Altcoins are not the future, they are the present. Despite its high volatility, the total crypto market cap is now around $1.92 trillion. With a capability of rising upto 1,581,942% in a year, altcoins have the power to literally turn rags into riches. While there have been several examples of people who have created a fortune by investing in cryptocurrencies at the right time, there have been even more number of people who have incurred a significant loss. Why do you think that has happened? Altcoin experts have figured ten serious very common mistakes that people make when investing in altcoins. Read below to know more.
Buying high and selling low
Just like stock markets, sentiments are high while investing in cryptocurrencies. When the buy order wave gradually moves upwards, people start feeling left out and they jump the wagon with an assumption that the prices will only rise. Given the volatility, the very next day when the wave moves downwards, they get scared and sell off as soon as the chart goes down. The investing fundamentals, in fact, say otherwise – one must always buy low and sell high. You must be greedy when others are fearful and vice versa.
Entering without a well-defined plan
Following the herd mentality to devise your investment strategy costs you more time, effort and money than understanding the market and defining your own investment goals. Educate yourself with various investment strategies and align them with your financial goals. Define whether you are in it for the long term or not. If you would like to take the dollar cost averaging strategy or buying the dip. As the old saying goes, “You don’t earn what you have worked for”, investment is no different. No grind-work leads to uninformed decisions and investment does not offer any free lunches!
Lack of solid exit strategy
Exiting at the right time is the key to making profitable investments. Your exit strategy should not be a function of emotions but theories that have yielded results in the past. Every person who wants to exit has two options – sell everything at once, or at several defined intervals. One of the most conventional exit strategies is to sell some percentage of your stake everytime you reach a previously set target. This way, in the worst case scenario, you ensure your profits become equal to your principal sum and that almost nullifies the risk of losing actual money. In the best case, your profits bring in more profits home.
Investing in crypto just because you expect the prices to rise for whatever reason
It is critical for every investor to understand the knitty-gritty of expectations and investing. Expectations are the #1 killer for cryptocurrency, the reason is pretty logical, altcoins are highly volatile. One must invest in altcoins while keeping the real world value and utility in mind. What goes up, might come down at the same speed. Investors don’t just invest money but also their time and effort. Be mindful of the reasons you are investing for.
Buying a cryptocurrency because it is cheap
People often make the mistake of looking at the unit price of each currency. A rather definitive term to look at is the market cap. Market cap = unit price* supply. If the number of units available in the market today are less, it is probably a coin you must not invest If the unit price and supply both are higher, the market cap will rise and thus result in better profits. However, it is also critical to not ignore lesser known coins. Apply the same market capitalization theory and you will know why.
Buying for very short term as beginners
Altcoins can rise very fast. Beginners tend to lose a lot of money due to elevated emotions and lack of research. Buying and holding for a longer time will help you in gauging the nuances of the crypto market in a better way. Also, it will be helpful in saving taxes, especially in countries like the USA, that charge higher taxes on short term gains.
Beginners or risk-takers generally use leverage for shorting. Shorting is a phenomenon that investors use when the prices are expected to drop. They sell at a higher price and buy back when the price falls. People take loans and short sell cryptos with an assumption that they will make profits. Using borrowed money to increase the exposure can prove to be very risky. If the price of the coin goes down significantly, it becomes a massive concern for risk-taking investors.
Buying more than you can afford to lose
Sometimes investment risk-takers miss out on the most basic concepts. Every investment should be made smartly and considering the fact that most of it can turn into a loss, especially in cryptocurrency. No investment decision should have the power to make you bankrupt. Buying more than you can afford to lose can have consequences that affects your family, work and personal life.
Investors tend to put all eggs in one basket – Warren Buffet style. Mr. Buffett has the leverage to speak to the biggest of companies and study them while we do not. Investors should build a diverse portfolio by buying multiple currencies. You must know the rule of dollar cost average – divide your budget by a certain number and invest those tranches at four different prices, or time intervals. This way you will save some and lose some. Another rule that one must remember is the 80:20 rule – 80% of the profit comes from the 20% investment and vice versa. The rule makes diversification even more important in terms of cryptocurrencies.
Paying less attention to order book depth
Thoroughly understanding the currency before investing is critical for every investor. One such paramount parameter is being attentive on the order book depth. The larger the sales wall, the harder it is to push behind that point. When the buy order wave is larger than the sell order wave, it means there is high demand for the altcoin. If it takes more money to push the prices up by 5% than it takes to reduce the price by 5%, you must consider buying something else in the short term
While these are some of the most basic things that one must know of, most investors tend to overlook them. Keeping these in mind, and ensuring they are followed while investing will curb your risks or at least make them bearable. If you are looking for crypto-derivatives margin trading platforms, BYbit is one of the fastest-growing platforms. They are capable of handling 100,000 TPS and that can make your job worry-free. Read a comprehensive Bybit review here.