if you’ve missed out on previous similar opportunities. The point is, what went up must come down. If you’re investing in the asset at a higher price, you may need to wait a long time to break even.
4. Lack of Appropriate Security
Keep in mind that crypto is unregulated, and if the government anytime imposes a ban, the possibility of recovering your coins is near none. There are a lot of fake profiles of crypto influencers on the web. It is essential to be careful with the scammers on YouTube, Twitter, Telegram, etc. If you connect with an organization, you need to research and trust it. For the most part, they offer a few insane great offers that guarantee to double your crypto in minutes and disappear yourself, and so many people have lost their money in this type of scam.
5. Investing Money You Cannot Afford To Lose
You should only ever invest in crypto if you can afford to lose. Of course, nobody wants to lose money! Crypto is highly volatile, and those amazing gains may go hand in hand with the risk of huge losses. The lower the market cap of the crypto, the higher the volatility and risk. How much return you’ll receive depends on your personal experiences and risk tolerance, but make sure that you know the risks involved and the worst-case scenario.
6. Buying Old Names You’re Familiar With
Many of the best investments will be newer names that investors won’t know. Investors can discover and profit from these new stocks with a little research before they become household names.
7. Not Being Able To Follow Good Advice
Friends, relatives, certain stockbrokers, and advisory services can all be sources of bad advice as only a small minority are successful enough to merit investors’ consideration.
8. Worrying About Taxes
Excessive worries about taxes usually lead to unsound investment decisions in the hope of achieving a tax shelter. “You can also fritter away a good profit by holding on too long to gain long-term capital.
Is there no guarantee that you will make money by avoiding these mistakes? Of course not. But it may help you reduce the risk.