7 Ways to Avoid the Mistakes of Investing in Cryptocurrencies
NOTE: The following article is for review and educational purposes only. In no way should it be taken as investment advice suggesting specific actions to take in the cryptocurrency or other assets market.
In a previous post, we took a close look at common mistakes made by people who are new to investing in cryptocurrencies. Today’s article will take the form of a summary of those considerations. A Polish folk proverb states: “the prudent always (doubly) insured”, so in order to consolidate the knowledge gained, we present a list of “7 antidotes” to the “7 deadly sins” that can be committed when dealing with digital currencies.
1. Education, or Do Your Own Research
- Before you buy crypto, it is essential to gain a basic knowledge of how the market works and investment strategies.
- Stay informed – read educational and analytical articles and YouTube videos published by experienced enthusiasts, experts and, most importantly, active investors in the cryptocurrency market.
- Carefully research the background of the cryptocurrency you are interested in – look for information about the development team, analyze the current market situation, the historical behavior of the exchange rate, the technology used, and the prospects for the development and practical use of the token. In-depth research is essential when investing in altcoins.
2. Rational Assessment of One’s Financial Capabilities
- Invest in cryptocurrencies only as much money as you can lose without worrying about getting into financial problems and having a nervous breakdown!
- Never buy crypto with money from a bank loan or a loan from a friend!
3. Portfolio Diversification
- Place the invested funds in several different tokens. Even a relatively conservative and low-diversity allocation of capital between the two leading cryptocurrencies (Bitcoin and Ether) and any of the stablecoins (USDT, BUSD, USDC, PAXG) reduces the risk that your portfolio will be drastically depleted in the event of large stock market declines.
- Consider diversifying into other asset classes, such as precious metals (gold and silver), leading fiat currencies (US dollar, euro, Swiss franc), stocks, bonds or real estate.
4 Increased Vigilance and Unmasking of Frauds
- Before making your first transaction, take the time to honestly assess the credibility of the option you are interested in buying and investing in cryptocurrencies. You should be especially cautious about any platforms and mutual funds, as well as lesser-known online exchanges.
- Verify the credentials of your cryptocurrency trading partners based on information from a community of experienced crypto-enthusiasts by seeking advice and opinions, for example, in online forums or in thematic groups on social media.
- Beware of opportunities that seem too good to be true, assuring astronomical profits with minimal risk and effort on the part of the investor! This is almost always a sign of a scam.
5. Application of Security Measures
- Seriously consider using a hardware wallet to store private keys offline and sign all transactions leaving your wallet. For now, this is the most effective way to secure digital assets from theft or unauthorized access.
- Never store the seed phrase electronically and do not share it with any person or company!
- Create unique and strong passwords to access accounts on the exchange and applications that support cryptocurrencies. You can get additional security by enabling two-factor authentication (2FA) with one-time codes that you receive in SMS or email messages every time you try to log in and perform transactions on your account.
- Do not keep the funds you have in your exchange user account for a long time. In principle, an exchange user’s account should only be used to execute cryptocurrency buying and selling transactions. Transfer the raised capital to your private cryptocurrency wallet or bank account soon after finalizing the transaction. Long-term deposit of large funds on the exchange involves the risk of loss through account hacking or bankruptcy of the stock market owner.
- When performing operations on your exchange account or wallet, avoid using public Wi-Fi networks that are not password-protected.
6. Strong Nerves and Common Sense
- Don’t succumb to strong emotions and don’t take the prevailing market sentiment as an infallible oracle. In other words, don’t blindly follow the “herd” of cryptocurrency holders in moments of extreme optimism and pessimism, and don’t impulsively make investment moves.
- Develop and consistently execute a specific investment strategy with clearly defined rules for market entry and exit.
- Set your sights on a long-term investment perspective and keep a cool head during periodic fluctuations. Large decrease in value do not always mean tragedy, proceeding skillfully you can use them to your advantage, for example, to make a purchase of an asset of interest at an attractive price.
7. Knowledge of the Tax Law
- Familiarize yourself with and comply with the country’s tax regulations on accounting for cryptocurrency transactions. It is a good idea to keep up-to-date records of crypto operations carried out, which will facilitate proper accounting with the tax authorities.
- Stay tuned to regulatory changes that may affect the course and final settlement of your investments.
- In complicated situations or in case of uncertainty, do not hesitate to seek professional advice on tax law and cryptocurrency regulation from a law firm.
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Are you considering buying cryptocurrency or exchanging it for cash? Check out our cryptocurrency exchange Warsaw Bitmona today! We also offer the sale of devices for securely storing your crypto-assets – Ledger brand hardware wallets and special plates for saving seed phrases. See you soon!