With Bitcoin recently soaring past $10,000, and other coins demonstrating similarly positive returns, the cryptocurrency movement seems to be gaining significant momentum. The possibility of a “mass market” digital economy is no longer mere science fiction, as experienced technologists and fiscal incumbents are betting more and more on this long tail view of blockchain as a vehicle for disruption.
While you definitely do not need to have memorized all of the backend computer science terminology, it is important to understand the high level – that cryptocurrencies are decentralized system of records (databases) that cannot be modified by a central authority. If implemented properly, these digital resources represent a future of security, transparency, and access, foundational pillars of democracy and, in a larger sense, the free world.
Though the debate over the “who, what, where, and when” surrounding blockchain is still ongoing (and will likely be, for some time), there are many opportunities that exist today, and in this short term period, where you can still find profitable investment opportunities.
The problem, however, is that it is becoming increasingly difficult for investors, especially new ones, to find and read the signal from the noise. To find the needles in the growing haystack. Understanding who to trust, and which heuristics to pay attention to, is the nuance that differentiates experienced investors from the novices.
If you are brand new to investing in cryptocurrencies, here are 4 beginner mistakes you should be sure avoid:
- Falling for scams
It is important to remember that we are still very much so in the early days of the digital economy. Cryptocurrencies, while accelerating “relatively” quickly, lack historical verification and are largely paving a new monetary path. Although there is room and reason to be optimistic about the state of crypto, understand that we are still early in the space. There are no “certified cryptocurrency/blockchain experts” who can perfectly foresee the future.
The harsh reality is that, generally speaking, these people are lying to you. If something is too good to be true, it generally is.
As a brand new investor, it is very easy to fall for token and coin offering scams. The sheer numbers of fraudsters profiting off of all of the built up hype around crypto is dangerous, so always be on the lookout for conspicuous signs of foul play. Be very careful about who you trust, listen to for advice, and give your information to. Without even knowing it, you could put your financial security at serious risk.
- Doing independent research
Realize that investing is a single player game in the sense that no one will come to bail you out if you run out of money. At the end of the day, you will be held responsible for any of your losses. So do yourself a favor and invest the time and resources in understanding the space before making any speculative investments.
It is very easy to rush into a scenario where you are in way over your head. It is best to stay calm, and conduct thorough research to form an investment thesis.
From algorithmic guides to a list of the best ethereum exchanges, there are an abundance of resources on the internet that are designed to help you get up and running quickly. The challenge is navigating through all of the blog posts, podcasts, and other opportunities and figure out which information you can really trust. Everyone will be trying to sell you something, so stay attentive and look for details, specifics, and verification from who you are talking to.
- Lacking Patience
Investing in cryptocurrency, just like any other financial speculation, puts your capital at a significant risk. Previous asset performance does not guarantee any sort of future return. And, perhaps most importantly, you cannot expect to use cryptocurrencies as a “get rich quick scheme.” There are no shortcuts in life, and crypto is no exception.
Regardless of what you read on the news about the bitcoin lottery winners, note that many of those fanciful stories are one in a million. Focus on what you can control, which is how you spend your time and capital. As unfortunate as it is, investing is a long term game, optimized for people who can withstand uncertainty and be patient for long periods of time before realizing a return.
- Making emotional decisions
Perhaps the biggest mistake that many first time cryptocurrency investors make is that they intertwine their emotions and ego with how they choose to spend their capital. Cryptocurrencies are uniquely volatile, and are always bouncing between highs and lows. You can very easily drive yourself crazy constantly watching the price bounce ricochet up and down.
Even worse, when you mix your emotions with your investment choices, you tend to not think clearly and operate upon instinct rather than logic and truth. Be very careful about how you separate your emotions from your choices, such that you avoid impulsive decisions that could cost you significant capital long term.