Making money with investments in cryptocurrencies requires knowing what not to do. Here are common errors with cryptocurrency investments and how to avoid them.
Now that the cryptocurrency market has settled down, it’s no surprise you’re interested in investing. Many people expect the price of the big players to creep back up over time. And when 45 million Americans are invested in crypto, it makes sense to join them and go along for the ride.
However, there is a right way and a wrong way to invest money in cryptocurrency.
If you want to avoid losing money, you need to avoid errors with cryptocurrency investments. Below are seven of the most common mistakes people make when buying and selling cryptocurrencies.
1. Waiting for the Perfect Moment
When cryptocurrency is so volatile, waiting for the bottom of the market is tempting. After all, you’ll make the most money when you buy at the bottom and sell when the price recovers and goes higher.
The problem is that it’s too hard to predict when this will happen — even for the most experienced sellers. This leads many people to leave money on the table and buy cryptocurrency at a higher price.
Most people are better off using a dollar-cost averaging strategy for buying. Instead of waiting for the perfect moment, you invest small amounts of money at a time. This gives you price exposure at several levels and helps you make money over time.
2. Misunderstanding the Technology
You mostly hear about cryptocurrency because of the money people are making. That leads many people to throw cash into the market without understanding the technology.
Doing this is a mistake. Even if you only stick with the biggest players like Bitcoin and Ethereum, it pays to understand how cryptocurrency works when investing.
This information will help you vet new crypto products to see if they are worth investing in. Since new projects have a higher upside than existing ones, it opens the door for more crypto investment profits — in exchange for more risk.
3. Ignoring Trading Fees
Fees are critical to consider when trading cryptocurrency. This won’t be a big deal if you buy and hold your coins. But if you plan to trade actively, fees can eat into your trading profit.
You’ll have fixed fees on centralized trading platforms. Examine your options to see which one offers the best fee structure.
You have more to consider if you decide to trade on blockchain networks themselves. Fees can get quite large, depending on the transaction volume. Get estimates for fees to see if it’s worth making transactions at the moment or if you should wait until fewer people are sending money.
4. Using the Wrong Trading Platform
Finding the right platform to buy crypto on is critical to your success. There are now countless trading platforms available, and not all of them have a great experience.
Research the biggest platforms you can legally deposit money to in your country. Check out the reviews for each of these platforms and examine the features like the one on this site to see what they offer.
It’s also critical to find a cryptocurrency exchange that takes security seriously. There are a lot of bad actors in the cryptocurrency space, so you want to work with a company that takes security seriously.
5. Storing Everything on Centralized Exchanges
Centralized cryptocurrency exchanges are a great way to get started in the crypto world. Using them to buy the crypto coins you want is fine, but leaving all your holdings on these exchanges is not wise.
You don’t have complete control over your holdings in this situation. Yes, you can cash out and make transactions whenever you want. But your holdings are at risk if something bad happens to the exchange.
If you plan to hold on to your cryptocurrency for some time, move everything to private wallets. Doing this will remove any exposure you have on these websites. If something bad happens and an exchange gets hacked, you won’t lose anything if you don’t store anything there.
The same isn’t true if you use a centralized crypto exchange platform to store everything.
6. Betting Too Much on Risky Coins
It’s not uncommon for new crypto investors to try and chase profits by investing in new coins. Newer products have a better chance of making more money since people haven’t found them yet. But at the same time, there’s much more risk that those coins will fail.
The last thing you should do is make huge bets on these coins. Ideally, you’ll keep most of your holdings in the biggest cryptocurrencies.
Once you have a foundation, you can explore alternative cryptocurrencies. Create a small budget to invest in the smaller projects you find and funnel any profit you make to your safer holdings.
7. You Forget Tax Implications
Unfortunately, you can’t get away from taxes with cryptocurrency these days. There wasn’t much oversight in the industry in the past. This led many people to make profits without worrying much about taxes.
That’s no longer the case today. Depending on your location, you’re responsible for the taxes for every transaction you make. This leads to a complicated tax return at the end of the year.
Make sure you understand the tax law in your country and take action to do everything right. Otherwise, you may get caught off guard with a massive tax bill you aren’t prepared to pay.
Avoid Errors With Cryptocurrency Investments
Cryptocurrencies have proven themselves as reliable investments for people. Although they have struggled over the past year, many people are still confident in cryptocurrency and investing.
However, investing in crypto is still risky and will lead to losing your money if you aren’t careful. Remember the errors with cryptocurrency investments above to make sure you’re smart with where you put your cash.
Are you interested in more advice that will help you put your money to use? Read the latest blog posts to find more financial tips.