Common Crypto Newbie Mistakes
It’s entirely possible to fall into some crypto mistakes. Let’s make sure you don’t fall into some of these pitfalls!
If you are just getting started with cryptocurrencies, it pays (literally) to spend some time learning about the most common mistakes that crypto newbies make.
To ensure that you do not fall into some of these widespread traps, this post is going to go explain them in detail. Our main focus is going to be on common newbie mistakes when investing in cryptos, but we will also go over a few general mistakes that anyone can make when using cryptos for the first time.
Picking The Wrong Exchange
Before you can buy, sell, trade and use cryptocurrencies, you will need two things: an exchange and a wallet.
We have all heard horror stories about crypto exchanges that went under, taking customer funds with them.
You can avoid an extreme scenario like that one pretty easily just by choosing a crypto exchange that is well known and established and financially stable.
But your choice of exchange is going to determine other things about your crypto experience as well such as:
- Transaction fees
- How secure your funds are (if using a wallet provided by the exchange)
- Assets available to trade
- Ease of bookkeeping
- Ease of preparing your taxes
- Uptime/downtime (downtime can cost you money)
- Customer service
An exchange does not need to be a scam or in danger of going under just to make your life difficult. If you pick the wrong exchange, you will be losing money through high fees, missing opportunities because there are not enough assets available to trade, and dealing with other hassles.
We are tired of new crypto users having subpar experiences with low quality exchanges, which is why we have put together a vetted list with detailed reviews for the top crypto exchanges.
Not Paying Attention To Fluctuations In Fees And Transfer Times
If you are sending and receiving crypto, you should never assume that transfer times and fees are going to be consistent. They both can fluctuate quite a bit even in a short timeframe.
That makes it different from using an electronic payment portal like PayPal or Payoneer to send and receive money.
While your transfer times will often be rapid, you should always plan for them to take longer than you expect. After a while, you will get a feel for the average.
It is important to check fees before you initiate transfers as well. People who forget to do this step or do not realize it is necessary are sometimes shocked by spikes in fees (this has been particularly problematic with Ethereum in the past).
You will also discover that there are certain times of day when crypto fees and transfer times can go up. If possible, try and plan your transfers for quieter times of day when costs are lower and speeds are faster.
Holding Crypto Longer Than You Intend To (when not investing in it)
If you are not planning to hold crypto as an investment, one mistake to watch out for is doing so by mistake.
Let’s say that you are only using crypto as a method for accepting payments for a business, for example. You have no intentions of investing in cryptos and wish to avoid their volatility.
In a case like this, a common mistake would be forgetting to keep a close eye on your incoming crypto payments.
If you miss them when they come in, you may not convert them quickly, and could discover later that these unintended crypto holdings have dropped in value.
So, if you will accept crypto payments, do your best to rapidly convert them. That might require you to take some extra steps, like requesting that your clients only pay you in crypto during certain days and hours when you will be available to receive and convert your payments.
Don’t hold longer than you need to. You could lose some dough that way!
Not Knowing The Risks Of Investing In Crypto
It seems like just about every day now, we see someone post on Reddit or Facebook, “Just invest in crypto. It is super easy and you are guaranteed to make money,” or something along those lines.
Every time we run into a post like this, we cringe. Some of these posts are probably made by people involved in crypto scams. Others are likely just being made by ignorant people who have gotten lucky so far with their investments.
In truth, crypto is an extremely risky investment. It is super volatile.
That does not mean it is a mistake to invest in crypto at all, it just means you are making a mistake if you proceed without being fully aware of the risks. Awareness of risks allows you to mitigate them.
Giving Into Hype And FOMO
There are a lot of cultural forces that are pushing people to invest in crypto every day, especially online.
Spending time online not only means you will see incorrect claims about crypto being “low in risk,” but over-the-top claims about this crypto or that one being right on the verge of mooning.
We have all read about people who invested in bitcoin or other cryptos back when they were worth next to nothing, and who today are filthy rich because they held them all that time. It makes us worried that we are going to miss out on the next big thing.
What might help is realizing and accepting that most of us have already missed out on a lot of the big gains in crypto value.
In truth, a lot of our FOMO is actually just envy for people who caught earlier ships that have already sailed.
If you accept that those ships are gone, you are less likely to keep scrambling to catch the next one.
None of this is to say that there are not still likely opportunities to get rich through cryptos, but you will only have a shot at that if you have a level head and are not snapping up every new coin you hear about.
Trading Without Doing In-Depth Research
Research never sounds like a whole bunch of fun, but you’re really going to want to do it anyway!
Speaking of hype and FOMO, how do you decide which cryptos to invest in? A lot of people just look at recent crypto news, find out which coins pundits or celebrities are getting behind, and then purchase those cryptos.
But this is not a strategy, it is a mistake. Even if the person recommending the crypto in question seems to have done their research, that does not substitute for you doing research.
It is essential that you dig deep into any crypto you are considering holding. Here is some of what you can look into:
- Read the crypto’s whitepaper
- Investigate the crypto’s community
- Check into the current trading volume for the crypto
- Make sure the sources you are checking are legit
Looking For The Holy Grail Instead Of Diversifying
Closely connected to what we have been talking about above is the common newbie mistake of trying to find the perfect crypto in which to invest.
You might think that somewhere out there is the crypto that cannot fail. You imagine it has a foolproof model, and there is no way for its value to go anywhere but up.
But there is no holy grail of cryptocurrencies. Any crypto can lose value, and putting all of your eggs in one basket is not going to get you rich.
So, instead, you should try to maintain a diverse crypto portfolio. Research and try to choose the most promising cryptos, but do not expect perfection or certainty.
And make sure that you go create an account over at Coinbase and get yourself some Free Crypto just for creating said account!
Letting Price Distract You From Practices Associated With A Crypto
Investing can be summarized as, “Buy low, sell high.” As such, the price of crypto assets is going to be among your top considerations when you are trying to decide whether or not to invest in them.
But it is a mistake to purchase a crypto simply because its price is low at the moment with the potential to rise. You need to assess qualitative factors as well. Here are some questions to ask:
- What is the purpose of this coin? What are its key use cases?
- What are the coin’s tokenomics?
- How are the tokenomics of the coin governed? Who makes decisions about its present and future?
If you ignore all of this information, you might purchase a crypto at a low price, only to discover that its tokenomics are weak and it is failing. It drops further in value, and you end up losing money.
Conversely, there might be situations where you find an okay but not stellar price for a different coin, but its tokenomics are strong. It gains in value and you end up being able to sell it for a substantial profit.
Believing You Will Get Rich Quickly
Many newbies fantasize about buying a crypto at a low price, and that crypto mooning after a few months or years, allowing them to sell it off and retire in a yacht somewhere.
But crypto as a get-rich-quick scheme rarely pays off. If you do get rich overnight from crypto, you have gotten stupendously lucky.
On the contrary, most people who get rich trading in any markets do so slowly. Their portfolios gain value over a period of years—often many years. They are patient and HODL for a long time.
If you are in a rush, you are going to make a lot of desperate decisions to buy and sell that are not going to pay off. In fact, chances are good you will just end up losing money in your pursuit of instant gratification.
We all remember this guy. Keep in mind that this probably will not be you, but the chances are never zero!
Trading On Leverage
Crypto exchanges often allow people to trade on leverage. When you trade on leverage, you borrow money from your broker.
The advantage of trading on leverage is obvious. You get to control more money than you actually own, and your position sizes can therefore be larger than what they would be otherwise.
If you do well trading on leverage, you can hypothetically make huge profits. Sounds pretty awesome, right?
Here’s the thing though — trading on leverage can also go very wrong. And when it does, your losses can be enormous.
In fact, if you lose too much money while trading on leverage, you can get what is known as the dreaded “margin call.”
At this point, you have one of two options. Either:
- Add more money to your account to support your open positions, or
- Close your positions
If you do neither of these things within a certain time period (usually a couple of days), the broker will close out your positions. By this point, you will have blown through all the money in your account.
Of course, you can theoretically blow your entire account trading without leverage as well, but it will generally take a lot longer.
So, our advice? Do not trade on leverage ever.
Planning Entries But Not Exits
Novice crypto traders spend a lot of time and energy trying to figure out what cryptos to buy and when to purchase them.
But they often do not put as much thought into when and how they are going to exit their positions.
If your plan is to buy and HODL for many years, then you may not need to worry about this right now. But if you will be holding shorter-term positions, then you absolutely must have a plan for your exits.
In fact, when you exit is just as much a determining factor for profiting from a trade as when you enter.
Picture a simple scenario where you purchase a crypto you think will increase in value. It does, so you keep holding it. Then, you start thinking about getting out, but you just are not sure. Maybe you should hang in there to see if you can get some extra profit.
The next thing you know, the coin takes a sudden nosedive. Now you are sitting at a loss. Dejected, you sell, worried that if you do not, it will only get worse.
Then, suddenly, the crypto surges again, but you’ve already left the trade and no longer can profit from it.
This example illustrates how a winning trade can turn into a losing trade through a poorly-timed exit.
Our scenario above is not detailed enough for us to tell you how you could have avoided the loss in this specific instance—but that is something you will need to figure out when you are coming up with your own strategies anyway.
Have rules for entering and exiting your trades, and do some testing on paper first to make sure they are viable. Only after they show promise should you trade in crypto for real.
Falling For Scams
Unfortunately, they’re out there! Be diligent and make sure you don’t fall for one!
Earlier in this post, we mentioned that crypto scams are a thing. Actually, they are a dime a dozen these days.
To give you an idea just how prevalent crypto scams have become, the FTC reports, “Since the start of 2021, more than 46,000 people have reported losing over $1 billion in crypto to scams[1] – that’s about one out of every four dollars reported lost,[2] more than any other payment method. The median individual reported loss? A whopping $2,600. The top cryptocurrencies people said they used to pay scammers were Bitcoin (70%), Tether (10%), and Ether (9%).”
Never assume you are too smart to fall for a crypto scam—that is exactly the mindset that scammers rely on. Con artists are in the business of exploiting confidence.
Scams related to crypto investments are particularly widespread. The FTC says, “Of the reported crypto fraud losses that began on social media, most are investment scams.[7] Indeed, since 2021, $575 million of all crypto fraud losses reported to the FTC were about bogus investment opportunities, far more than any other fraud type.”
You have heard the old saying: “If it sounds too good to be true, then it probably is.”
As familiar as those words may be, they are true. The easiest way to avoid falling for a scam is to be wary of any offer that sounds impossibly good.
That means that you need to shut down your emotions sometimes, or at least set them aside. When we are particularly desperate, our brains sometimes screen out information that we need to critically assess an offer.
Going On Tilt
Speaking of emotions, falling for scams is not the only bad thing that can happen when you become desperate while trading crypto. Another newbie mistake to avoid is going on tilt.
Actually, anyone can go on tilt, including experienced investors. But tilt can take novices by surprise.
What exactly is “tilt”? It is a state where you are emotionally dysregulated and trying to take control of a desperate situation. But alas, your efforts to take control result in losing even more control.
It is easiest to illustrate this concept using an example. Imagine you just lost a large amount of money on a crypto trade that went against you. Now, you are feeling distressed.
If only you could get back the money you lost! Maybe if you just place another trade, you can. You figure if you can just end today on a high note, or even a breakeven note, you will feel better.
So, you open a new position. Your hopes are high, but alas, they are dashed against the rocks of volatility, and you find yourself with yet another loss. Wow, things just keep getting worse!
Now you really need to get your money back! You open several more positions in the hopes that one of them will pay off big.
But then the worst thing happens. All of your positions close at losses! The drawdown in your account is beyond ridiculous now.
As you can imagine, the worse a situation like this gets, the harder it can be to pull yourself away and cut your losses. In fact, new traders often blow their accounts entirely doing this.
So, try not to make the mistake of going on tilt. This is easier said than done, but a few things can help:
- Being aware that tilting is possible
- Keeping track of your emotional state in the moment
- Recognizing warning signs of tilt and taking a break when you notice them
- Focusing on controlling what you can control, not what you cannot
Not Knowing Yourself
Just who are you?
That’s something you’re actually going to need to know!
Finally, one more big mistake that can trip up a newbie trading cryptos is charging in without self-awareness.
If you do not understand your own drives and motivations, you are going to be trading in the dark.
-
You will be more likely to break the rules you come up with for trading profitably
It is less likely you will understand why you broke those rules
Tilting is something you will be more prone to than you would otherwise
You may be aimless in your investments, unsure of your goals and undisciplined as a result
Your emotions and cognitive distortions will regularly sabotage your trading decisions
Take an inventory of your personality, your strengths and your weaknesses. Figure out what is driving you to invest. “Because I want to make money” is the obvious answer, but it is a superficial one. You need to understand why you want the money.
Plus, many of us have covert motivations that actually harm us, because we have negative life scripts we are not aware of. This is why some investors are prone to self-sabotage. The more you come to understand this shadow side of your personality, the less control it will have over you.
Get Started With Crypto
Newbies to crypto make a lot of mistakes such as choosing the wrong exchange, acting based on FOMO and hype, falling for scams, and having unrealistic expectations.
If you read this full post, then you have a pretty good idea of what to steer clear of. That means you can make the most out of investing in crypto and avoid unnecessary losses along the way. Keep exploring our posts for more tips and tricks.
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