Currently, the cryptocurrency craze is at an all-time high, and opportunities are everywhere. But behind the potentially life-changing wealth opportunities, if you are not careful, you may lose everything overnight. I’m not saying this from textbooks; I’m summarizing from my personal mistakes.
As many newcomers flood into the cryptocurrency market—many of whom have never invested before—these lessons become particularly important. Today, we will discuss the five most serious mistakes beginners often make (and how to avoid them). If you read to the end, I will also share why these lessons are particularly important in the current situation controlled by Federal Reserve Chairman Jerome Powell.
Mistake 1: Investing money you cannot afford to lose
This saying sounds like a cliché, but it is the most common mistake and the trap that gets most people into trouble. You often hear, ‘Only invest what you can afford to lose.’ But for many beginners, this is just empty talk.
The cryptocurrency market changes rapidly; it won’t wait for you to adjust. Sometimes, you wake up and find your account halved. So, ask yourself: How much are you willing to lose?
Practical exercises:
Take out the amount you plan to invest.
Cut that amount in half.
If this number makes you uncomfortable, you’re investing too much.
If you are investing money you cannot afford to lose, you are not investing; you are gambling. In the cryptocurrency market, this can be fatal.
Before entering cryptocurrency investments, ensure your basic security is in place. This means saving at least three months' worth of living expenses in a safe account unrelated to the crypto market. It’s boring and not glamorous, but it’s the only way to ensure your financial security during market downturns.
I have seen many people lose their life savings on platforms like FTX when they collapsed; many of them may never get that money back.
Bottom line: Before diving into cryptocurrency, make sure your emergency fund is secure.
Mistake 2: Blindly following influencers
Cryptocurrency influencers are everywhere. Whether on Twitter, YouTube, or TikTok, you will always see someone claiming they have found the next big hit, like ‘The three altcoins that will make you rich’ or ‘Hidden gems that will explode next week!’ But what most people don’t know is that these influencers often get paid to promote these projects.
Do you really think they believe in these coins? Think again. Many of them have been paid $10,000 to $100,000 to make these videos, and in reality, they haven't invested in these projects at all. The sad reality is that many of the projects they promote don’t even have a real product. You are essentially paying for someone else's marketing.
Solution: Follow my '3T Principle' before investing:
Technology: What problem does this project solve? Is there a real demand? Is it solving a real problem, or is it just another imitator?
Tokenomics: How many tokens are there in total? Who controls them? How are they distributed? If distribution is too concentrated, the project may be at risk.
Team: Who is behind the project? What have they done before? Are they transparent and trustworthy?
Think about Logan Paul's CryptoZoo. No product, no real value, and questionable tokenomics, destined to fail.
Before investing in any project, do thorough research and do your homework. Never trust someone else's hype.
Mistake 3: Buy high, sell low (FOMO emotions)
This is one of the most painful mistakes for beginners. It’s easy to understand in theory, but it’s easy to fall into the trap when emotions take control.
Look at the Dogecoin frenzy in 2021. People rushed in at 70 cents due to FOMO (fear of missing out), thinking Dogecoin would rise to 1 dollar. In the end, it crashed.
Solution: When you feel the urge to buy because of fear of missing out, that’s your red flag; pause for a moment.
The reason is as follows: If a coin has already risen by 500%, you are no longer an early investor; you are late. You are chasing a coin that has been hyped up, hoping for luck. But more often than not, you are just blinded by the hype, and when the frenzy subsides, your investment will crash.
Practical advice: If you feel like you are chasing a big bullish trend, take a step back and wait for the market to calm down. The market is cyclical, and there will always be new opportunities. But if you are chasing hype, you are likely to lose money.
Mistake 4: Making large investments in brand new coins with no product
New coins are very attractive. They are fresh, exciting, and everyone loves to fantasize, ‘What if this is the next big hit?’ But I must tell you: most new coins are not.
New coins are like startups; 90% will fail. You wouldn’t put your life savings into a startup with no product, no revenue, and no track record, and the same goes for cryptocurrencies.
A reliable project should at least have a minimum viable product (MVP), something that can be used today, not just an idea or a white paper.
Why it matters: Without a product, you are investing in just a dream. And dreams do not yield returns.
Practical advice: Unless the project already has a real product, do not chase the ‘next big hit.’ The price may be enticing, but the product and execution are key. Stick to investing in coins that have real products or can truly solve problems.
Mistake 5: Using leverage (a recipe for disaster)
Leverage sounds great: 'Double your position, maximize your profits!' But what they don’t tell you is that leverage also doubles – or even triples – your losses.
In 2022, Bitcoin fell by over 50%. If you used 2:1 leverage, you didn't just lose 50%, but you lost everything. Leverage amplifies losses; there’s nothing more dangerous than that.
When you use leverage, even a small drop in price can cause your account to be wiped out. This not only hurts your wallet but also affects your mental health. Watching your account balance plummet like free fall is a feeling no one wants to experience.
Practical advice: Unless you are a professional investor who clearly understands leverage and its risks, completely avoid using leverage. Protect your principal; as long as you can stay in the market, there will always be more opportunities. The market will return, but your principal may not.
This article is authorized for reprint from: (PANews)
Original author: Abhaya Anil
‘A Must-Read for Cryptocurrency Investment Newbies! Beware of 5 Common Mistakes That Could Leave You Bankrupt’ was originally published in ‘Crypto City’