The cryptocurrency industry offers a world of exiting opportunities because it promises exponential levels of profitability that traditional assets such as stocks can’t match. However, the cryptocurrency industry is not one large bed of roses—you’ll be bedeviled by gut-wrenching volatility at every turn and the volatility can help or hurt you depending on your position in the market. You’ll also be at the mercy of irrational market actions, unclear regulatory oversight, and a cacophony of market rumors, noise, and hype.
New cryptocurrency traders and investors need to be deliberate about knowing how to identify potential pitfalls that could cause them to lose most or all their money before they’ve even gotten a chance to get started in the market. This piece provides insights into 5 dangerous pitfalls that new cryptocurrency traders and investors must take deliberate measures to avoid.
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- Know when a cryptocurrency is being pumped
Most cryptocurrency traders and investors make their decisions based on what they read or view online. However, the fact that there are no gatekeepers on the Internet means that anybody has a platform to throw out “insight, hot tips, and advise”. Pump and Dump scheme used to be the forte of penny stocks as seen in the Wolf of Wall Street; now, the biggest, fastest, and seemingly harmless pump and dump schemes happen round cryptocurrencies. The fact that an “expert, guru, or professional” is saying good things about a cryptocurrency doesn’t necessarily mean that it is a good buy. If you are tempted to buy a coin because it has jumped up 50%, take a moment off to reflect on the probability that the coin will be able to jump by another 50% after you buy.
- A good exchange is worth its weight in crypto
Cryptocurrency trading happens on cryptocurrency exchanges and a good exchange is worth its weight in gold. You should take the time to conduct your due diligence on the best decentralized exchanges because the quality of your exchange has a significant influence on the odds of your trading profit. Some of the key factors to check when choosing an exchange in their responsiveness to customer complaints, the kind of fees that they charge, and the number coins that they allow you to trade. You may also want to be sure if they have a provision to reimburse customers’ funds in the event of a hack or data breach.
- Don’t buy what you don’t understand
Sequel to avoiding pump and dump schemes, you also need to avoid buying into a cryptocurrency that you don’t understand its unique market proposition. Many new investors tend to gravitate towards fresh ICOs in the hopes of avoiding pump and dump coins that are already being hyped on an exchange. The problem however is that some ICOs may not have much substance beyond their whitepaper and landing page. You should take some more time to conduct due diligence before you invest in an ICO if it doesn’t have an MVP and you can’t seem to understand the concepts being described in its whitepaper and techpaper.
- Don’t sell because everybody is selling
If you eventually decide to invest in a cryptocurrency; you’ll need to avoid the herd mentality to join a market selloff immediately there’s a pullback or correction in the price of the coin. As an investor before you sell you coin, you may want to remind yourself the fundamental reasons you bought the coin in the first place. Then, honestly ask yourself if those fundamentals are still in place or if you think that the coin no longer has a moat to succeed.
- Don’t let your ego make your decisions for you
Sometimes you might need to swallow your pride and accept that you’ve made a poor investment decision and you’ve bought into a potentially dead coin. It is often hard to jump ship especially if you’ve been a vocal evangelist of the coin and you’ve initially thought that it could change the world. However, you need to listen to the voice of reason and jump off a ship that is obviously going nowhere.
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