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Top 5 Common Mistakes of Investing into Crypto for Beginners and How to Avoid Them

12 Feb, 2024 13 min read
Top Common Mistakes

An expert crypto trader knows how to make correct investment decisions. However, most crypto trading experts have fallen into common traps on their path to success. When it comes to crypto investments, most of us discover safe crypto trading opportunities by trial and error. However, gaining the skill of investing into crypto for beginners is always better when you learn from other people's mistakes. To save you time searching for the right action plan, we have prepared the following list of the 5 most common crypto mistakes and tips on avoiding them. Let's dive in!

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Trading Without Proper Market Understanding

safe trade crypto tips

If you're new to cryptocurrency trading, it's natural to feel excited to dive in. However, it's essential to resist the urge to rush. Take the time to develop a basic cryptocurrency trading strategy and educate yourself.

Do you have a grasp of blockchain technology and Bitcoin basics? Are you familiar with the concept of circulating versus total supply? Do you understand inflation and the significance of exchanges, wallets, private and public keys? If these fundamental questions leave you stumped, taking a step back and preparing yourself before investing into crypto for beginners is crucial.

An expert crypto trader understands the asset class and its functioning. Investing in an asset without a solid grasp or attempting to trade without fundamental cryptocurrency knowledge is a recipe for disaster. Educating yourself about various crypto projects and their objectives will make you a more informed investor.

In the world of crypto investment, being able to identify a good cryptocurrency investment is key. A safe crypto trade typically exhibits the following traits:

  • Unique function or utility within the ecosystem;
  • Support from a diverse community ready to embrace its use case;
  • A reputable team of developers;
  • A well-crafted whitepaper;
  • A roadmap for future development.

Moreover, when assessing a cryptocurrency, it's essential to consider factors beyond its price (remember, cheaper isn't always better). These factors include:

Here are some expert crypto trader tips on how to avoid this crypto-investing mistake:

  • Gain a solid understanding of blockchain technology, Bitcoin, and other cryptocurrencies. Familiarise yourself with exchanges, wallets, private and public keys.
  • Only invest what you can afford to lose. Evaluate projects critically before investing.
  • Spread your investments across different digital currencies to minimise risk.
  • Cryptocurrencies are here to stay. Holding investments in the crypto market for extended periods may yield greater rewards.

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Incorrect Wallet Selection

investing into crypto for beginners

Cryptocurrency is a digital form of money requiring a digital storage wallet. While using an online wallet is convenient, it is also riskier than storing your crypto offline. Online wallets are more susceptible to vulnerabilities, making them a target for hackers who can drain your wallet through scams or hacks. The most secure method for storing your crypto is an offline hardware wallet, essentially a USB stick equipped with advanced hardware and software encryption to safeguard your crypto private keys.

Transferring crypto between digital wallets is how you take control of your crypto from an exchange or send funds from one party to another. However, a common mistake new investors make is attempting to transfer crypto funds to their wallet only to enter the wrong address. This results in the crypto being sent to an incorrect wallet address and may become unrecoverable. While there are recovery services available, they could be pretty costly.

Selecting the wrong wallet is a frequent mistake when investing into crypto for beginners. This can happen when a user chooses a wallet that lacks security, user-friendliness, or compatibility with the cryptocurrencies they intend to hold.

Here are some expert crypto trader tips on how to avoid this crypto-investing mistake:

  • Before selecting a wallet, conduct thorough research. Look for wallets that are well-reviewed and trusted within the crypto community. Some well-known crypto wallets include Ledger, Trezor, Exodus, and MetaMask.
  • There are various safe trade crypto wallets, such as online wallets, mobile wallets, desktop wallets, and hardware wallets. Each type has its pros and cons. For example, online wallets are convenient but more vulnerable to hacks, while hardware wallets offer the highest level of security.
  • Ensure that the chosen wallet is compatible with the cryptocurrencies you plan to hold.
  • Before transferring large amounts of cryptocurrency, send a small amount first to ensure the wallet functions correctly.
  • Utilise strong passwords and enable two-factor authentication if available. Additionally, remember always to back up your wallet.
  • Losing your password or seed phrase can lead to losing your crypto assets.

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Careless Private Key Management

expert crypto trader tips

Most cryptocurrencies rely on public-key cryptography (PKC), which uses a pair of keys to send and receive digital currencies without a central authority. One key is the "public key", shared openly for receiving currencies, NFTs, and similar assets. The other is the "private key", kept confidential for encryption and authentication.

In traditional finance, customer signatures verify transactions. Similarly, in crypto and DeFi, transactions are verified using private keys known only to the owner. The private key acts like a password for accessing the digital vault holding your assets, ensuring security and access from anywhere. However, if someone gains access to your private key, they can access your digital wallet and its contents.

Here are some expert crypto trader tips on how to avoid this crypto-investing mistake:

  • Storing your private keys offline can safeguard them from online threats. Some investors keep their private keys on an internet-disconnected computer, written on paper or memorised.
  • Utilising a unique and strong password for your wallet adds an extra layer of security. It is recommended over using similar passwords for other accounts.
  • Two-factor authentication (2FA) provides additional security by requiring two types of identification before accessing your wallet.
  • Regularly backing up your wallet can assist in recovering assets if issues arise.
  • Updating wallet software regularly ensures you have the latest security enhancements.
  • Always verify the source when downloading wallets to avoid malicious software.

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Investing in Unverified Projects

How to choose the best platform for cryptocurrency trading

Many are drawn to the allure of unverified coins and their fresh and innovative ideas in cryptocurrency. These new projects promise to revolutionise the market with unique concepts, sparking interest from investors seeking quick profits. Despite their appeal, it's crucial to recognise that these unverified coins carry inherent risks. To ensure sound investments, it's essential to conduct thorough due diligence, even when presented with promising new ventures.

In pursuit of lucrative opportunities, the temptation of high returns often leads individuals toward unverified coins. The desire to witness rapid investment growth can overshadow the need for careful consideration. The hype surrounding these coins and FOMO (fear of missing out) can cloud rational thinking.

While these projects may be enticing, allocating time for proper evaluation is imperative. Scrutinising their legitimacy, practicality and long-term stability can shield investors from potential pitfalls while fostering a safer and more astute approach towards cryptocurrency investments.

Here are some expert crypto trader tips on how to avoid this crypto-investing mistake:

  • Verify the credibility of crypto tokens and projects before investing, given the sector's susceptibility to scams and misinformation.
  • Check the reputation of the founding team and the authenticity of the project's website and social media channels.
  • Avoid tokens that have been created within the last 24 hours.
  • Steer clear of tokens associated with abandoned projects, as they often result in irrecoverable investor losses.
  • Exercise caution with tokens that have experienced sudden surges, as scammers often exploit FOMO to attract unsuspecting investors.

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Misunderstanding Tax Obligations

crypto trading mistakes to avoid

New investors in crypto might overlook the impact of gas fees when purchasing on exchanges. For instance, buying crypto with a credit card may involve substantial surcharge fees (3% or more) and additional charges from the card company. It's crucial to research crypto exchanges with low fees and the best methods for buying and trading to save money in the long term.

Investors often disregard transaction costs and platform fees incurred when dealing with cryptocurrencies. Keeping track of these expenses is essential as they directly affect your profit/loss from investing in crypto.

Furthermore, an expert crypto trader should know new tax laws based on geographic location. Several countries, such as the US and India, have imposed capital gains taxes of over 30% on crypto and additional tax deductions at the source (TDS) on crypto trading.

Here are some expert crypto trader tips on how to avoid this crypto-investing mistake:

  • The IRS treats cryptocurrency as a standard form of property. You will typically owe taxes on those gains when you sell them and generate a profit.
  • It's important to report all transactions involving cryptocurrency. Trading one type of crypto for another is taxable and must be reported.
  • Selling your cryptocurrency at a loss can have significant tax benefits. This is why many investors intentionally incur losses on their crypto investments, using a strategy known as tax-loss harvesting.
  • Consider taking profits in a year with lower income. A lower income during the tax year means you'll pay lower tax rates on your cryptocurrency disposals.
  • When giving cryptocurrency as gifts, no income tax obligation is attached to it.
  • Keeping meticulous records of crypto transactions can help lessen your overall crypto tax burden.

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Bottom Line

If you notice even one of these warning signs, it's crucial to reject a potential investment promptly. Remember, any hint of uncertainty should be regarded as a red flag. In today's environment, it's too simple to fall into a trap, whether by trusting an unverified team promising high returns, investing in an unverified product, depositing funds in a flawed smart contract, or entrusting your money to someone beyond legal recourse.

If you are in doubt about choosing the best platform for cryptocurrency trading, StormGain should be a wise choice. Gain access to the 50 most popular cryptocurrencies and the highest leverage on the market!

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