1. You Don’t Know the Basics
If you’re beginning, you’re likely eager to trade. I get it, really.
But don’t rush it. Take a little bit of time to develop a basic cryptocurrency trading
strategy and to educate yourself.
Do you know the basics of blockchain technology and Bitcoin? Do you know what
circulating vs total supply means? Do you understand what inflation is? Do you
know about exchanges, wallets, private keys, and public keys?
If you can’t answer these basic questions, you’ll be in trouble quick enough.
Take some time to prepare yourself, it’s essential.
To learn the basics, navigate our website - there are tons of cool resources to
get started.
2. You Don’t Take Action
Every day, potential investors miss out on cryptocurrency investing because
they aren’t confident about how to get started.
Even experienced investors miss on new tools or cryptocurrencies that could bring
significant profits simply from not staying active.
Why? Because they’re afraid to make mistakes. The first step is taking action,
so don’t hesitate to dive right in.
Action will result in experience, and experience will result in better decision
making. In fact, the experience is all about learning from the mistakes you make.
If you feel ready to make your first investment, then go for it. Even only $10, on
any exchange you want, with any payment method you like.
You can’t imagine the difference a small step will make versus not taking action.
This is where your experience will start, and you will feel the highs and lows
of investing - it’s a wild ride.
3. You Don’t Understand the Technology
What makes Bitcoin and many cryptocurrencies innovative is their underlying
technology. But if you don’t understand the foundations of the technology,
the road will be risky.
You don’t want to rely on others’ ‘knowledge’ to make your investment
decisions. Until you can judge these projects for yourself, you will be missing out
on big opportunities.
After all, the creators of Bitcoin and its first adopters were all techies.
To avoid this, find educational sources you trust, take the time to learn, and
most importantly, enjoy the journey of learning.
Once you understand block rewards, consensus algorithms, premining, and all
the fancy jargon, you will be an improved, independent investor.
Blockchain technology is continuously advancing, so keep up with it the best
you can.
4. You Ignore Fees
Now that you’ve taken action, take your time and find the right exchange with
the best fees.
When people start trading, they make lots of trades a day hoping to earn small
profits. While this is nice in theory, fees are killing them. Even if they are low, it
all adds up.
Do your research before you trade. To become a successful investor, you need
to start taking good habits right now.
5. You Overtrade
Some investors, mostly beginners, want to make 20 trades a day. This
is dangerous.
Ultimately, many of them lose from fees or because they make bad trades a
mistake and then trade more to recover their losses. Only to dig a deeper
and deeper hole for themselves.
The reality is that there aren’t 20 good trading opportunities in a day. Trading
too much leads to poor decision making.
6. You Don’t Understand Tax Implications
Overtrading also increases your tax liabilities.
At least in the United States and Canada. Most people think that they only owe
taxes on profits that were sold back to USD/CAD, when in fact, you owe taxes
on every single trade you make - even crypto to crypto.
The IRS and CRA view every trade as a realized gain or loss. Put simply, if you buy
Ether with Bitcoin, they consider this a taxable event on a realized gain or loss.
They assume that you sold Ethereum to USD, then purchased Bitcoin with
USD, even though this is not what happened.
Ignoring both tax implications and exchange fees will severely impact your overall
cryptocurrency investment strategy.
Tax implications, in addition to accumulated fees and bad trades, is another
reason why you should not overtrade.
7. You Invest Your Life Savings
Rule number one of investing; don’t invest more than you can afford to lose.
You should go into this ready to lose whatever you put in. Ultimately, as the
price swings up and down, you should remain calm and still be living a healthy
life with room for regular spending.
I’ve heard countless horror stories of people investing greedily with their
entire life savings or borrowing large sums of money. This is a HUGE mistake.
Funny enough, even if you hit it big, your greed will likely win you over. For
example, if you invest $50,000 and at one point have $150,000, then your mind will
rationalize and normalize these winnings to feel less significant than they are.
The next thing you know, the market drops, and you are back at break even, or
at a loss.
8. You Think Cryptocurrencies are Shares
Take your time to educate yourself and understand what you’re investing in.
Cryptocurrencies are not shares like stocks. You have no ownership in
the company and receive no dividends.
If a company issues a cryptocurrency, then it is very possible for the company to
profit or get acquired, with no benefit to you. A company can be doing very
well, yet their coin can drop.
The only exception here may be security tokens which can grant ownership
to their investors. But even then, it’s up to the guidelines of the offering.
Cryptocurrencies are a different game.
9. You Chase Cheap Coins
Don’t chase cheap coins with dreams of lambos and private jets.
Lots of uneducated investors in the crypto space buy low priced
cryptocurrencies because they think there is a higher chance of big returns.
If presented with one coin priced at $0.01 and another at $75, they blindly
purchase the $0.01 coin because they think it’s easier for a coin to go from
$0.01 to $0.02, rather than from $75 to $150.
This is a common trap.
There are lots of factors that affect a coin’s price, including two important ones:
the circulating supply and the real world value of the coin.
More often than not, a cheap coin has a huge supply of coins, which dilutes the
price of each coin. If the supply is massive and there is little real-world value,
then the coin priced at $0.01 is not undervalued and should be priced that low.
A better factor to consider when looking for coins with growth potential is the
market capitalization of the coin. The ‘market cap’ is calculated as [current price *
circulating supply] and is often a better (although not perfect) indicator of a
coin’s valuation by investors.
If you want to find the next gem coin, look for coins that have a low market cap.
Low market cap coins have more potential for growth, but they also come with
a lot more risk (failure, illiquidity, etc.)
Ultimately, you should stay away from those coins if you’re still at a beginner
level, and pick your next investments based on their potential real-world value.
10. You Think You Must Always Be Right
I hate to tell you this, but get over yourself. You’re not always right. And it’s okay.
Investing is a game of speculation which involves some amount of luck - even
for professional investors. To be a winner in this space, you only need to be
right a certain percent of the time.
For example, if you 2x your investment 55% of the time, then you can afford
to lose 45% of the time as you will make money in the long run.
11. You Make Sloppy Mistakes
Hold your horses, buddy! Take your time when transferring your money.
Don’t rush, and make sure the sending and receiving addresses are correct. Never
type an address. Just copy and paste them. This way you avoid any chance of
typos. And hey, it’s faster!
After you copy and paste it, always verify the first two characters and the last
three characters match your address.
12. You Don’t Diversify Your Portfolio
Your cryptocurrency investment strategy must involve diversification.
While it may be tempting, don’t put all your eggs in one basket. Every experienced
investor hedges, or protects his/her risk by investing in multiple assets.
You might notice some coins correlate where when one goes up, the other goes
down. If this is the case and you like both coins’ futures, then invest in both. Your
investment will be much safer.
My recommendation: own a minimum of 5 cryptocurrencies.
13. You Over Diversify Your Portfolio
Be sure to pick a number of coins that you can keep track of. This means
keeping up with news and price action.
My recommendation: invest in a maximum of 10 cryptocurrencies at a time.
Diversify responsibly!
14. You Don’t Do Your Own Research (DYOR)
Research a coin before you invest in it.
So many people invest based off of hype. They see other investors on Twitter
or Facebook talking about a coin, see the coin’s price rising, and then buy off of
impulse. This often ends badly.
Do your own research.
When researching a project, you should be able to answer the following:
• What is the mission of the project?
• Who are the core team members? Have they worked together before or have
past success?
• When is the mainnet expected to launch?
If you can answer these, then it’s a good start.
Don’t be afraid to miss out on investment; there will always be more to come