9 Cryptocurrency Investment Mistakes: Protect Your Portfolio

The boom of the cryptocurrency market has tempted people from all walks of live to join in on the wave. You’ve probably heard your parents, friends, and coworkers talk about investing in bitcoin or altcoins, even when they are clueless about the technology. It’s this speculation from newcomers that has sent the cost of these coins soaring, but how for long will these gains continue?

Nobody knows what the future of the crypto market will look like, or if it will ever be a viable means of exchange. But there are a few things you can do right now to protect your assets. To protect your portfolio from the volatility of cryptocurrency market and make a tidy profit at the end, it’s more about knowing to not commit certain investment mistakes than being a speculative genius. On the other hand, if you don’t know how to leverage your gains from the market, you could miss out on the enormous potential that these coins have.

1. Seduced By The Fear Of Missing Out (FOMO)

Before you buy a single virtual coin, you need to enter the market for the right reasons. Because the truth is that no one knows what’s going to happen to the cryptosphere. Coins might continue to rise in value, or their prices could be wiped out in an instant. Buying coins in the hopes of earning a quick profit is known as the fear of missing out (FOMO), and it’s one of the worst investment mistakes you can make.

FOMO is destructive and unrealistic when making long-term decisions. Cryptocurrencies will not make you an overnight millionaire, nor are they guaranteed to deliver returns in 6 or even 12 months. And even if you do hold on to your coins, there is a high chance for you to lose everything, especially for newer tokens that have just entered the market.

2. The Days Of Mining Are Over

There was a time when you could make a lot of money mining bitcoin and etherum, but those days have long passed. Mining today involves exceedingly complex calculations and suffers the effect of diminishing returns.

The economics of mining the major coins today simply does not work out for an individual’s favor. Unless you have access to a large number of computers (such as botnet), or already possess the assets to mine the coins profitably, cryptocurrency mining may not be a worthwhile investment.

Even using a cloud computing service that is dedicated to mining these coins would take years to recuperate one’s investment, and that’s assuming that the coins go up in price at all.

In short, mining is simply not a viable option for people looking to break into the cryptocurrency market and should be avoided.

3. Falling Prey To Scams Or Easy Money

A classic case of a crypto scam in the industry is called a HYIP, or high yield investment program. Many of these sites guarantee their customers monthly, weekly, and even daily returns on their investments.

A HYIP works by enticing users to send their bitcoin to the company’s address, where the coins will then be “invested” for optimal returns. Many of these sites do not explain how one’s investment will be recuperated, nor the method used to multiply one’s earnings.

HYIPs are notorious for misleading their customers through fake business credentials, and sometimes post fake payment proofs. It would be safe to assume that 99%, if not all HYIPs operate without slightest intention of returning their customers money.

The truth of these sites is that many of them Ponzi schemes, as there is no such thing as automated trading software or a cloud mining effort that can guarantee overnight results.

What’s surprising is that some of these sites do pay out,  provided that you get in and out quickly. Ponzi schemes are only sustainable for so long before they either collapse, or until the owner decides to book it with everyone’s investments.

4. Panic Buying And Panic Selling

A huge reason for why people will not see a single cent back from their investments is that they panic. Someone might read a news article about the bitcoin bubble bursting and reflexively hit the ‘Sell’ button. Other people may respond in the opposite way, as they can’t shake the feeling of FOMO. Some may buy into highly speculative ICOs or altcoins that have just hit the market, thinking that these assets could be “the next bitcoin”.

Reacting to something as chaotic as the cryptocurrency market will drive you mad. Almost every day there is bad news posted by someone with a conservative bent. While on the same day you could read a seductive press release by a company that claims to be a gamechanger for the entire industry.

The point is that you want to make proactive decisions as opposed to being reactive. This means that if you decide to buy an altcoin and it suffers a painful price correction, you don’t sell, you hold on for dear life. The long-term play is how you win in the game of investing in cryptocurrencies, not by shifting your portfolio around at the mere thought of bad news.

5. Playing With More Than You Can Lose

Cryptocurrencies come with a high degree of risk, and they should be treated with the same mentality as gambling. Although the developments for cryptocurrencies look encouraging, they are still highly volatile and speculative investments. Many coins have had their values wiped out over the course of a single day, while others are nothing more than a crude snatch-n-grab scam for some easy money.

If you have the money to risk in cryptocurrencies, then you are probably OK. But many people are borrowing money to put in these investments that have a low chance of succeeding.

If you haven’t noticed a trend in this list, it’s that the majority of the mistakes people make when investing in cryptocurrencies is driven by FOMO. This prompts people who can barely afford to pay their bills to put themselves in debt to become the next crypto millionaire.

6. Ignoring The Major Currencies

It could be tempting to look past the potential of Bitcoin, Ethereum, Dash, Litecoin, and others in favor for tokens that are cheaper to buy. New coins promise rapid returns for their investors, but they lack an established history and use on their blockchains. The problem is that these newer entrants are even more volatile than their established counterparts, leading to huge price swings and fluctuations in the worth of your portfolio.

Bitcoin and others could help give your investments some much needed stability as they have been around for longer, and have increased in value by more than 3000% in 2017.

Overlooking the major coins could be a significant mistake, especially as the outlook for these tokens is set to climb in price over the next few years.

7. Lack Of Security

The security of your private key, wallet, and exchange is paramount for protecting your online investments. All of them are important, and a weakness in any could cost you your entire balance.

There are a number of ways to ensure that the security of your crypto assets are taken care of:

Use A Cold Storage Solution:

Hot wallets such as an online service might work for when you are transferring small amounts of money between addresses. However, if you store your entire balance on a service like Coinbase, you become susceptible to fraud and hacking attempts. For this reason, using a paper wallet or a hardware wallet is needed to make sure that each transaction that you make is valid.

Choose Your Exchange Wisely:

Some exchanges are better than others, and we have all seen what happens when an exchange goes down or otherwise is compromised. Millions of dollars have been lost due to the exchanges lack of security and due diligence. Only trust the big name exchanges and be skeptical of startups that promise lower fees to attract clients.

Store Your Private Key In Multiple Locations:

Keeping your private key on your computer is not a safe thing to do, as it could become a target for hackers and other thieves who want to clean out your account. Having your key written down on a piece of paper is the best defense, preferably in multiple locations around your household, such as a safe. You never know when you might need it.

Use Encryption:

If you do end up storing your private key on your computer (which you should never do), a good idea is to encrypt your folder or text file that contains your key. This will prevent hackers and other intruders from making off with all your coins. A good piece of software to consider is Truecrypt, which is free.

8. Not Starting Small

When you first begin trading, try experimenting with small position sizes. This will let you work your way around the specific exchange that you are trading on. Because when the time comes to make an order, you will need to be fast. The crypto market is incredibly volatile, and the prices of coins change from moment to moment.

Start out with buy and sell orders that are on the low side, as well as stop-loss orders. This will give you the practice and confidence you need to work your way up to the larger trades.

After you have been trading for awhile, you’ll start to notice that not all exchanges are the same. Many differ in subtle and obvious ways in terms of liquidity, fees, security, and options trading. Make sure that the exchange you’re on takes the security of their user’s transactions seriously and don’t be afraid to backout if you feel suspicious.

9. Lacking A strategy

Every purchase and sell you make should be in alignment with your strategy. This involves a fundamental and technical analysis of the coins you are interested in. Buying coins for no reason except that they seem like a good idea is not likely to work in the long-run. You might get lucky a few times here and there, but soon enough you will start losing money.

With a calculated position size, you’ll be able to assess how much you stand to lose and gain from the trades you make. Having this information is critical as without it, you will not know how much risk is involved per transaction.

To summarize everything, beware of FOMO and educate yourself before jumping in to the crypto market. Your emotions will trick you into making rash decisions, so it’s best to only trade when you are in a calm frame of mind and can see the situation for what it is. Don’t buy into media hype or the often exaggerated claims by crypto startups.

Use your common sense at all times and be prepared to lose and learn a lot while you are on your journey.