Cryptocurrency as an asset has caught the attention of people as a high-risk, high-return asset class. Bitcoin for instance has shown massive growth potential in the last 10 years. Alt-coins like Ethereum, Cardano, Solana have given massive returns in the year 2021 itself. If you’re bored by a 10-15% annual return after investing in stock markets, crypto could be your next destination of minting money.
But before you start, these are some of the common mistakes which I made in the time while I started trading digital assets. Often I come across people among my subscribers who keep repeating almost similar mistakes and hence through this article, I decided to sum it all up for people. Throughout this article, I’ve shared my own takes on the market and this isn’t something you should consider as a piece of financial advice. I’m not a professional to give you trading tips.
Let’s be honest, the Crypto market is volatile. Although your favorite Bollywood celebrity may try to convince you by promoting crypto as a future, you should not go all-in at once if you’re just starting out. As a teenager last year, I didn’t have enough money in my savings to start investing in these risky asset classes. Therefore I decided to make some ground rules to stick with while my mind goes crazy in FOMO.
#1 Buying Cheap Tokens
We as Indians, love sales. More often than not it backfires, at least that’s what has happened with me many times. Due to lack of funds, I started thinking of growing my money fast and started buying coins that were cheaper to get full and multiple tokens of the project. Obviously, as an 18-year-old, I couldn’t afford to buy a full Bitcoin after completing high school. That decision backfired and I ended up losing a lot of the initial funds. Some of the projects like 1-2 did quite well. Rest it all went to losses and even I forgot one of my wallet keys.
That’s my first advice to anyone who’s starting now. Please don’t put in all your money into small-cap coins. A bitcoin is always bitcoin doesn’t matter if it’s 1 BTC or 0.0001 BTC. Similarly, it doesn’t matter if your shitcoin is 100,000,000 coins or 1,000 coins. Diversification is good but while starting the journey, at least 60-80% of the funds should remain in Bitcoin & Ethereum. Twitter won’t tell you this or your Bollywood celebrity won’t say this advice but please don’t jump into NFT’s or IDO’s. Keep accumulating these 2 tokens and stick with the plan.
#2 Not Owning the Private Keys
So far I’ve lost around $300-$400 just because I didn’t keep a backup of my Metamask Wallet keys. Taking the first case, I took an image of the seed phrase and created the wallet. That image got deleted later on and sadly all my tokens were lost forever. The next time I wrote the keys on a piece of paper and decided to keep it somewhere safe. Now that I kept them so safe, even I forgot where did I keep that piece of an A4 sheet.
That experience brings me to my second piece of advice. Please keep your wallet keys at a safe location. If you’re not sure about storing funds on a private wallet, then it is better to keep them on an exchange like Binance or WazirX. At least they can recover your funds if you forget the password. Private wallets like Metamask or Trust Wallet don’t have any forget password option and if you lose the keys the funds will be gone forever.
Also, it is important to keep your funds on a trusted exchange or app. If you’re someone who’s interested in cross-checking for safety then look for insurance or the app history of hacks. If the team looks shady on a Social Platform then it is better to switch on a different application. If crypto is gone once from your wallet, no one can help you bring it back.
#3 Not Having a Goal Planned.
When the price of a coin goes up, we all get into FOMO. More often than not, we keep hoping that the price keeps going up more and more. That’s a lack of exit strategy and this has happened to me in a case where I bought a token at a much higher price and kept hoping it would go up forever. Trust me I would have made around 30-40% gain if I sold it on time. Just because of lack of planning, I didn’t sell them and now it is down by more than 50%.
Having a proper exit strategy is a must for crypto assets that you’re planning to sell in less than a year or 6 months. Somewhere we all must understand that it can’t just keep going up forever. Having a pre-decided rate in mind keeps you sane while others can become insane around you. Now, I have a diary where I write all my buying and selling targets. If the coins reach my price target, without thinking twice I just sell them and book profits.
Even if you’re holding for a longer time horizon maybe 5 years or more. You must be prepared mentally to sustain a 50-60% market correction. If you can’t keep control of your mind during a bear market, then losses will drain your money as quickly as you made it. Always be prepared for ups and downs for long-term holdings and don’t panic sell hoping to buy back at a lower price. That never works at least I never managed it that easily.
#4 Blindly trusting an Influencer
This is also a common mistake made by newbies who enter the market. Please don’t look upon a single piece of advice or a tweet. If some influencer is promoting a project, it may or may not be a genuine one. Look for the paid promotion disclaimer and always do your own research. Too good to be true deals are often misleading and they may sound attractive but they aren’t.
Be open to opinions and think twice before investing your money into crypto markets. Are you willing to lose it? If yes, then by what percentage. If not, then opt for bank FD’s.