Blog: Cryptocurrencies and the most common investing mistakes
More and more people are interested in investing in cryptocurrencies. In cryptocurrencies, investors are particularly attracted by the revolutionary technology and the opportunity to invest in a completely new investment type. While all investors make mistakes, some mistakes are easier to avoid than others. This text aims to list the most common investor mistakes and explain how these mistakes can be avoided.
Incomplete information
One of the most common mistakes made by cryptocurrency investors is starting to invest with incomplete information. Investing in cryptocurrencies is very easy today, and anyone can begin investing with relatively little effort.
As with all other investment forms, it is extremely important to familiarize possible investment before making an investment decision. Today almost every new cryptocurrency investor starts their journey from bitcoin. Bitcoin is the most popular and best-known decentralized cryptocurrency in the world. In recent years, bitcoin has attracted the attention of investors around the world.
Revolutionary blockchain technology is the backbone of every cryptocurrency. Every cryptocurrency is based on blockchain technology, and its basic principles are important to understand. Understanding blockchain technology also helps to understand how cryptocurrencies work.
Good basic knowledge enables independent decisions to be made. Unfortunately, investors often make investment decisions based on tips given by others. If the basic understanding of the topic is in order, then it is easier to approach the tips given by other people from a different perspective. Other people’s opinions should never be taken as buying or selling signals.
The illusion of low prices
The prices of cryptocurrencies are affected by many different things. One of the things that affect prices the most is the number of cryptocurrencies in circulation. The price of a cryptocurrency is typically lower if there are more cryptocurrencies in circulation. Instead of looking at the price, you should look at the market cap of that cryptocurrency. The market caps of all cryptocurrencies are easy to check from the popular Coinmarketcap website.
Price doesn’t always equal value. Looking at the price alone, you can’t say whether some cryptocurrency is cheap or expensive. Sometimes cryptocurrencies with a low unit price may have a much higher market cap than cryptocurrencies with a more expensive unit price. So a low price doesn’t directly tell you what kind of upside potential that cryptocurrency has.
FOMO
Fear of Missing Out (FOMO) is the fear of missing out on something that others are enjoying. For example, in cryptocurrencies, FOMO means the fear of missing out on huge Bitcoin gains while others are picking out their new Lambos. A person is forced to buy cryptocurrencies because everyone gets rich with them. This is a terrible starting point for any investment activity. There is no easy money, and investing in cryptocurrencies does not automatically mean huge profits.
One of the most common mistakes an investor makes is to buy cryptocurrencies in hopes of high returns when the market is overheated (prices are high). And sell the cryptocurrencies they bought when these cryptocurrencies are only a fraction of the value at the time of purchase.
FOMO is a human emotional reaction that quickly leads to irrational decisions. The best investment outcome will achieve when investment decisions are basing on reason rather than emotion.
Panic sales
Strong exchange rate fluctuations are typical for the cryptocurrency market. However, those who invest in cryptocurrencies should not be afraid of even strong exchange rate fluctuations. The volatility of cryptocurrencies is extremely high. This means that the cryptocurrency price can change dramatically over a short time period in either direction.
The easiest way to avoid panic sales is to familiarize carefully with cryptocurrencies before making an investment decision. When investing in cryptocurrencies, the role of your own background research is enormous. If you have done background research carefully and know that some cryptocurrency is an excellent investment in the long run, then short exchange rate fluctuations should not cause panic sales.
Poor timing of purchases and sales
Before starting investment activities, it is definitely worth acquiring sufficient basic information about cryptocurrencies and finding out for yourself when is the best time to acquire cryptocurrencies.
The timing of purchases is crucial. It’s tough to make returns when the market overheats and prices rise. It’s always possible to achieve the best return by buying while the rates are at the bottom.
In addition to scheduling purchases at the right time, scheduling sales at the right time is also significant. It is also possible for investors to make mistakes when prices rise sharply. If the cryptocurrency you own rises sharply, what are you going to do? This is an issue that many investors have been considering.
Unfortunately, many investors schedule purchases and sales incorrectly. In the scheduling of sales, greed typically enters the picture. Many investors expect to make even more profits and hold the cryptocurrencies they own. Eventually, this could lead to a situation where course peaks have already been reached, and exchange rates have started to decline. Situations like this can be avoided by drawing up your own investment plan and following it.
Conclusion
The purpose of the text was to list the most common mistakes made by those who invested in cryptocurrencies and tell how these mistakes can be avoided. The most common mistakes made by cryptocurrency investors are:
Incomplete information
The illusion of low prices
FOMO
Panic sales
Poor timing of purchases and sales
It’s good for everyone to remember that all investors make mistakes. When you make a mistake, the most important thing is to identify it and learn from it. If you can’t understand a lesson from a mistake, you will most likely repeat the same mistake several times.
Mikko Soon
Cryptocurrency specialist
Last updated: 11.03.2022 13:36
