Crypto trading and investing can sure be exciting and indeed a money machine if you do it right, but it’s not without its fair share of risks.
These days, there are newbie-friendly exchanges, but there is still a steep learning curve to trading.
And then, even if you have experience with legacy investing, there are still some big mistakes new crypto investors often fall into that can cost them money.
If you are new to the crypto world, here are some of the most common mistakes to avoid, especially if this is your first time dipping your toes into the cryptocurrency waters.
1/ Keeping Crypto in Online Wallets
To a lot of crypto traders who onramped in 2021 or later, web3 wallets and hosted wallets seem like the only way to store cryptocurrency.
But as the 2022 Solana wallet drainage showed, it is worth trying to avoid keeping it stored in hot wallets for too long. These wallets can be considered to be vulnerable due to potential security flaws, which then makes them a target for hackers.
For those who wish to continue to use them, it could be considered worth just keeping a small amount in a wallet, while also having a more robust cold wallet like Ledger in order to best protect themselves from an attack.
2/ Lack of Rudimentary Knowledge of Crypto
The excitement around virtual assets may draw in new crypto investors, but the influencers conveniently forgot to pass on anything else but memes.
But in crypto, the technical knowledge of the asset class and its operations is crucial. During the Luna collapse, investors would admit on Twitter they did not understand what elastic supply meant. They somehow assumed that every crypto is at its core pretty much the same as Bitcoin.
It is a formula for disaster to try to trade crypto or just invest in any asset you don’t comprehend without having a fundamental knowledge of how cryptocurrencies operate.
You may have noticed that a bitcoin casino has become available to utilize that gives everyone around the world the ability to use their crypto to bet on sports or their favorite games. This is one of the use cases that resulted in a lot of new people getting into crypto. The issue is that with crypto, you are your own bank. If you do not have the knowledge of how to handle your crypto, then you could be in for an expensive lesson.
A cursory research will usually do it, though, so it is certainly worth spending the time.
3/ Poor Storage of Passwords and Seed Phrases
This one is an evergreen.
Cryptocurrency is stored in a digital wallet and access to the wallet app usually needs a password or a PIN code.
While your cryptocurrency is easy to recover when you lose the password or PIN, you will not recover it if you lose your seed phrase.
Most wallets offer a backup seed word to access the cash, but if you forget or lose the seed phrase, or if you don’t store it well and get it exposed, there will be no way to get your money back.
4/ Short-term Thinking
Many new investors only think in the short term due to the market’s promise to “get rich quick.”
And although investing in cryptocurrencies seems like it has certainly done just that for some people, the reality is that most of these people got in when everyone and their grandma told them it is a scam bound to crash any second, and they kept stacking for a few years through that.
Some say that the market is a device that redistributes money from the rash to the patient. Either way, the potential to yield good returns still exists in crypto, just as the risk of a devastating loss.
5/ Use of Leverage
Shocker: 100x is bad for you.
Stories of people making it rich through cryptocurrency trading may tempt new crypto investors to fire up that leverage to increase their earnings.
Leveraged trading has its place for sure. But the drawback is that it requires you to maintain collateral. Leverage has two sides and can increase your gains and losses.
6/ Getting Scammed
Scammers thrive in the crypto market since it is a new asset class. Since its early days, the business side of crypto got regulated. Unsurprisingly, that doesn’t stop scammers on Twitter and in the airdrop industry.
Another type of common scam is phishing. You probably received an email or a text from an imposter urging you to update your Trust Wallet or your Exodus. Phishing is just a reality of the crypto industry.
Always check the sending email address and never give your seed phrase to anyone.
Final Thoughts
Crypto trading and investing is certainly a general high-risk endeavor. There are multiple risks to consider, but the biggest is that you never really know what the future holds. It’s an exciting time to explore these new financial markets, but there are also plenty of things to watch out for.