If you’ve extra money and you’re looking to try a high-risk yet high-yield investment, you surely want to look at cryptocurrencies.
After a year of financial uncertainty and turmoil caused by Covid-19, many are positive that 2021 will be much brighter and things will again return to normal, thanks to vaccines’ rollout in some countries.
Despite the pandemic-associated financial downturn worldwide, one industry has resisted the trend and is likely to rise even high this year. People call it the cryptocurrency, led by Bitcoin.
If you own money to be spared. Or you’re willing to find a high-yield but high-risk investment, you might want to invest in cryptocurrencies. But prior to that, you must be aware of the highly volatile nature of these digital assets and that there’re equal possibilities of earning big or going smashed.
Take for a moment the meteoric growth of Bitcoin price, which was nearly $20,000 at the closing of 2017 only to fall to roughly $3,500 in November 2018. With that in consideration, it’s critical to educate yourself about investing in crypto and minimizing mistakes to stay ahead in the market.
Cryptocurrency Investment Mistakes you shouldn’t do in 2021
1) Investing without learning
Whether it’s Bitcoin or any other cryptocurrency, the first thing to understand is to educate yourself and assess what you’re investing your money into.
You need to put some time into developing an understanding of the basics of crypto investing before you even invest a single cent.
The investment in cryptocurrencies remains risky and unpredictable and if you don’t know about what you’re doing, you can end up losing all your money.
Here are some of the important things you need to understand about investing in cryptocurrency:
- It’s entirely digital and hence it is not physically allocated like paper money or metallic coins. In fact, cryptocurrencies exist just in the digital world, i.e., in computers.
- It remains universal. You can utilize digital assets in different regions across the world. For example, if you’ve Bitcoin, you can pay a seller in Morocco or Australia who is also using it.
You don’t have to assume that you can exchange it with some local currency such as Moroccan Dirham or Australian Dollar.
- It exists peer to peer. A crypto transaction will only take place online. So, you can only make a virtual transfer of digital money to another person.
- Crypto is decentralized. You have the sole charge to keep tracking your won crypto assets. There are no financial institutions or central banks that regulate or protect your cryptocurrencies and the deposits therein.
- Crypto is encrypted. The reason why it labeled crypto is that it stays ‘hidden.’ Users are provided with long strings of alpha-numeric codes and are not required to enter their real addresses or names to open a crypto investment.
Therefore, if you put finance in this type of digital currency, you should sense that you’re liable for your money. If you face problems with your investment, you cannot reach for assistance from a central bank, deposit insurance company, or a securities and exchange commission because crypto is fully decentralized and unregulated.
Assuming Cryptocurrency is flawless
Encrypted does not always mean secure. One mistake by newbies in the crypto market can completely rule out their assumptions that the encrypted mood of a digital currency is plenty to make it secure.
Encryption works to make the service confidential. It doesn’t ensure that a cryptocurrency cannot be hacked or stolen.
As suggested earlier, all cryptocurrencies are decentralized. So, protecting your digital finances is your responsibility.
Here are some useful tips that can help you keep your online assets protected:
- 1) Do not share your keys with anybody. Since cryptocurrency is symbolized by keys or codes, you need to keep the codes secret. Once someone gets your keys, they can use them without your permission.
- No matter how popular are the exchanges, don’t leave your crypto coins in them for longer periods. Though crypto exchanges have security policies in place, they remain a primary target of multiple hacking attempts.
So, you don’t desire to simply make your digital assets vulnerable to exchange for a long time and then wish that it won’t be hacked.
- Choose a digital wallet for your crypto coins. Store them in a wallet that offers protocols and features that best suit your budget and needs. But do not concentrate just on the features, you also need to evaluate the performance, reputation, and credibility of the company. It is essential to select a company that you can trust.
Not doing enough math
When investing in crypto, keep your eyes open to the prize. The projected rise in Bitcoin’s prize in 2021 suggests that you better focus on the profit perspective. But, how will you get that you’re indeed going to make a profit even if you don’t pay attention to the numbers.
Since cryptocurrencies are extremely volatile, it is no surprise that prices alter within a day or even an hour. In case, you don’t want to leverage the gain of these changes, you must focus on transaction fees as it could rule out a larger portion of your gains.
Another aspect to consider is taxes. In countries like the U.S. and Canada, you possibly need to pay capital gains on each of your digital transactions. So, if you trade on a broader scale, your profit could turn into losses only because you missed mentioning taxes and fees in your computations.
4) Making Emotion-Driven Crypto Investment Decisions
FOMO, HODL, and FUD are some of the acronyms you likely hear in the crypto industry. Each of these signifies some form of strategy but is emotion emotion-driven, which shouldn’t drive your investment choices.
HODL refers to hold your Bitcoins, or other cryptocurrencies, regardless of how volatile the market is. This is fine. But occasionally, you just can’t wait for a superior return on your financing. When that happens, intervening in your losses is more favorable.
Fear of Missing Out or simply FOMO means you buy only to stay in trend. This is the riskiest one because you would be exposed to fly-by-night scams or schemes.
Stands for fear, uncertainty, and doubt, FUD may interrupt you from spending in crypto even if there’s a positive response from your research of market sentiments.
5) Investing in just one type of Crypto
No doubt, Bitcoins stays the cryptocurrencies’ holy grail, it can still tumble and cause huge losses at any given time. Thus, it is best to invest in different digital assets and not only in Bitcoin.
There are many other cryptocurrencies like Altcoin and Ethereum that offer you good returns. Don’t capitalize on just one currency. Much like the old saying in investing, don’t place all your eggs in just one basket.
According to a survey by Deutsche Bank, 41% of crypto investors expect the price of Bitcoin will be between $20,000 and $49,999 in 2021, up from $10,000 during Jan. 2020.
Whenever the Bitcoin surges, other altcoins mostly follow the trend and they surge too. This means the cryptocurrencies, overall, are believed to perform well this year.