These are super common mistakes that beginners make all the time that can completely blow your cryptocurrency portfolio you know you can lose all your money so before we get into that, if, you will learn how to master blockchain step by step from start to finish.
1. The first mistake that beginners often make is buying high and selling low, which is really the exact opposite of what you should do right to make any money, you need to buy low and sell high, but don’t feel bad. We’ve lost a lot of money investing in cryptocurrency this way. But we want to show you the most common way that people do this so that you can avoid it. So this is really common for people to look at a chart like this and watch the price of cryptocurrency go up like crazy and think oh now’s the time to buy like people are jumping on this opportunity we need to catch this train before it leaves the station right it’s like fomo but then the very next day the price does this all right and that doesn’t necessarily mean that the cryptocurrency has tanked and that you’ve necessarily lost money unless you sell it but it’s really common for beginners to watch these big pull backs in crypto and then get scared and sell it and then they lose money but then the next day you know recovers and then that trend continues so this is the most common ways people buy high and sell low but it’s the exact opposite of what you should do so basically you have to train your self to think opposite right so whenever you see a big run up like this typically that’s not the time to buy typically you want to wait for things to cool off before you jump in yeah the oldadage is you know be greedy when others are fearful and fearful when others are greedy and there’s a lot of truth to that now you can’t systematically do that because of course you would buy every single cryptocurrency that ever went to zero but we want to show you a way that basically helps limit your risk to where you don’t have to like try to call tops and bottoms so you can use dollar cost averaging to try to reduce some of your risk so basically that just means buying a little bit of cryptocurrency over time and then averaging your buy-in price it’s a really fancy word but it’s really simple in concept so basically let’s say you want to invest a thousand dollars in cryptocurrency then a dead simple way to do this would be divide it by four and then buy into the market four different times so you basically take 250 dollars and you know buy the same cryptocurrency yat four different points in time maybe it’s once every day maybe it’s once every week once every month you know et cetera et cetera and that really helps reduce your risk and these incredibly volatile markets so here’s an example let’s say you bought you know 150 let’s say you bought like250 here 150uh you know once here at the top at 284110 and then 213. So you basically take all these numbers add them up and then divide it by four to get an average buy-in price so if you did that over time you basically would get an average buy-in price of 180which would be a lot better than accidentally buying in with everything at 280right here and that’s one of the easiest ways to avoid the mistake of buying high and selling low.
2. The second common mistake that beginners make is buying a cryptocurrency because it’s cheap. All right and the logic usually goes something like this hey i’m gonna buy you know litecoin for example because it’s way cheaper than bitcoin right and if it ever goes up to bitcoin’s price then i’m just gonna be a bazillionaire well there’s a huge problem with that okay because you’re looking at the unit price of the cryptocurrency and not thinking about the market cap so when you’re talking about like buying a cryptocurrency because it’s cheap you’re talking about the unit price right so let’s say it’s like 50 compared to bitcoin being like 20 000well the real problem with that is it fails to factor in how many you know coins are actually in the supply or how many coins there are total see one of the reasons that you know litecoin is cheaper than bitcoin is because there are more coins in existence and so when you’re looking at the unit price you also have to look at the market cap which is basically the price of each coin times the supply and you have to compare cryptocurrencies that way because that’ll help you determine whether it’s even plausible that a coinlike litecoin would surpass bitcoin in value because for that price to go from let’s say like just fifty dollars as an example up to like twenty thousand dollars as an example then the market cap would have to go up about 400x which means that the entire market cap would be worth trillions of dollars which is an incredibly unlikely scenarioso that’s we have to think about other factors besides just the unit price and avoid buying a cryptocurrency just because it’s cheap.
3. The third really common mistake is looking for like100x gems okay and actually making this the core of your investment strategy i’m not saying you can’t do this do some speculation on a really small cap cryptocurrencies that could go up like crazy but it’s really dangerous to put all your eggs in this basket and to make this the core of your strategy for lots of reasons so number one is beginners are going to lose money with this strategy all right sure all coins can go up like crazy really fast but you know hey what goes up must come down and like we talking about before beginners are really prone to selling cryptocurrency when it goes down really fast because they get scared they don’t want to lose money so if you put money into an altcoin that goes up you know two three four five x really fast and then drops significantly you know you might freak out and sell your entire portfolio and you might sell it at a loss the other thing is a lot of the sealt coins are really new which means they don’t have much price history and which means that they can also basically go to zero you know lots of people got totally wrecked in the last big cryptocurrency bull run like this right they were buying coins like this because they thought it was cheap you know 75 cents 50 cents and then these things just like totally went to zero so you gotta be super careful when you’re talking about this stuff so the other problem with this strategy is it takes a lot of time and effort okay because you have to spend all your time researching these coins and then watching them like crazy because the price can go up and downin a matter of hours okay so you gotta really be on your game in order to get those profits and that’s basically like a job but it’s like a job that you can lose money at which is a really risky use of your time okay the other big problem here is that in many countries when you pay taxes on short-term capital gains it gets taxed at a much higher rate like normal incomes if you just went out and got a job and earned this money as a self-employed person so what’s the alternative to this well it’s buying and holding for a long period of time you’ll pay lower taxes this way it’ll take less of your time and energy and it’s also way more likely for you to make money with this stuff over the long term this is what i personally do i’m not really a short-term trader and so for a lot of beginners honestly just picking the number to cryptocurrencies like bitcoin and ethereum you know really large marketcap cryptocurrencies and holding them for the long term is the best way to go.
4. The mistake number four is trying to use leverage all right so this is a bad strategy for pretty much all beginners okay this is something that’s really only better for advanced traders if that so leverage is basically using borrowed money to invest in cryptocurrency that you have to pay back and two really common ways to do this are basically to increase your exposure and for shorting if you think the price of a cryptocurrency is going to go up you can borrow money and instead of buying like you know 10units of the cryptocurrency you couldbuy100 units like you could basically increase your exposure by 10x that’s what 10x leverage okay and if the price goes up then you make 10 times as money right sounds really attractive but there’s a big problem with it okay uh because if the price goes down enough during that time then you can be liquidated and basically you can lose the money that you have as collateral for that leverage all right that’s how most cryptocurrency exchanges work so the other way that people try to use leverage is really common is for shorting so basically they think that the price is going to go downand so they borrow the cryptocurrency sell it and then wait for the price to drop buy it back return the original amount and then make a profit that way so this is an advanced strategy and most beginners are going to get wrecked this way too because they’re just going to be wrong when they think about which direction the cryptocurrency is going to go and they’re gonna get liquidated so in either of these scenarios using leverage is probably one of the fastest ways to completely wipe out your trading account and leave you with nothing and so i highly recommend avoid using leverage especially if you’re a beginner.
5. The mistake number five is no diversification all right this basically means that you’ve put all your eggs in one basket and you’re betting that that’s gonna work and most of the time you’re never gonnabe a hundred percent right and you need to diversify and assume that you’re gonna be wrong in some way and have some sort of hedge okay so let me explain what i mean by that there’s a few different ways you can do this number one is within your cryptocurrency investment portfolio it self so basically uh instead of just buy ingone cryptocurrency and being 100 sure that you’re right then you might want to buy a few different ones right that are lower risk as a hedge because they might out perform your top pick so a really simple diversified portfolio would look like 50 50bitcoin and ethereum these are the two biggest market cap cryptocurrencies they both have a pretty long price history and are both very fundamentally sound investments so that’s not much diversification but it’s better than nothing and this is a pretty good portfolio for a lot of beginners so another example might look like this where you are really confident on one cryptocurrency like you have strong conviction on ethereum for example solet’s say like 75% of yourportfolio is an eth then maybe you break up the rest of it may be like 20 in bitcoin and the other five percent is in like defy coins for example or maybe some others peculative alt coins that you think are going to perform well that you want to speculate on this would be another example of a diversified portfolio all right so uh even outside crypto you want to diversify in some way because there’s no guarantee that cryptocurrency prices are going to go up something bad could happen the market could totally go the opposite direction and so it’s really risky to put all your available funds into cryptocurrency okay there are a lot of people who do it and some of them get incredibly rich but a lot of people are going to get completely wrecked by doing this the easiest way to do this is basically just to have extra cash and don’t use it to buy cryptocurrency people talk about this being like dry powder okay so this can be good for lots of reasons number one it’s just it mitigates your risk if the prices go down uh well you could buy more or you could just not buy it all and then use that cash for other stuff right so other ways to diversify are having other actual investments besides cryptocurrency so i personally do this i’m invested in real estate so that’s an option other options are you know the stock market a really easy way to do that is just buy into index funds so i don’t personally do stocks again i’m all in real estate but these are both like much safer investments with a very long proven history than cryptocurrency because these markets are totally new and so that’s what it looks like to diversify into other assets outside just the cryptocurrency space in general.
6. The mistake number six is buying more than you can afford to lose so i can almost guarantee you that if you’re a beginner you’re probably going to lose money at some point in cryptocurrency right maybe not net over the long term but you’ll probably lose money at some point i mean i did this i’ve watched lots of other people do it as well and a lot of people buy more than they can afford to lose and so when they actually do lose money whether it’s just paper losses or actual losses then it actually like impacts their life in a really negative way so that’s what i would say defines buying more than you can afford to lose so example with this would be like if you have really big outstanding debts you have really big purchases that need to happen you have really big purchases you’re trying to save up for like a house or a car or other just big investment goals and you take that money that you really should be using for that you invest in cryptocurrency and then you lose it then that has a big negative effect on your life that being said it’s not always the end of the world if you lose that money especially if you have the means to make more money but many people aren’t in that situation like they’re kind of betting on this being their only hope and so they put money that they really need for other stuff into crypto and then they lose it and it has a big negative impact in your life okay so you have to be really careful when you’re thinking about that so another thing i’ll say is basically it’s hard to make a life-changing amount of money with cryptocurrency without putting in a significant amount that makes you sick to your stomach when you watch it go up and down up and down all right so you have to find that fine line of something that makes you feel like you’ve really put something in but also not so much that if you lost it. It would ruin your life I’ll put it that way but sadly you know people make this mistake all the time I have made this mistake myself and you’re thinking long and hard about what that is before you decide to jump in all right so those are my six top investing mistakes that people make all the time when they’re investing in cryptocurrency these are things you should avoid completely I’ve done a lot of these things so I don’t feel bad right I’ve watched lots of other people do them too but I want you to learn from these things. So you don’t have to make the same mistakes that I’ve done.
All right. As always, I’m not a financial advisor.