Cryptocurrencies are known to be very volatile in nature. This means that the price of cryptocurrencies fluctuates very quickly, and it can also be within just a blink of an eye. And where there exists volatility, there remains a huge opportunity to make money, and at the same time, losing money is not that uncommon. If you are investing your money in cryptocurrencies or even a specific cryptocurrency on seeing a tweet of a very popular celebrity or even if a self-declared expert tells you to do it, then there is a good chance that you might lose your money in crypto.
How To Not Lose Your Money In Crypto?
Here are some of the most common rules that you need to consider and not abruptly jump into buying an asset just for the sake of a tweet or opinion. You need to be smarter with your money.
➊ Conduct Your Own Research
On your path through the internet, you would find a lot of cryptocurrency experts that are trying to offer their opinion on the crypto market at present. You might find this very hard to believe. However, there are no real cryptocurrency experts. Cryptocurrencies are much more volatile for anyone to accurately predict the prices at a given moment. Thus, you need to do your own research thoroughly and not blindly trust or follow the “so-called” crypto experts.
➋ Do Not Enter Into The low Liquidity Cryptos
Liquidity is the comfort that helps crypto to be bought or sold. If a cryptocurrency bears low liquidity, you probably will not be able to sell it very easily when the right time arrives. Thus, instead of making a profit, you will end up getting stuck with it.
➌ Never Try To Time The Market
When you look back in time, things seem to get very logical and then obvious. You might have regretted not having bought Bitcoin (BTC) at $1.000 or might not have sold when it was going through its peak price. If you are continuously regretting this thing, then let me tell you that it will take you nowhere. You need to do your research thoroughly, and if you feel that a specific cryptocurrency is undervalued, then you can go ahead and buy it. Or otherwise, if you feel that it is overvalued, then you can sell it.
➍ Sell The Fact But Buy The Rumor
This ideology works very well in most financial markets. Let us say that a specific crypto project is expected to announce some new features. When you first hear about the project and its features, it is best to buy that. This is because as more people start to learn about the project, the demand for it will rise, and the price will also shoot up simultaneously. When the actual implementation of the feature gets announced, the price will fall suddenly. The reason is that the early buyers will sell and book their profits. Also, you need to make sure that the rumor is based on reality.
➎ Do Not Play With The Derivatives
The derivatives are the financial instruments that acquire their value from some asset, such as crypto prices, interest rates, etc. Options and futures are two common types of derivatives that have been designed for reducing risk and hedging against uncertainty. If the derivatives get into the wrong hands, it will simply be a recipe for financial disaster. Thus, you must not play with the derivatives until you are a pro and you are sure of what you are doing.
➏ Never Buy NFTs Unless You Receive Some Exclusive Rights
NFTs or Non Fungible Tokens are a new kind of excitement that people want to taste these days. There is news that pixelated graphics are being sold for millions. You must never fall for this hype. Unless any NFT offers you some exclusive rights, they are basically worthless.
➐ Never Ever Short Bitcoin
Short-selling or shorting is a process when you sell those cryptocurrencies that you do not place your hope for its price to crash. Refrain from shorting Bitcoin. The cryptocurrency industry has a term for an investor that goes bankrupt by short-selling Bitcoin, and the term is “Ashdraking.”
Lord Ashdrake was a Bitcoin trader from Romania who had made a ton of money by shorting Bitcoin. Then he had shorted it at $300. Following this, Bitcoin had zoomed to a massive $600 in a couple of weeks, and that Ashdrake went bankrupt.
➑ Never Leave Your Cryptocurrencies On Any Exchange
A common saying is often used in the cryptocurrency world — “Not Your Keys, Not Your Coins.” Whenever you keep your cryptocurrencies in a centralized exchange, you can never expect to have any control over them. God forbid, if the exchange gets hacked or even its owners vanish, then you will lose all your cryptocurrencies stored on that platform. Thus, it is necessary that you store all your crypto coins in your own wallets, such as any hardware wallet.
➒ Learn To Use the Paper & Cold Wallets
If you delete your mobile banking app accidentally, do you ever lose your money? Obviously not! All you have to do is simply reinstall the app. This is because all your funds are held by a bank. However, with crypto, it is very different. In case you delete your cryptocurrency wallet without backing up, then you will lose all of your cryptos. This calls for learning how to use the crypto wallets such as paper wallets, hardware or cold wallets, and the software or the hot wallets.
Common Mistakes To Avoid While Investing In Crypto
In addition to this, there are a couple of common mistakes that people usually make while investing in cryptocurrency. In this segment, we will discuss the common mistakes that you need to avoid and the way you can efficiently avoid them.
Placing Trust On The Wrong Exchange Platform
It is important that you choose the right cryptocurrency exchange platform. This is the very first step toward keeping your cryptocurrency investment journey profitable. You must always select the cryptocurrency exchanges based on some of the factors that have been mentioned below:
◽ Simple and user-friendly platform interface
◽ Wide selection of the cryptocurrency coins
◽ Deep liquidity
◽ Low trading fees
◽ Permits easy withdrawal to the bank account
Not Diversifying Your Portfolio
The cryptocurrency space is highly volatile, and the market is quite unpredictable. Thus, if you are investing in only one type of crypto coin, then you are actually increasing the risk of loss, which might result in meager performance.
Diversifying your portfolio will not only protect you from incurring heavy losses during a bear market but simultaneously minimizes the other related risks of investing in a single cryptocurrency. By diversifying, you are never dependent on a single coin for performing in the market.
As the crypto market functions round the clock, it offers traders and investors several opportunities to place trades during the daytime. And thus, placing your trades to profit from every market movement often leads to over-analysis, and hence people place wrong trades. This results in a higher loss. Additionally, more trades also elevate the higher transaction costs. Therefore, you need to avoid making several trades during the day as it is very time-consuming and pretty difficult to maintain consistency.
Trading With Emotions
Emotional trading means that when a trader or investor lets their personal emotions impact the trading decision. It might be beneficial to an extent but can also lead to nervousness, fear, greed, and overconfidence, which are the main causes of wrong trading decisions and loss. Thus, you need to learn how to manage your emotions while you are trading and also follow the rule-based trading approach.
Not Following The Cryptocurrency Sector Developments
As compared to the other traditional markets, the crypto market is very new, and simultaneously, it is very dynamic. Often a minor event does offer a major impact on the price of the crypto coins. Therefore, you need to stay updated and track the cryptocurrency market developments. This will help you to predict the price movement and offer a better return prospect in the long term.
Losing your money in the cryptocurrency market is a very common thing if you are unaware of what to follow and what not to. In this article, we have put enough effort to bring to your notice the ways that you need to follow so that you do not lose your funds in crypto like that.
Additionally, you also need to follow the golden rules for investing in volatile assets such as cryptocurrencies. You should only invest in those coins that you fully trust, diversify and never invest more than you are actually willing to. Plus, you must stay informed and learn as much as you can. This includes learning from your mistakes and never succumbing to FOMO or Fear of Missing Out.
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How Can You Avoid Losing Your Money In Crypto? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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