After numerous discussions about blockchain technology and crypto investment concluded on a positive note, highlighting cryptocurrencies as freedom in comparison to banking and its deep connection to promoting confined financial independence, a plethora of individuals have acknowledged crypto’s power to change market structures, the architecture of the Internet itself, and the world as whole. Furthermore, many have cultivated a strong belief that the future of money is cryptocurrency, with research studies showing that a subset of people are interested in investing their money in different assets, longing for a reliable, long-term store of value.
While the cryptocurrency landscape is a great avenue to make a lot of profit, investing in cryptocurrency can be considered very risky. As an asset class, crypto is highly volatile and can drastically change at any time with little warning. People must realize that cryptocurrency requires a much higher level of engagement, patience, caution, and continuous market monitoring for relevant updates such as Bitcoin’s latest predictions, Ethereum’s 24-hour trading volume, Dogecoin price, and XRP’s performance.
Additionally, numerous mistakes have been made by both newbies and advanced traders, whether from a lack of knowledge, emotional decisions, or poor planning. Although a powerful mindset interprets mistakes as a significant tool for growth, cryptocurrency investment errors can be exorbitantly costly, urging the need to make informed decisions and invest with caution. For this reason, today we’ll talk about common mistakes in cryptocurrency investment, giving you the opportunity to avoid them at all costs.
Contents
Entering The Market Without Proper Research
Informed and independent research is an essential criterion for successful decision-making in the cryptocurrency realm, underscoring the critical need to AVOID trusting unsubstantiated information sources and self-proclaimed “experts”. As an investor, you must be cautious in unwisely following market trends and crypto-influencers’ advice, for some of them may promote assets to gain visibility and followers, without the slightest regard for the actual potential of the project. The risks associated with investing in digital currencies without understanding the forecast behind it may cost you thousands of dollars and weaken your financial integrity, leading to adverse mental health outcomes such as depression and anxiety.
While there is a lot of information regarding the crypto market, with social media gathering substantial conflicting information, you must approach cryptocurrencies with a proper plan and thorough research, assessing blockchain technology, algorithms, and market dynamics. It is unrealistic to think that advice from your favorite influencer is sure to shield you from the ever-present uncertainties of the crypto market, so you should always look for reliable news websites and reputable educational platforms to verify the information.
Failing To Identify Scams
The global rise of cryptocurrencies has also brought up a concerning increase in scams, with fraudsters mastering the art of manipulation and conning. Dishonest schemes are not a recent product, considering the vast number of crypto enthusiasts who fell victim to Ruja Ignatova, who called herself the Crypto Queen in 2017, when technology wasn’t even half of the level it is today. She told the world about a cryptocurrency she invented to rival Bitcoin, persuaded them to invest billions, and two years later, she vanished. Today, crypto scams are getting more advanced, from romance scams where fraudsters forge deep emotional connections with their victims, to fake wallets that steal private keys, phishing emails, and bogus websites. Consequently, you have to:
- Understand that if a cryptocurrency investment sounds too good to be true, then that is likely the case.
- Educate yourself to NOT send cryptocurrency to someone you have not met in person and NOT respond to sudden solicitations involving cryptocurrency from an unknown source.
- Perform independent and thorough verifications of all requests for payment.
- Use hardware wallets for long-term storage and enable two-factor authentication (2FA) on all of your accounts. Also, it would be wise to install antivirus protection on your devices.
Giving In To FOMO And Panic Selling
The fear of missing out (FOMO) is one of the biggest pitfalls for crypto investors. It leads unwary individuals to lose bundles of money through impulsive decisions spurred by fear that they’ll miss out on significant gains. This emotion-driven response is responsible for numerous bull runs and market frenzies, and is not just about skyrocketing prices. It also happens when people irrationally choose to invest in crypto assets based on hype cycles, influencers, companies, or the government’s crypto-related announcements. The fear of regret has pushed many individuals to buy impulsively, even when prices are high.
Ups and downs in the cryptocurrency market carry investors away, compelling them to panic sell while plaguing their progress and performance. This phenomenon is driven by emotions rather than rational analysis, blurring their capacity to think of long-term value and leading to regrettable outcomes where they are crystallizing their losses instead of waiting for the market to recover. By selling off assets impulsively, you can only disrupt growth and diminish the chances for rebound and future potential gains.
Not Considering Taxations
Unfortunately, a vast number of crypto traders remain oblivious to the fact that any profits or income from crypto are taxable. Let’s take a closer look at several taxable events related to cryptocurrency:
- Selling a digital asset for fiat.
- Exchanging digital assets for property, goods, or services.
- Exchanging or trading digital assets for other digital assets.
- Acquiring digital assets as a result of mining or staking activities, airdrops, and hard forks.
According to your country’s taxation laws, you should avoid fines and penalties from the tax authorities at all costs, as they can be very high.
Concluding Remarks
The crypto landscape is full of possibilities, as well as intricacies and risks, exposing you to both bogus rewards and huge losses. The cryptocurrency world is multi-faceted, demanding a cautious and responsible approach. Remember to take accountability for your actions, exercise control over your trades, and protect yourself from emotional decision-making.