5 Worst Cryptocurrency Investing Mistakes to Avoid
As the best performing asset class of the last decade, investing in cryptocurrencies like Bitcoin has been more popular than ever. However, with so much to learn, entering the cryptocurrency space as a beginner can be daunting. With so many crypto projects out there, how can you be sure you are investing in the right ones or using the right services? Fear not. CoinFlip is here to help you avoid some of crypto newcomers’ most frequent mess-ups.
Below, find five of the most common cryptocurrency mistakes to avoid as a new investor.
1. Not fully understanding the technology behind cryptocurrency
When people think about Bitcoin, they typically think of it solely as an investment - a new, extra volatile class of asset that can lead to big gains and some losses. But, cryptocurrencies like Bitcoin are so much more than just an asset class. They are also revolutionary new technologies that have considerably impacted the way we interact with financial services. Blockchain, the technology introduced by Bitcoin, has also been applied to many other sectors beyond financial services, including supply chain management, healthcare, real estate, and so much more.
If you do not understand that Bitcoin and other cryptocurrencies are more than simply just an asset class, you may be in for a bumpy ride. Having a deeper understanding of blockchain technology and its impact on the world can help you decipher which cryptocurrency projects have useful applications that may be worth investing in.
To learn more about cryptocurrency and blockchain technology, check out our Learn page. Here, you will find a curated selection of articles on crypto basics and how-to guides that cover everything you need to know to get started with cryptocurrency confidently.
2. Not researching specific coins and tokens before you invest
In the same vein, not researching the specific coins you are buying into is a huge mistake. Anyone can make or endorse a cryptocurrency, but that does not necessarily mean a worthwhile investment. Before you buy any coins, do your own research (DYOR) about the project. Read the whitepaper, find relevant articles from a reputable source like CoinDesk or CoinTelegraph, watch videos by well-regarded crypto experts, then decide if that cryptocurrency is right for you.
There are more than 6,000 crypto projects out there, the majority of which will never become substantial or useful. If you’re not sure where to start, CoinFlip has narrowed down the long list of crypto projects to offer ten of our favorite, well-established coins and tokens. Learn more about each one here.
3. Not storing your investment securely
One of the most important aspects of investing in crypto is making sure your coins are secure. This includes using a trusted wallet, i.e., not keeping your coins and tokens on an exchange. Exchange-hosted wallets, or custodial wallets, are not recommended because they risk being hacked or compromised. With custodial wallets, you also do not have access to your private keys. The third-party hosting them does, so technically, they own your crypto - not you.
Instead, keep your crypto in a non-custodial wallet not hosted by any third parties where you have complete control over your coins and tokens. Always keep your passcodes and seed phrases written down on a piece of paper stored in a super safe location, and never share this information with anyone. Use two-factor authentication wherever possible for added security. Cryptocurrency has the benefit of financial freedom from banks, but this level of freedom also comes with a great deal of responsibility to keep your investments secure.
For more information, check out this beginner’s guide on crypto wallets that covers everything you need to know to store your crypto securely.
4. Panic Selling
Sometimes, crypto newcomers can be impatient and sell off their investments too soon to cut losses. One of the most famous examples of this is when Barstool Sports founder Dave Portnoy bought bitcoin in August 2020 when Bitcoin was around $11,000 and sold it in a panic two weeks later during a price dip. Now that Bitcoin is worth more than $60,000, we can see why cutting his losses so soon may not have been the best choice.
All financial markets work in cycles, where prices routinely rise and fall. Cryptocurrency is a relatively volatile financial market, so it is just as prone to steep price drops as price increases. A common chant among the crypto-sphere is HODL or Hold On for Dear Life - this saying is used to encourage investors to wait for the next market cycle when prices are expected to rise again. Sometimes it makes sense to cut your losses, but keep in mind that they aren’t losses until you sell.
5. Paying High Fees
One of the worst mistakes you can make when entering the crypto market is paying high fees - the more you pay in fees, the less crypto you are getting. The Bitcoin ATM industry is famous for charging people exorbitantly high fees for converting their cash into crypto. Some companies charge a fee of more than 25% on Bitcoin ATM transactions, while most of them charge a fee between 10-15%.
With CoinFlip Bitcoin ATMs, you can rest assured you are getting some of the industry’s lowest fees. We charge a 11.1% fee plus a $1.99 - $3 fluctuating network mining fee for buying and a 4.99% fee for selling cryptocurrencies across all CoinFlip Bitcoin ATMs.
Bitcoin ATM companies aren’t the only ones overcharging for crypto transactions. Exchanges are also guilty of high fees, but these fees tend to be hidden and justified through the use of spreads. Learn more about cryptocurrency exchange spreads and hidden fees here.
CoinFlip’s over-the-counter crypto trading service, Trade Desk, promises transparency when it comes to fees. Trade Desk charges between 0.5% to 4% depending on transaction volume and never use spreads.
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