The value of cryptocurrency markets around the world increased by 3000% between 2020 and 2021.
Institutional investors hopped on the cryptocurrency bandwagon and are making cryptocurrency a legitimate form of investment.
If you want to get in the game, you want to be a smart investor. Too many people make mistakes in cryptocurrency investing.
They end up losing money instead of seeing a return on investment. If you want to buck the trend and create a crypto investing strategy, you should keep reading.
Let’s go over the most common mistakes in cryptocurrency investing and how you can avoid them.
1. Investors vs. Gamblers
How you approach crypto investing determines your success. You’re either a thoughtful investor who weighs the investment risks and rewards or you’re a gambler.
Gamblers don’t bother to create a crypto investing strategy. They buy and sell based on trends or feelings.
They don’t do research or think about crypto values. The bottom line is that you need to be an investor, not a gambler.
2. Buy Too High
It’s hard to tell where the ceiling is with cryptocurrencies. Are some overvalued? Is the bubble about to burst?
You need to answer these questions before you invest. You’ll end up buying too high, selling too low, and losing money on the transaction.
Understand why the value of a cryptocurrency goes up or down. That helps you decide if it’s really time to sell or if you need to hold on.
3. Invest Too Much, Too Soon
Beginners love to go all-in with their trades. They spend a lot of money at once and then they realize they don’t know what they’re doing.
Look at the cryptocurrency markets for several weeks before you make your first investment. Notice patterns in prices to help you understand the volatility of different markets.
Then make a few small investments. Track how they do and invest some more.
4. Don’t Diversify Cryptocurrency Investments
One of the top mistakes in cryptocurrency investing is that investors get too attached to one cryptocurrency market. It’s almost tribal.
Don’t pay attention to the conversation on one currency vs. another. The truth is that you should invest in several cryptocurrencies to diversify your investments.
You could invest all of your money in a single currency. If it tanks, you’re out of luck.
Smart diversification protects your assets if one goes up and one goes down.
5. Don’t Understand Tax Liabilities
Investing in cryptocurrency isn’t a free ride. It might have been at first, but once the IRS understood how crypto gets used as an investment tool, it caught up with the times.
The IRS considers cryptocurrency as property. So, if you buy and sell property, there are no tax consequences, right?
No. If you obtain cryptocurrency through mining, you owe taxes on the value of crypto immediately. When you sell crypto or use it to purchase goods, there’s another tax liability.
You might also have to pay capital gains taxes if the profits exceed a certain amount.
Beginner traders don’t realize this and they buy and sell cryptocurrency like they place sports bets on their phones.
You have to claim a loss or gain on every transaction, so you should buy or sell with caution.
If you want to stay within the good graces of the IRS, consult with an accountant knowledgeable in cryptocurrency and tax laws.
6. Don’t Secure Investments
Investing in crypto seems like a risk because it’s still an unknown. The other issue is security. There are plenty of scammers out there who want to gain access to your accounts.
Don’t use a password that’s easy to figure out like 1234. Don’t use a password that’s used elsewhere, either.
Keep your private keys in a safe and secure place. Use an authentication app or two-factor authentication for another layer of security.
You can buy and sell crypto with cash. That might make you more comfortable than using a computer or mobile device. Just look up “BTC ATM near me,” and find a cryptocurrency ATM close to your location.
Make sure you keep good records of your cash transactions because you will need them at tax time.
7. No Investing Goals or Budget
Do you need to make a few quick and profitable trades to pay your bills? You’ll want to stay away from cryptocurrency investing.
Investing in crypto isn’t a get-rich-quick scheme, though many people think of it that way. They assume that crypto has skyrocketed over the last few years and it will continue to do so.
They don’t set investing goals or a budget. Make sure you know how much you want to invest in cryptocurrency and it’s affordable to you.
Set goals for your investments, such as a target price to sell. That helps you come up with investment strategies and make your investments worthwhile.
8. Let Emotions Take Over
Do you know the stock market is so volatile? People trade based on emotions. They see an economic report or a quarterly report and panic sell if it’s not good news.
The panic sell is costly because the price of a stock drops, but rebounds quickly.
Beginner crypto investors do something very similar. They see a tweet from someone who’s supposed to be influential and buy and sell based on that.
Investing by tweet isn’t a successful long-term investment strategy. You’re just playing around trying to be cool.
Your job as an investor is to trust your research and invest based on data. If you feel yourself getting emotional, step away from the trade and revisit it later.
Don’t Make These Mistakes in Cryptocurrency Investing
How would you like to become a wise crypto investor that doesn’t get sucked into the hype of cryptocurrency? You can start by avoiding these mistakes in cryptocurrency investing.
Keep your emotions in check, set investing goals, and make sure you have a crypto investing strategy. You’ll be able to make profits and limit your tax liabilities, too.
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