Over the years, there has been rising interest in cryptocurrency and its future. After all, upon reading success stories of people who bought Bitcoin early on, many people have found themselves thinking they may be able to profit the same way.
If you are one of them, we invite you to read on so you know which mistakes new traders are vulnerable to making and how to avoid them.
1. Investing without doing your research
There are a lot of cryptocurrencies out there. While Bitcoin and Ethereum are two of the most well-known ones, anyone wanting to venture into crypto should learn about other digital currencies.
By investing without doing any research, you ultimate expose yourself to even more risk of losing money when you simply follow the crowd. You may end up investing in a failing project just because someone said so. You may end up selling out of panic because you don’t understand the market.
So, the best thing you can do for yourself as a trader is to understand what the cryptocurrencies you want to invest in do and how they work. Dive into educational videos and credible articles and avoid being misled by sensational headlines. Be cautious when accepting advice from strangers on online forums.
2. Not paying attention to transaction fees
When you buy crypto on an exchange, the exchange will charge you trading fees. The fees charged vary from exchange to exchange. Thus, fees are one big factor you should consider when selecting the crypto exchange you use as some fees can be hefty. I use the ActiveTrader interface on the Gemini exchange because the fees average about 0.25% to 0.35%, which is currently one of the lowest rates out there.
Besides trading fees, you should also consider currency exchange rates. Many crypto exchanges require you to convert Singapore Dollars (SGD) into United States Dollars (USD) before you can purchase crypto. Many people use their bank services to convert the money.
Lastly, you should take note of gas fees. Gas fees are incurred when you execute transactions on the blockchain. This means that you have to pay gas fees when you want to transfer the crypto from your exchange to your wallet. Ethereum is notorious for high gas fees. You are able to determine how fast you want your transaction to go through, though. The higher the speed, the higher the fee.
3. Leaving your crypto on an exchange
When you leave your crypto on an exchange, you are exposing yourself to the risk of being hacked. Your crypto is only as secure as your exchange account is. This is scary since exchanges are just digital websites and apps, and their databases have the potential of being compromised. Sometimes, all a hacker needs to break in is to guess your six-digit PIN code.
Still, some people keep their crypto on exchanges, thinking it is more convenient, but my suggestion is to withdraw your crypto to a personal wallet if you’re planning to hold it for the long term.
A wallet can be thought of as a storage device for cryptocurrency tokens. They mostly come in the form of mobile apps that store crypto and have additional security measures in place such as Two-Factor Authentication and security questions. There are many other ways to store crypto out there but I would recommend Trust Wallet and Atomic Wallet for now. Both apps are available on app stores.
4. Sending crypto to the wrong wallet address
Be very careful when sending your crypto to your wallet. Make sure you choose the right token to get the right address. Each token has its own address. Sending Bitcoin to an Ethereum address would cause you to be unable to retrieve it.
One suggestion that’s commonly given to beginners is to send a small amount as a test sum. This is the smart thing to do if you’ve never tried to send crypto to that particular wallet address. After all, there is no way to reverse a transaction so it’s best to play safe when it comes to crypto.
A word of advice is to split your crypto between two wallets or more just in case a wallet app goes into maintenance right when you want to withdraw your crypto to sell it. It is also good to have two or more exchanges you can use at any one time for the same reason—should one of them go under maintenance, you can still buy or sell crypto.
It’s precisely cryptocurrency’s volatility that makes it so appealing as a speculative investment. You may think you’ve already missed out on the Bitcoin boom, but that may not be entirely true. If you believe digital currencies may very well end up shaping our future, there’s no better time to invest. Just make sure you do your due diligence and only invest as much as you’re willing to lose!