What Are the Top 3 Things People Get Wrong About Crypto Investing?

#1. Lack of Knowledge About Cryptocurrency

Some people invest in cryptocurrency without having done any up-front research. This is a poor decision regardless of the asset class. It is common to believe that crypto is a get-rich-quick scheme, leading some to jump into complex cryptocurrency exchanges and DeFi platforms. Caught in the hype, nascent investors may be inclined to ignore simple and stable opportunities for returns such as dollar-cost averaging. A detrimental mistake experienced by many is the following advice of obscure crypto-influencers who either aren’t knowledgeable experts or have an agenda.

A basic understanding and education in what cryptocurrencies are, how they work, and how to securely hold them will take newbies a long way. Getting familiar with which coins have been around the longest, and earned their reputation will help in learning the ropes. The larger cryptocurrencies such as Bitcoin and Ethereum are the most stable and are a good place to start with building a cryptocurrency portfolio as well as your crypto-literacy. So it is advised not to leap into “altcoins” right away. Diving headfirst into an obscure cryptocurrency as your first token (i.e. Squid Game token) is not the brightest of ideas.

An area all newcomers must learn is selecting, navigating and buying cryptocurrency from an exchange. Not all exchanges are created equal, nor are they all reputable and secure. There have been a number of cases where exchanges have scammed investors using their platforms. Another common event is the failure of exchanges which results in the total loss of customer deposits. This famously happened to Mount Gox and more recently, to FTX.

Lastly, a little crypto-literacy will go a long way. For example, learning early on how to use and store assets within a hardware wallet will prevent the all-too-common scenario of your favorite exchange going bust. Get familiar with the phrase “not your keys, not your crypto”.

#2. Poor Trading Strategies

This is easily the most common error made by crypto investors, especially new ones. Cryptocurrency is a relatively new class of assets with value proposals that new investors may not be familiar with. It’s the same advice that Warren Buffet gives, “invest in what you know”. If you don’t know about cryptocurrency, then you are investing in uncharted waters. You could be out of your depth and find yourself taking losses.

There are a lot of ways to invest in cryptocurrency, or any asset for that matter, and complicated strategies aren’t usually the best option. Just as well, half-cooked strategies don’t typically end in success either. Short-term thinking has been the downfall of many cryptocurrency traders that are glued to their screens 24/7. The high volatility might make this a tempting behavior to reach for, but picking a strategy and sticking to it can see you through the turbulent markets.

While keeping your eye on your investments is an important part of wealth management, following it constantly does not guarantee your success. Risk management is the critical component to any good trading strategy, and finding the risk management profile that works for your strategy takes time and dedication. It’s common to make mistakes starting out, but those will smooth out with practice.

#3. Ignoring Fees

Fees serve an important function within the cryptocurrency space. For exchanges, they’re a component of revenue which keeps them open and operational. For the cryptocurrency network themselves, fees are required by transaction processors as an anti-spam mechanism. Fees are a necessary part of the cryptocurrency environment and at some level, will be unavoidable.

While it’s important to set yourself up for success, you’re going to have to account for fees in any trading strategy. Ignoring fees outright will result in returns diminishing for unexpected reasons. Every transfer and trade will incur a fee. Therefore, It is important to factor fees into the math behind whether or not your strategy or investments are profitable. Unless you’re a sophisticated high-frequency trader, the general rule of thumb is “less is more”.

Conclusion: Research First, Invest Later

Unsurprisingly, there are more aspects that people commonly get wrong about the basics of crypto investing. For example, investing in cryptocurrencies is not a way to evade taxes. You’re still required to calculate and pay capital gains tax on your crypto investments based on your country and jurisdiction.

While the list goes on, the three items covered herein should serve as a good jumping off point for starting your crypto journey. When in doubt, consult a range of guides and resources, such as the ones found on our site.