It’s easy to assume that cryptocurrency investments can be made using similar pools of information and techniques to other more popular investment classes. However, the number of nuances in the cryptosphere means that there are a lot of risks. Here are some crypto mistakes you’ll want to avoid making.
Understanding Cryptocurrency Technology
It is important to have educational resources that provide a better understanding of what is under the hood of cryptocurrency projects. What is under the hood (infrastructure) determines several factors such as the supply of coins, how secure coins are, and the value of coins. As an example, consensus algorithms determine how secure a network is. Some cryptocurrency projects choose to use consensus algorithms that are not as secure as they should be. Many investors, unaware of the implications of consensus algorithms, make purchases of coins from such projects without realizing.
Ignoring the Nuances of Centralised Exchanges
While cryptocurrency provides a bridge away from antiquated mediums of centralized banking, many exchanges are not much different in terms of security, integrity, and customer support. Many exchanges do not provide enough transparency about the coins they list or their inherent risks. As a result, exchanges that fall victim to risks that materialize leave their customers with long-lasting consequences.
A lot of cheap coins could be compared to penny stocks. Investors can purchase huge amounts of coins for seemingly low prices, but the risks of many coins are significantly high. Many low priced coins have vast supplies but very little evidence of demand that could increase their price.
Low priced coins, among other factors, can make it tempting to over diversify one’s coin portfolio. Keeping up with the news and price action of a portfolio with too many coins can be incredibly difficult. This is especially true for coins which require deeper research than others on account of having small communities.
Research and Timing
It is really important to take profits and time profit-taking correctly. You can’t lose money from taking profits, but you can certainly lose the value of your coins from not taking profits. During the bear market, many lost out due to the fact they ignored this truth. Taking profits doesn’t burn anyone. Money earned from selling can be reinvested in other projects.
Lack of research in the cryptocurrency space is the Achilles heel of many investors who may not be sure of what they need to research to enjoy success in the cryptocurrency space. Some investors choose to focus on market capitalization and conventional indices. This can be a great start but used in isolation can be detrimental to the implementation of an investors’ strategy. Other methods of research exist which can unlock value for cryptocurrency investors. Sentiment analysis could be a major source of interest in the future for investors. The low liquidity of several coins could expose them to significant swings in prices.
Edel is an Editor with a decade of print and digital media experience – specializing in Science, Technology, Finance, Entertainment, and Advertising. He is also a stock and cryptocurrency investor. When Edel is not editing or analyzing charts, you can find him with his DIY lightbox taking timelapses of plants.