Cryptocurrencies have a reputation for being extremely volatile. And when there is volatility, there is a great potential for profit or loss. If you invest based on what a celebrity tweets or what a self-proclaimed expert instructs you to do, you’ll almost certainly lose money. So, here are ten easy principles to assist you to realize what frequent mistakes you should avoid in order to be more financially savvy.
- Don’t follow “experts” blindly. Always do independent research. Crypto “experts” may be found in every corner of the Internet. It may come as a surprise, but there are no true crypto specialists. Cryptocurrencies are much too volatile for anybody to correctly anticipate their value. As a result, conduct your own research.
- Avoid cryptos with limited liquidity. You may become severely stranded.
The ease with which a cryptocurrency may be purchased and traded is known as liquidity. If a cryptocurrency has poor liquidity, you may find it difficult to sell it when the time comes. And instead of profiting from it, you’ll be stuck with it.
- Avoid attempting to “time” the market.
Everything looks rational and apparent when you look back in time. You may come to regret not purchasing Bitcoin at $1,000 or selling it at its peak. This remorse isn’t going to help you. Do your homework and, if you believe a cryptocurrency is undervalued, acquire it. Sell it if you believe it is overpriced.
- Purchase the rumour and sell the truth. In most financial markets, this concept works. Let’s assume a cryptocurrency project is set to release some game-changing new features. Purchase the cryptocurrency as soon as you learn about it. The price will continue to rise as more individuals become aware of the situation. When the feature’s real implementation is disclosed, the price will drop dramatically! Why? Because the early adopters will sell and cash in on their gains. A word of caution: double-check if the rumor is true!
- If you’re not a pro, don’t toy with derivatives.
Derivatives are financial products whose value is derived from an underlying asset, such as interest rates or cryptocurrency prices. Futures and options are two typical forms of derivatives used to mitigate risk and hedge against uncertainty. However, in the wrong hands, derivatives may lead to financial ruin. So don’t mess with derivatives until you’re completely confident in your abilities.
- Only acquire NFTs if they grant you exclusive rights. NFTs (Non-Fungible Tokens) are all the rage these days. Pixelated graphics have been said to be auctioned for millions of dollars. Don’t be fooled by the hoopla. An NFT is useless unless it grants you exclusive rights.
- Never, ever, ever, ever, ever, ever, ever, ever, ever, short Bitcoin. Shorting, also known as short-selling, is when you sell cryptocurrency that you don’t own in the hopes that its value will plummet. Never bet against Bitcoin. Ashdraking is a word used in the crypto business to describe an investor who goes bankrupt through short-selling Bitcoin. “Lord Ashdrake” was a Romanian Bitcoin trader who earned a fortune by shorting the cryptocurrency. Then he sold it short at $300. In a few of weeks, Bitcoin soared over $600, and Ashdrake went bankrupt.
- Don’t store your cryptocurrencies on a cryptocurrency exchange.
In the crypto realm, there’s a phrase that goes, “Not Your Keys, Not Your Coins.” You don’t have much control over your crypto if you store it on a centralised exchange. You will lose all of your cryptocurrency if the exchange is hacked or its owners disappear! So keep your crypto in your own wallets, whether they’re paper, hardware, or software.
- Learn how to utilise both paper and HD wallets.
Do you lose your money if you uninstall your mobile banking app by accident? No. The programme may easily be reinstalled. Because your funds are held by a bank, this is the case. Cryptography is a completely other animal. You will lose all of your crypto if you remove your crypto wallet without first backing it up! So, learn how to utilise paper, hardware, and software crypto-wallets.
Investing in cryptocurrency is not easy. You must initially study a great deal of technical and financial information.