To New Crypto Investors: These 5 Serious Mistakes Must Avoid

Author: Abhaya Anil

Compilation: Vernacular Blockchain

At present, the cryptocurrency boom is unprecedentedly high, and opportunities are everywhere. But behind the wealth opportunities that may change your life, if you are not careful, you may lose everything overnight. I did not say this from textbooks, but from the mistakes I experienced personally.

With a large number of newbies pouring into the cryptocurrency market – many of whom have never even been exposed to investment – ​​these lessons have become particularly important. Today, we will discuss the five most serious mistakes that 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 presence of current Fed Chairman Jerome Powell’s control of the market.

Error 1: Invest money that you can't afford to lose

This sentence sounds like a cliché, but it is the most common mistake and a trap that puts most people in trouble. You often hear, "Invest only the money you can afford to lose." But for many beginners, it's just empty talk.

The cryptocurrency market is changing very quickly and it won't wait for you to adjust. Sometimes, when you wake up, your account may be cut in half. So, ask yourself: How much money are you willing to lose?

Practical exercises:

• Take out the amount you plan to invest.
• Cut this amount in half.
• If this number makes you feel uneasy, you'll invest too much money.
• If you are investing money that you cannot afford to lose, you are not investing, but gambling. In the cryptocurrency market, this can be fatal.

Make sure your basic security is in place before entering cryptocurrency investment. This means saving at least three months of living expenses and putting them in a secure account that is not related to the crypto market. It's boring and not cool, but it's the only way to ensure you're financially safe when the market is down.

I've seen a lot of people lose their life savings on crashed platforms like FTX, and many of them may never get back that money.

Bottom line: Make sure your emergency funds are safe before touching cryptocurrencies.

Error 2: Blindly follow Internet celebrities

Cryptocurrency internet celebrities are everywhere. Whether on Twitter, YouTube or TikTok, you will always see people claiming that they have discovered the next big hit, such as "the three altcoins that can make you rich" or "the hidden gem that will soar next week!" But what most people don't know is that these internet celebrities usually use money to promote these projects.

Do you think they are really optimistic about these coins? Think about it again. Many people are paid between $10,000 and $100,000 to make these videos, and they aren't actually investing in these projects at all. The sad reality is that many of the projects they sell don't even have actual products. You are basically paying for other people's marketing.

Solution: Follow my "3T Principles" before investing:

• Technology: What problems did this project solve? Is there a real need? Is it a solution to the actual problem, or is it just another imitator?
• Token Economics: How many tokens are there in total? Who controls them? How is the allocation method? If the allocation is too centralized, the project may be risky.
• Team: Who is behind the project? What have they done before? Are they transparent and trustworthy?

Think of Logan Paul's CryptoZoo. Without products and without actual value, Token economics is also suspicious and destined to fail.

Before investing in any project, study in depth and do your own homework. Never trust other people's hype.

Error 3: Buy high and sell low (FOMO sentiment)

This is one of the most painful mistakes for beginners. It's easy to understand in theory, but when emotions prevail, it's easy to fall into a trap.

Check out the Dogecoin craze in 2021. People flocked in at 70 cents because of FOMO (fear of missing out) and thought Dogecoin would rise to $1. As a result, it collapsed.

Solution: When you want to buy because you are afraid of missing out, this is your red warning sign, pause for a moment.

The reasons are as follows: If a coin has risen by 500%, you are no longer an early investor, but it is too late. You are chasing a coin that has been hyped up, hoping to be lucky. But more often, you are just blinded by hype, and when the craze fades away, your investment will collapse.

Practical advice: If you feel like you are chasing a big positive line, 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.

Error 4: A brand new currency without products when investing in large

quantities

The new currency is very attractive. They are fresh and exciting, and everyone loves to fantasize about "What if this is the next big hit?" But I want to tell you: most new coins are not.

New coins are like startups, and 90% of them will fail. You won't invest your life savings to a startup that has no products, no income, no past records, and the same is true for cryptocurrencies.

A reliable project should at least have a minimal viable product (MVP), something that can be used today, not just an idea or a white paper.

Why it matters: Without products, you invest in just a dream. And dreams won't pay off.

Practical advice: Don’t chase the “next hottest” unless the project already has an actual product. Prices may be attractive, but product and execution are the key. Stick to invest in currencies that have actual products or can really solve problems.

Error 5: Use Leverage (Catalogue recipe)

Leverage sounds great: "Double your position and maximize your profit!" But what they didn't tell you is that leverage can also double - or even triple -your losses.

In 2022, Bitcoin fell by more than 50%. If you use 2:1 leverage, you not only lose 50%, but you are wiped out. Leverage will amplify losses, nothing is more dangerous than this.

When you use leverage, a small drop in the price will cause the account to be cleared. This will not only hurt your wallet, but will also affect your mental health. Watching the account balance fall like a free fall is a feeling that no one wants to experience.

Practical advice: Avoid leverage altogether unless you are a professional investor with a clear understanding of leverage and its risks. Protect your principal. As long as you can stick to stay in the market, there will always be more opportunities. The market will come back, but your principal may not be.