Cryptocurrency has gained a lot of global attention as most investors begin to see it as a passive income. The idea of trading virtual and digital currencies has turned into a massive wealth opportunity as the return on investment (ROI) is always high.
However, amidst the loud echo in the crypto market, there are great risks of investing in cryptocurrency. Numerous individuals are rushing to pump their money into cryptocurrency. There are news that Bitcoin or Ethereum will pump by 100% and newbies decide to stake their earnings on them.
While there are possibilities that your guesses are right, there are also possibilities that you might lose your investment in such a process. Beginner investors in cryptocurrency must understand the risks of investing in cryptocurrency, and plot safe ways to buy cryptocurrency.
The risks attached to cryptocurrency go far beyond market fluctuations. There are also cases of losing your earnings and investment to fraud schemes and scammers. As you make plans to purchase bitcoins during the dip, it also essential that you understand how to protect your cryptocurrency.
Your ticket to a successful journey in the crypto sphere lies in understanding cryptocurrency investment risks and how to avoid them. Here are seven things to avoid while investing in cryptocurrency.
Seven things to avoid while investing in cryptocurrency
· Fear of missing out (FOMO)
Most beginners make the mistake of rushing to purchase a coin without making proper research. You swiftly throw in tens, hundreds, or thousands of dollars because you heard or saw people sharing beautiful testimonies about a coin.
The FOMO risk system is always powered by greed and fear. You wish to quickly cash into the market and you wouldn’t mind sacrificing a lot of things to achieve that.
A lot of beginners, especially new bitcoin investors head into the market by buying ‘on the top’. With the drive to feel among, they buy coins when the value is high, this reduces their chances of making profits. Because you will only make gains when the market rises much higher than it was during your entry level.
· Pump and Dump Schemes
It is no longer news that there are coins built and pumped by a community. These coins quickly turn into a promotional asset. The value of these coins remains high when the community decides. Influential investors buy their way into these at low prices and hype their value to an outrageous level, take profits and allow it to crash.
Some beginner investors are not away from the system and will decide to join the wave. This leaves them losing their investments after the market crashes.
· Zero Diversification of Funds
Cryptocurrency plays by the same rules of investment. Just as it is in the stock market, you must diversify your crypto portfolio. This is in line with the popular adage “putting your eggs in one basket”.
Diversifying your crypto portfolio gives leverage against market fluctuations and the potential risks attached to falls.
Avoid the thoughts of investing all your earnings in one cryptocurrency. However, while plotting your diversification strategy, you must consider long-term rewards.
· Sharing your private keys and key phrases
Is there an easy way of losing all your investment in the crypto market? That is by losing your private keys or having someone tamper with them.
Your private keys and keyphrases are your personalized access tools to your crypto wallets. Losing them translates to losing your account.
The world of cryptocurrency is not exempted from thieves. Some hackers and cybercriminals are ready to zoom off with your coins.
To avoid losing your private keys, you can jot them down safely somewhere. You should also be careful with the platforms that you interact with. Some exchange platforms come with phishing gateways that can easily steal your data.
· Falling prey to Ponzi schemes
There are a lot of Ponzi schemes and scam techniques in the crypto sphere. Some of these scams are decorated pyramid schemes
These schemes promise you large returns and profits. As a vow of commitment, they demand a registration fee from you. These could come in the form of crypto assets or cash.
Ponzi schemes do not last long as it becomes difficult to pay people when the population becomes much. This becomes a quick way to cart away your funds when you least expect it.
· Assuming that all cheap coins as great investments
As a crypto trader, you must not make the mistake of assuming that all cheap coins are great investments. This assumption is borne from the thoughts that these cheap will rise and you will make a profit.
Sometimes, your assumptions might be wrong. There are possibilities of running into scam coins in your bid to purchase cheap coins.
Before spending your money on any coin, you must weigh the coin against all cryptocurrency risk factors.
· The Do-or-Die Investment Mindset
A lot of beginner crypto investors make the mistake of trading in the crypto market with the do-or-die investment mindset.
They are driven to get more out of more. You push in so much money, larger than what you can afford to lose.
There are a lot of risks attached to investing in Bitcoins and any other altcoin that you might come across. The crypto market is governed by lots of fluctuations. These fluctuations will not always fall in your favor.
Pushing in many funds than you can afford to lose will leave you devasted after the market falls.
It will be entirely deceiving to tell you that investments in cryptocurrency are safe investments. Your $100 portfolio could crumble to a $10 margin.
This is not to scare you from making investments but to sensitize you on the need to get equipped with enough knowledge before investing in cryptocurrency.
As a beginner in cryptocurrency, you might not be handed out enough pieces of financial advice to get you started. However, you must be able to plot a wise move that keeps you afloat in the market. This includes knowing when to take your profits and when to remain in the market.