The year 2020 is the time when once again, cryptocurrencies like Bitcoin, Ethereum, Ripple and even the smaller altcoins are going through a new surge in both price and common interest.
The last time the crypto markets had a record transaction traffic as well as steep rise in valuation was in 2017-2018. That was the height of the so called market bull run.
The Crypto Bull Run Attracted Newbies For A Reason
Even the most mature and conservative crypto-asset Bitcoin gained crazy percentages in dollar value and soared just past the $20k mark in January 2018.
This was an incredible rise since just a year before that in January 2017, one BTC was worth about $700. That’s 28 times your investment in just one year.
This kind of year-on-year gain makes it is easy to understand why the cryptocurrency market is now attracting people from all over the world. All are hoping for their chance to win big when investing in Bitcoin, or in an altcoin.
The rush and greed that goes through the mind of any investor is completely understandable. Many hope that a small $100 investment could be worth $2800 just one year later once again.
Will the history repeat itself? I don’t know. I feel positive for Bitcoin and some other cryptocurrencies, but that’s as much as I can say.
What I do know is that with every new investor that enters the market as a complete beginner, we keep seeing the same elementary mistakes. The news keep being reported about people losing money through their mistakes, there are Reddit and Facebook posts made by those users all the time as well.
Before the next bull run happens and with it the new surge in noob users, let us take a look at the 3 worst crypto beginner mistakes that you should avoid no matter what.
The 3 Riskiest Mistakes That You Should Know Before Investing In Crypto
1 - Thinking that a low dollar value means it’s cheap
A lot of beginners are looking to find the next BTC and the next ETH. That is the reason why many newbies invested in LTC instead of BTC as soon as Bitcoin started getting set in four-digit dollar values.
People look at prices as a way to evaluate the amount of growth the crypto-asset’s price will get.
It doesn’t work like that.
Just because this tokens is valued at $0.04 cent per token doesn’t mean it’s cheap. If nothing else, the price will be based on the total available supply. There might be hundred billions of tokens available, or even an uncapped amount of tokens to be generated.
A low USD price doesn’t mean the cryptocurrency must be undervalued. Use the market capitalisation instead to compare value between different cryptocurrencies.
- TIP: We have a full Trading Strategy writeup on investing in crypto for the long haul.
2 - Keeping your cryptocurrencies on an exchange
I know it’s easy to buy a cryptocurrency on an exchange like Coinbase or Binance and then just leave it there. It works at that moment, you can tell yourself that most likely nothing will happen, or that your exchange is trustworthy, and so on.
But there are considerable risks to leaving your cryptocurrencies on any exchange.
You are basically leaving your cryptocurrencies in the hands of Coinbase or Binance and hoping that they won’t get hacked and won’t shut down.
And not it’s not the same thing as leaving your funds in a bank account.
Bank funds are normally insured up to a certain amount, and then there are processes in place to refund any stolen funds. It doesn’t work the same with cryptocurrencies. Crypto-assets are still seen as high risk, crypto exchanges are often dubious offshore setups and regulations on the market are inconsistent at best, which is why business credit corporations are not exactly queuing up to insure crypto trading platforms or wallets.
Some exchanges are better than others. There can be reimbursement funds or partial insurance for fully verified customers from certain domiciles. But it’s not foolproof.
It is much better to get yourself a wallet that you fully own, and learn how cryptocurrency wallets work. Make a safe backup of your private keys and do your part to secure your crypto.
- TIP: Your wallet should live on a device that is not used for your daily activities. Use either a hardware wallet or make sure your wallet lives on a device you don’t use for anything else, such an old phone.
3 - Falling for a silly scams
Typical scam or a ponzi scheme promises great returns. That is exactly what most new crypto investors are coming for, and so some crypto scams can be really successful. Usually you will have to start contributing to a pyramid scheme, or pay membership fees. This money is then used to finance some of the returns before the scheme collapses. You only make some money bac if you get in very early while it is still cheap.
So if you come by an offer that sounds too good to be true, then 99/100 times it will in fact be too good be true and probably some kind of trick. A trick where you would need to deposit money to earn money in the future.
Maybe it will even work for a while to entice you to invest more. But eventually the scheme will fail.
Just be aware that due to the lack of regulations, investment scams are still happening more often in the cryptocurrency space.
There are many positive things happening in the blockchain and cryptocurrency industries. And there is again new wide-spread interest building up around Bitcoin as well as other cryptocurrencies.
And that’s great to see.
But what’s less positive are these mistakes, scams and crypto hacks happening.
I hope that this article it might encourage you to learn more about cryptocurrency wallets or the crypto OPSEC in general, and you will manage to avoid these three common crypto-beginners mistakes!