5 Beginner Mistakes to Avoid in Crypto

Avoiding these mistakes can save you a ton of headaches and potentially money.

Tom Blackstone Crypto Expert Tom Blackstone, Cryptocurrency Expert

Bitcoin symbol in a trap

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It’s no secret the crypto market has created fortunes for many people. For example, a substitute teacher became a millionaire from investing in crypto.1 But despite these rags-to-riches stories that we often hear, there are also many people who have lost money on crypto. Some have even lost their entire life savings!

So how can we up our chances of becoming crypto winners instead of crypto losers?

Well, there are lots of reasons why people make winning or losing crypto trades. But one of the easiest ways to reduce losses is to identify common beginner mistakes and find ways to stop making them. It’s really that simple.

To help with that endeavor, I’ve compiled this list of the top five beginner mistakes to avoid in crypto. As a crypto expert, I’ve seen newbie investors fall into these common patterns, or traps, time and time again. So let’s get right into it.

1. Buying at the Top

Probably the most common beginner mistake in crypto is to buy at the top, when the value of a coin is at an all-time high. Oftentimes, investors get into crypto when they start hearing about it from the media.

They’re watching Bloomberg or CNBC, and the host starts raving about how much Bitcoin’s price has increased over the past year and half. The host will invite a crypto “expert” onto the show, who will talk about how great crypto is and how much its price is going to increase.

But if the mainstream media is raving about crypto, it’s probably because the crypto market is in a mania, which is exactly the most risky time to invest in it. If crypto is being hyped constantly in the media, a crash is probably just around the corner.

Many new investors bought at the top in 2018. They heard about crypto from this or that news channel in December 2018. By late January, they had lost 75% or more of their investment in the crypto winter. Facebook and Discord groups in early 2019 were full of investors complaining that they lost all of their money on crypto. Many of them declared that crypto must be a scam because they lost all of their money.

In 2022, the same process has happened again. It seems that now everyone knows of a distant family member or a friend’s co-worker who has lost all of their money this year from investing in crypto.

How to Avoid It

So how do you minimize or avoid buying at the top? One strategy is to invest small amounts each week, regardless of what the media is saying or what the crypto market is doing. This is also called dollar-cost averaging. For example, buy $50, $100, or some other specific dollar amount of crypto each week, depending on what your income level is or what percent of it you want to save.

In this case, you’ll buy more crypto if the price goes down and less if the price goes up. This necessarily minimizes your losses if you happen to buy at the top.

2. Not Doing Any Research

Another common beginner mistake is to avoid research. There are new crypto projects coming out every day. Some are great products that benefit the lives of consumers, but others are Ponzi schemes or just poorly designed.

Both types of projects get hyped on social media. And sometimes you’ll see a new coin multiplying in value over a few days or weeks just from the media attention it is getting. The only way to know whether a project is legit or just overhyped is to research it.

How to Avoid It

Start by reading the project’s “docs.” Does the coin solve a real problem that consumers face? How does the economics of the coin work? Is the supply and demand of the coin tied to the project’s success such that it is likely to increase in price if the project becomes popular? Do the docs explain clearly how the project works? Or are they full of vague promises of profit with no real explanation of how the system works?

FYI: When crypto users talk about the “docs” for a project, they mean the text document that has been created by the developer to explain how the project works. This is usually the project’s Gitbook, which has the word “docs” in the URL. For example, the URL for a project called “SecuritySwap” might be https://docs.SecuritySwap.io.

Answering these questions will go a long way toward helping you to know whether the coin is a long-term value or overhyped.

Once you’ve read the docs, you can also read audits of the project’s code or even the code itself. This may help to confirm if it’s a legit crypto coin.

Avoiding research is a common beginner crypto mistake. To avoid it, just put in the work: Read the docs, check out the project’s audit, or even read blog posts that explain how the project works. This takes some time, but it often pays off in the end.

3. Leaving Crypto in an Exchange

If you’re used to trading stocks or forex, the whole idea of “withdrawing” crypto might seem strange. If you own 10 shares of AAPL in your Fidelity account, you can’t get Fidelity to send you the actual paper stock certificates, nor would you want to.

But it’s different with crypto. If you have crypto in an exchange, you can withdraw it into your own control.

But if you’re a crypto beginner, you may not know this. So you may leave your crypto under the control of your exchange. This can lead to the crypto being stolen if the account becomes compromised, whereas if it is under your own control, it is safe from an attack on your exchange account.

If you leave your crypto in an exchange, it also can’t be used in DeFi, play-to-earn Metaverse games, liquidity pools, and other decentralized applications. But using these apps is usually more profitable than just buying and holding. So if you leave your crypto in an exchange, you may be cutting yourself out of opportunities you would otherwise have.

How to Avoid It

You can withdraw your crypto from an exchange by setting up a crypto wallet and generating an address. Once you’ve got an address, use the exchange’s webapp to send your crypto to it. You can get a detailed breakdown of how wallets work in my complete guide to crypto wallets.

4. Trading on Emotion

Trading on emotion is another common beginner mistake. Part of the fun of being in the crypto market is being able to follow what is happening on charts and in the news. Unfortunately, most short-term price action is just noise.

If you trade based on emotion, you might buy a coin after its price has gone up dramatically. Once a coin has huge gains, crypto blogs and YouTube channels will often start talking about how much it has gone up. So it’s easy to get caught up due to fear of missing out and buy in right when the price starts to peak.

Then, the price starts going down. These same channels then talk about how bad the coin is doing. At first, you hold on, hoping that it will turn around but you eventually sell to limit your losses. And then the coin reverses and starts going up again.

How to Avoid It

I’ve already mentioned dollar-cost averaging as a way to help prevent buying at the top. But this may also help to prevent emotional trading. If you buy the same dollar amount each week, you can’t be influenced by emotion.

A second way to avoid emotional trading is to have a plan in place before you enter a trade. For example, you might have a plan to buy $1,000 of ETH if it goes above $1,959 and sell half if it gets to $2,940. Meanwhile, you might plan to sell all of it if it goes below $1,037. Having a plan in place may help you to overcome the temptation to trade on emotion.

A third, albeit extreme, solution is to stop watching the news. Unsubscribe from all of the crypto news channels on YouTube. Most of what these channels report on is just noise anyway.

Still, you might miss out on some genuine investment opportunities if you do this, so it’s an option of last resort. But if you find yourself continuously losing money to emotional trades, it might be the only way to fix the problem.

5. Not Taking Care of Security

Another top beginner mistake to avoid is not taking care of security. When you are first learning about crypto, the steps to investing in crypto safely can seem confusing.

We all know not to give out our passwords for traditional apps. But crypto wallets have other secret pieces of info to keep track of, like seed words and private keys. To make matters worse, there is no “forgot my password” feature in crypto. If you lose your seed words, you lose your account. So learning what these pieces of info are and how to keep them safe and secure can be a challenge in the beginning.

FYI: It’s also important to choose an exchange that is legitimate. Otherwise, you might end up not being able to withdraw your crypto at all. I’ve written a guide to finding a legitimate exchange to help distinguish between real exchanges and scam ones.

How to Avoid It

To avoid making security mistakes, make sure you write down your seed words on a piece of paper and store it in a secret and secure place. Use a strong password that you haven’t used for any website, and don’t give your seed words or private keys out to anyone. You can get a more detailed breakdown of how to protect your crypto in my complete guide to investing in crypto safely.

Final Words

These mistakes can be costly. Some people have even lost their life savings. They sold all of their stocks and bought crypto at the top, then lost almost all of their portfolio. They bought crypto and left it in an exchange, and then the exchange got hacked and they lost their money. They traded on emotion and lost everything. Or they gave their seed words to an attacker, who immediately drained their account.

But there are plenty of other beginners who have gone from rags to riches thanks to crypto. One of the biggest differences between the winners and losers in crypto investing is that the winners didn’t make these common crypto beginner mistakes (or if they did, they corrected their mistakes before losing too much).

So try to avoid these crypto beginner mistakes if you can.

Citations

  1. New York Post. (2022, Feb 5). Four ordinary people share how they got rich from crypto.
    https://nypost.com/2022/02/05/how-cryptocurrency-made-these-four-ordinary-people-rich/