In the early stages of seriously researching and investing in cryptocurrencies, most new investors are prone to making basic mistakes that lead to losses in both assets and knowledge. So as a newbie, what mistakes do we need to limit? Let's review with Allinstation the 10 most common and easily made mistakes!
FOMO by celebrities (KOL)
Many newbies join Telegram groups and follow traders on Twitter for signals. However, without doing their own research, you can easily fall into the trap of brokers who create fake hype to boost FOMO and attract more buyers from them.
When emotions dominate investing, the possibility of going broke is very high. In fact, the greater the FOMO, the higher the risk. In this market, investors need to consider carefully before deciding to invest. However, emotional factors often have a strong impact on people, prompting thoughtless investment decisions.
Projects in the strong growth phase, “pump” coins, or projects supported by many KOLs are all factors that influence investors’ decisions. When Token “fly” strongly and attract many traders, the FOMO mentality can turn investors’ assets into liquidation tools for “whales” to take profits, leading to the consequence that many investors lose money because they buy right at the peak price.
Fomo mentality is not necessarily bad and should be condemned, but players themselves need to have their own thoughts and be able to evaluate a problem, do not "invest according to the trend". Everything needs process and sustainability, not immediacy. Therefore, always do your own research before investing!
Or more simply, the information that KOLs post will sometimes contain advertising content, so users need to equip themselves with knowledge to determine the purpose of the post and filter information from the celebrities they follow.
Put all eggs in one basket (All-in)
Capital management is XEM the most important factor in investing, especially in the cryptocurrency market. Many people have made mistakes because they have not managed Capital effectively. With the mentality of wanting speed and convenience, many people have chosen to invest all their assets in just one order, also known as "all-in". When risks occur, all assets can "disappear without a trace", or worse, the investment portfolio will suffer heavy losses.
Newbies often have the mindset of “quick wins,” leading to ineffective investments and continuous losses. In this market, many traders have gone all-in Longing/ Short with all their Capital hoping to quickly double their accounts. As a result, many accounts have been “burned,” with the total value of liquidation orders on exchanges estimated at thousands, even millions of USD.
To avoid this mistake, you need to create your own investment portfolio and allocate Capital reasonably. Chia Capital into small amounts for DCA (Dollar-Cost Averaging) is one of the effective Capital allocation strategies, helping to minimize the impact of price fluctuations in the market. Moreover, players need to allocate the portfolio into many categories such as high-risk portfolio, low-risk portfolio or safe portfolio.
Warren Buffet – the legendary investor of the 21st century – had a famous saying that also became a golden rule in investing as follows: “Rule number 1 is never lose money. Rule number 2 is never forget Rule number 1.”
Too many eggs in one basket
In contrast to the “high risk, high reward” style mentioned above, there is another type of investor who is overly diversified. Their portfolio at any given time can contain dozens of different projects.
Diversifying your investment portfolio is good, but if you abuse it, it will distract you from controlling your portfolio and you will not be able to monitor the progress of the projects you have invested in. To win in a game, you have to carefully consider each opportunity, and if you have to allocate opportunities to more projects, you will be more tired when you have to monitor too many projects at the same time. Diversification also has potential risks when the investor's Capital is not large enough and experience is not enough. You should only choose 1 to 2 best projects in each area to hold to optimize the probability of winning.
Crypto Asset Storage is Not Safe
Cryptocurrencies operate on Blockchain technology with a “decentralized” nature, this technology provides a superior level of security for digital assets without the supervision of a centralized organization. Each cryptocurrency wallet is protected by a Private Key, which is considered the only key to access the wallet. However, this Private Key cannot be restored by any method, and if you forget or lose the Key, you will completely lose access to all assets in the wallet.
According to a report from the analysis company Chainalysis, losing Private Keys is one of the most common mistakes in the cryptocurrency field, leading to more than 20% of the total 18.5 million Bitcoins mined being permanently locked in wallets because the owner forgot the key. Therefore, experts recommend that users write down their Private Keys and keep them carefully. If you store them on a browser, cloud platform or computer, you need to be especially careful against the risk of being stolen by hackers.
Vague and no trading plan
Many people, when they first enter the market, have the mindset of a successful person. Remember that this market is a zero-sum game, in which the total assets of the winners are equal to the total losses of the losers. This means that the money of the losers will be transferred to the pockets of the winners.
Nothing is easy in any financial market. Investing to make money always has many risks. When you have won bets that double or triple your initial Capital but see the price is still increasing, greed will make you want to hold to get 5 or 10 times Capital. Crypto fluctuates very quickly, it only takes a short time for a project that is growing several hundred percent to return to its original price range. The uptrend market is a good opportunity to make money, but market fluctuations are unpredictable. The investor's job is to identify reasonable buying and selling areas to avoid being controlled by greed.
gullible
For new investors, it is easy to be subjective when they start earning their first profits from crypto. This subjectivity will be very dangerous when they start to delve into researching ways to make money in crypto such as Airdrop, low-cap hunting, giveaway.
Fraudulent schemes are becoming more and more sophisticated, with the main goal of appropriating assets of users, organizations or projects. Any vulnerability in security can become a target of attack if we are not vigilant, such as revealing personal security keys when using Non-Custodial wallets, or losing passwords when trading on centralized exchanges. In addition, there are some other common forms of fraud such as: Fraudulent advertising, Impersonating support members, admins, or moderators who actively offer support, Impersonating electronic exchanges and applications, Ponzi, Fake Token Sale links, Impersonating project Twitter accounts.
You need to be extremely vigilant and recognize scams through signs such as promising large profits, asking for personal security keys, impersonating admins and proactively texting, or project groups with a history of fraud, fake project websites...
Sent to wrong address/blockchain network
Each blockchain network and crypto wallet has a unique address. Popular networks such as ERC-20 (Ethereum), BEP-20 (BNB Chain) are similar, leading to many users being confused when choosing a blockchain network to send assets.
Once the Token has been sent, if it is sent to the wrong address, you will not be able to get your assets back. Unless you know the recipient and they agree to return it. Because of the decentralized nature of the blockchain, determining who owns the wallet that received the Token is very difficult or almost impossible.
If you send to the wrong blockchain network with the same EVM, you will have to switch to that network to Bridge back to the original blockchain you originally wanted to transfer money to.
One way to limit sending the wrong asset is to use QR code so that the exchange or wallet can automatically identify the blockchain network, thereby helping you avoid this basic mistake.
Future/Margin Leverage Abuse
Leverage is a double-edged sword in investing. If you use it well, it will be an effective tool to help you multiply your assets much faster than traditional Spot Trading . But if you use Futures incorrectly, your assets will quickly disappear when you receive a liquidation email.
Future/Margin is highly volatile, if you use too much leverage, you will lose all your investment Capital in just one order if you leave it in Cross mode. To really make money when using leverage, you need to be equipped with solid knowledge of technical analysis, Capital management and especially strictly follow the discipline in trading. Start with a small amount of Capital to learn how Future/Margin works before actually investing real Capital . Don't forget to constantly monitor the market to make timely decisions when the market fluctuates!
Not updating new knowledge
In the investment market, knowledge is not just information but also Vai as a lifesaver, helping investors not only make profits but also maintain their mentality and discover potential opportunities in the market. Knowledge helps you to be sensitive to new trends/narratives when they are just emerging.
Before entering the crypto market, you should thoroughly understand how to use wallets, exchanges and basic terminology. Reading and researching documents not only helps improve knowledge but also broadens your vision and better understands the keywords that need attention. Allinstation also has a newbie library for newbies to crypto.
You can read more here:
False expectations
Another common mistake that not only newbies but even writers have made when first entering crypto is to target projects that look cheap to buy with the expectation that they will grow hundreds of times more.
Meme projects often exploit this immature mentality to easily attract F0 cash flow. Memecoins often have very small prices like Doge, SHIBA in the early days, which can have dozens of zeros in the price like 0.000000001, making new investors expect that when it reaches 1 USD, it will grow thousands of times. Doge has successfully increased its price thousands of times in the early stages of 2021.
When investing, you should pay attention to the capitalization (market cap) of the project instead of just looking at the price or chart of the project. Even if the project has hundreds of zeros in the price but the Capital has reached tens of billions of USD, it is impossible to grow hundreds of thousands of times as you expect.
Summary
Allinstation has provided information on mistakes to avoid when entering the Crypto market. Always follow the news and adjust your investment strategy wisely and carefully. Wish you a successful investment.
