Most common mistake that crypto investors should not do – You Need to Know


Cryptocurrency
or “crypto” like Bitcoin, and Ethereum is a digital asset that enables people to
trade without the interference of a central authority such as a government or
bank. Currently, there are more than 4,000 different cryptocurrencies in
existence.
Investing in cryptocurrency
provides investors with a way to diversify their portfolios which are
traditionally held in stocks, commodities, and bonds. Nowadays online
brokers, centralized exchanges, and even decentralized exchanges give investors the
flexibility to trade digital assets without going through a traditional
financial institution, and the hefty fees and commissions that come along with
them make it much easier to invest. The easiest way to get cryptocurrency is either from an exchange or another user.
Investing in any
cryptocurrency bears the opportunity to make solid gains. As per the
report Large publicly-listed Firms like Tesla, MicroStrategy, and Twitter all
invested in Bitcoin. Although this move is not suitable for every people who
are willing to invest. There is a massive amount of volatility. Some investors
are even scared of this nature.
Unfortunately,
many investors enter the industry with little or no awareness of how
cryptocurrency and the market work. This leads to occur numerous common mistakes resulting
in significant losses. The decision on investing in cryptocurrency can be
evaluated by understanding its operation. This will help users to reduce their
losses. Let's discuss some of the common mistakes that can be avoided by
investors and traders while investing in the crypto market.
Understand the Crypto Market Before Investing:
Price fluctuation
in the cryptocurrency market is erratic, with prices declining dramatically in
a short amount of time. Before making any decision need to consider and
research the financial options before.
Storing
cryptographic keys safely
Cryptocurrencies
are built and supported by a technology known as blockchain which is a
distributed ledger technology offering high levels of security for digital
assets. On this blockchain digital transactions are created and signed with
help of a private key. These keys are unique identifiers to prevent unauthorized
access to your cryptocurrency wallet. Hence asset holders need to store the
cryptographic keys to their digital asset wallet safely. As per the report, so far 18.5
million Bitcoin (BTC) mined which is over 20% have been lost due to forgotten or
misplaced keys.
Storing coins
need to be store offline to protect from risk:
Centralized
cryptocurrency exchanges offer services similar to banks and these exchanges do
not give access to holders of the wallets holding the tokens. Although
technically these coins on the platform are stored by users the exchange still
holds them, leaving them open to attacks and hence putting them at risk. There
are numerous documents of attacks on high-profile cryptocurrency exchanges. When
it comes to protecting cryptocurrencies against such risks, the most secure
option is to store them offline, withdrawing them either to a software or
hardware wallet after purchase.
Hard copy for
seed phrase is important:
The seed phrase is
randomly generated words in a specific order that consists of up to 24 words. To
generate a private key for the crypto wallet seed phrase, need to be written
down. It can be used to generate private keys and access cryptocurrencies. A
hard copy record, like a printed document or a piece of paper with the seed
phrase written on it, can prevent needless losses due to damaged hardware
wallets, faulty digital storage systems, etc.
Sending assets
to the wrong address:
It is extremely important for investors to take extreme caution when sending digital assets to another person or wallet since there is no way to recover them if they are sent to the wrong address. This mistake frequently happens when the sender does not pay proper attention while entering the wallet address. Although, in 2020 there was a case where the firm behind the world's most popular stablecoin, Tether, recovered and returned $1 million worth of Tether (USDT) to a group of crypto traders after they sent the funds to the incorrect decentralized finance platform. This is just a rare case. Usually, investors need to be very careful while adding addresses.
Putting all
money into one currency portfolio or over-diversification of the portfolio may
lead to significant loss:
Putting all
money into a single cryptocurrency is not a choice of a good decision. Also, investors
sometimes due to a sheer number of options out there and the predominant thirst
for outsized gains end up over-diversifying their portfolios. Diversification
of the portfolio is important to create a resilient cryptocurrency portfolio mainly
with high volatility areas that broaden as much as possible but over
diversifying may lead to Loss and Problems to manage the portfolio. It is important
to diversify where the fundamental value is clearly related to different assets
and their performance in various market conditions. Most experienced investors
and experts in order to create portfolios invest at least in five different
types of cryptocurrencies.
Before investing proper and relevant market research and learning from earlier mistakes on the target currency are required to assess the risk and profit potential because crypto investing and trading is a very high risk. Patience, caution, and understanding can take to a long way.

Indrani Bose
CBW - External Analyst
INDIA