Investing in crypto has the potential to be a rewarding experience, especially with new coins and projects regularly emerging. However, for those new to the market, it can be a confusing and rather overwhelming, especially at times of great market volatility.
So, how can you navigate crypto investing without losing all your hard earned cash? To help, here’s a few common crypto mistakes to avoid as a rookie.
Just like with any investment, it’s absolutely crucial that you do your own independent research on the cryptocurrency or asset you’re investing in, as well as understanding the current conditions of the market.
This type of research often includes understanding what type of cryptocurrency it is, its performance to date, its current demand, and expected longevity.
For an extra level of assurance and due diligence, you can also consider digging deeper by reading the cryptocurrency’s whitepaper, finding out its market capitalisation (market cap), researching its team and developers, and determining whether it has any interesting unique functions or utility.
While it might seem tempting to invest in a booming cryptocurrency that Elon Musk is tweeting about and daydream about all the potential profits that you could rake in – this unfortunately isn’t always reality.
Fear of Missing Out (FOMO) is one of the main reasons why beginners lose money early on in their investment journey. It’s important to not act on impulse and buy into the hype, as you may end up with more pain down the track.
The real golden rule of investing is to only invest what you can realistically afford to lose. While some “experts” might claim that you won’t earn a decent return unless you pour large amounts into your crypto portfolio, the truth is, there are no guarantees in any financial market. Following this rule, helps keep emotion out of your decision making.
It’s important to always invest with your head not your heart, and this definitely rings true with crypto. As crypto is a volatile asset class that can invoke a lot of passion, it can be easy to get overly confident when your crypto investment rallies, and then panic when it suddenly drops.
Rather than panicking when this happens, try to remember that all markets can be volatile, so it’s best to remain calm. You should take a step back and then reassess your investments based on your initial strategy and research.
Although it can seem like a good idea to only invest in your favourite cryptocurrency project, you should be wary of putting all your eggs in the one basket.
Why? Because if that particular crypto suddenly goes down, you have no other assets to help protect and limit your losses. Instead, it’s considered best practice to diversify an investment portfolio with a mix of different crypto assets, as well as explore the option of different asset classes such as stocks, bonds, private equity, property and commodities.
If you can, try to find a local and regulated exchange that offers 24-hour support and has local licenses. Also look for platforms that are registered with AUSTRAC and Blockchain Australia. The benefit is if something goes south, you want to make sure your investments are protected by local laws, and you have adequate around-the-clock support from responsive customer support teams.
The crypto market doesn’t need to be overwhelming, and you will likely have a greater experience if you arm yourself with the knowledge needed to mitigate any silly and avoidable mistakes.
Cover image source: fizkes(Shutterstock.com)
This article was reviewed by our Content Producer Marissa Hayden before it was updated, as part of our fact-checking process.
This advice is general and has not taken into account your objectives, financial situation, or needs. It is not personal advice. Consider whether this advice is right for you, having regard to your own objectives, financial situation and needs. You may need financial advice from a suitably qualified adviser. For more information, read Canstar’s Financial Services and Credit Guide (FSCG) and our detailed disclosure. Canstar may receive a fee for referring you to a product provider – for further information, see how we get paid.
Canstar is a comparison website, not a product issuer, so it’s important to check any product information directly with the provider. Consider the Product Disclosure Statement (PDS), Target Market Determination (TMD) and other applicable product documentation before making a decision to purchase, acquire, invest in or apply for a financial or credit product. Contact the product issuer directly for a copy of the PDS, TMD and other documentation.
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular credit product or loan. If you decide to apply for a credit product or loan, you will deal directly with a credit provider, and not with Canstar. Rates and product information should be confirmed with the relevant credit provider. For more information, read the credit provider’s key facts sheet and other applicable loan documentation for that product. Read the Comparison Rate Warning.
The views, opinions, and positions expressed in this piece are the views of the author(s) alone, and do not necessarily reflect the views of Canstar.
All information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall or rise.
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG) for more information, and read our detailed disclosure, important notes and liability disclaimer.
Any advice provided on this website is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you. Consider the Product Disclosure Statement and Target Market Determination before making a purchase decision. Canstar provides an information service. It is not a credit provider, and in giving you information about credit products Canstar is not making any suggestion or recommendation to you about a particular credit product. Research provided by Canstar Research AFSL and Australian Credit Licence No. 437917. You must not reproduce, transmit, disseminate, sell, or publish information on this website without prior written permission from Canstar.