Investing in crypto markets can be exciting, especially after looking at its performance last year. Bitcoin grew by over 400%, Ethereum by more than 300%, and even smaller cryptocurrencies made thousands of percent returns. While these numbers seem attractive, they can also be a trap for new investors as they enter the crypto market without adequate knowledge. As a result, they are often at risk of losing more money than making it. This blog will guide you about the common mistakes as an investor you should avoid while investing in crypto.
Let’s learn about these mistakes.
Keeping All Your Crypto in a Hot Wallet:
Hot wallets are storage methods for private keys that are connected to the internet. According to one article, the global market for crypto wallets was valued at USD 8.42 billion in 2022 and is projected to grow annually by 24.8% from 2023 to 2030. One of the big reasons for its popularity is that it is easy to access. All you have to do is download the software. But, since they are software-based, all hot wallets are susceptible to risks like hacking, malware, viruses, and other malicious activities.
Solution: A cold wallet is your best option. A cold wallet is a device or method for storing cryptocurrency private keys offline, making them less susceptible to online threats.
Forgetting Crypto Wallets Passwords:
When making crypto transactions, investors need to access their crypto wallets with passwords or private keys. However, forgetting the password can result in losing cryptocurrency permanently, as in most cases, it is unrecoverable. Private keys are long alphanumeric sequences that are hard to remember. Losing them means losing access to cryptocurrency forever and since the crypto market is decentralized, there is no customer service available for assistance.
Solution: To avoid getting into this situation, most wallets provide a backup seed phrase to access funds. But if you lose or forget this also, there may be no way to recover your funds.
Making Typos in Crypto Wallet Address:
When transferring crypto between digital wallets, you're taking custody of your funds from an exchange or sending them to another party. A common mistake new investors make is mistyping the wallet address when attempting transfers. This affects the transaction.
Solution: Take your time and ensure the sending and receiving addresses are correct. Avoid typing addresses manually. Copying and pasting can help in avoiding typo mistakes.
Sending Crypto to the Wrong Chain:
This is one of the most common mistakes crypto investors make during transactions. It's even more critical with cross-chain transfers. Each blockchain and cryptocurrency operates on its protocols and networks, so sending an Ethereum token (ERC-20) to a BSC (Binance Smart Chain) address will result in lost funds.
Solution: Always ensure that the destination address is accurate. Cross-check the address thoroughly before initiating the transfer, especially since some blockchains have similar-looking address formats.
Neglecting the Crypto Fees:
New investors often buy crypto without understanding the various fees involved, like blockchain fees, exchange fees, and surcharges. For instance, purchasing with a credit card can incur high surcharge fees, an exchange transaction fee, and blockchain fees. These costs could add up, depending on current blockchain fees.
Solution: It's wise to research fees beforehand and choose times and exchanges where costs are lower to save money over time.
Ignoring 2FA:
Crypto wallets are prime targets for hackers seeking to exploit vulnerabilities and steal assets. Without adequate security measures, anyone could fall victim to these attacks, resulting in significant financial losses.
Solution: Enabling two-factor authentication (2FA) adds an extra layer of security to your accounts. It requires you to enter a temporary passcode from your device, along with your username and password, whenever you log in.
Getting Scammed Easily:
Cryptocurrency's novelty has attracted many scams, like Ponzi schemes posing as high-yield investment programs. Scams like PlusToken, USI Tech, OneCoin, and Bitconnect have collectively defrauded people of hundreds of millions of dollars. According to one article, crypto users lost $ 2 Billion to crypto scams in 2023.
Solution: To avoid scams, never link your online wallet to untrusted apps and store most of your crypto in offline cold wallets. Never share your wallet password, seed phrase, or private keys with anyone.
Short-Term Investment Approach:
One of the big reasons why investors want to invest and be a part of the crypto market is because they feel that the market has the potential to turn modest investments into huge returns in a short period. While there are exceptions, it's a strategy for losing more than making it.
Solution: Just like the stock market, the cryptocurrency market is also volatile. Therefore, it's necessary to evaluate the market to understand that the crypto asset classes are not for short-term investments. To make a profit, you must make long-term investments.
Investing Without Researching:
People often focus on crypto investors who became millionaires with Bitcoin and other cryptocurrencies, but they overlook those who lost money chasing big returns. Wanting to invest in crypto is a good thing, but understanding its workings is important. Any investment, especially in crypto markets, demands patience. Many new crypto investors fail by diving into an unfamiliar asset class without researching, which can lead to big losses.
Solution: Before investing in any asset class, do your research. Understand the project, its team, and the technology it uses. Don't just follow the trend or masses blindly; trust your research and judgment.
Conclusion
Starting to invest in crypto can be exciting, but it requires some caution. By avoiding these mistakes in the crypto market, you’ll be well-equipped to make sound decisions in 2024.