The Main Mistakes Crypto Newbies Are Prone to When Commencing Their Journey

With all the ascensions and popularity achieved by cryptocurrencies in the last few years, it would be fishy to claim that investing in one or two digital coins has never crossed your mind. Pretty much everyone wants to make a quick and easy dollar, which is precisely what this avant-garde, ground-breaking technology based on blockchain promised and succeeded in doing, or at least for early adopters.

Bitcoin and Ethereum have gained so much traction that numerous investments have taken inspiration from them and materialized, being acquired and traded legally and consequently taxed as such. As the Ethereum price chart is displaying favorable, upward movements and Bitcoin is making all the headlines with its new milestone of $50K achieved lately, pointing to an all-time high sometime in the future, this is the time you may be even more tempted to welcome crypto into your investment portfolio.

This ongoing hype comes accompanied by risks of loss, which many rushed and uneducated investors encounter. We're offering you a lowdown of the most common errors newbies to crypto make so that you reduce your chances of messing up your investment significantly, so keep going!

Not carrying out sufficient research

Given the perplexity and massiveness of the crypto market, some fail to conduct enough research before entering it, while others don’t even consider this stage vital. Bitcoin trading is anything but a guessing game, so the more committed you are to conducting research and your due diligence, the lower the chances of messing it up are. Suppose you don’t know what to start with, given the overwhelming abundance of information and data available and the indecipherable complexities of blockchain, indexes, charts, and more. In that case, you can start with the market trends, team, technology, and the whole project’s purpose, depending on the asset you’re looking into.

Similarly, it’s equally essential to have a perfect understanding of the risks you’re exposing your investment portfolio to. Familiarize yourself with your eyed crypto choices, their prospects for growth, and their features before jumping on them, and avoid going all-in until you’re 100% aware of the significance of your undertaking.

Brushing taxes aside

We get that taxes around cryptocurrency can resemble the nerve-wracking red tape around any other government-taxed profits. However, neglecting their existence and substantiality will not cut you any slack. At least, this is the unfortunate case when trading crypto in Canada and the U.S., where overtrading crypto can boost the owner’s tax liabilities.

Many aspiring investors believe they’ll only give some share away when making profits and converting crypto to USD/CAD when the reality is contradictory. Traders must pay taxes for every trade registered, regardless of whether they’re just exchanging a cryptocurrency for another cryptocurrency.

The CRA and IRS treat all the trades like losses or gains, meaning that any BTC or ETH recorded is approached like a taxable transaction. Overlooking these financial obligations is common, especially among crypto newcomers who tend to overvalue their profits, forgetting that a piece of them will be subtracted, significantly affecting the crypto investment strategy and results.

Tax implications, moreover, are an excellent reason to avoid overtrading, especially if you count in the poor trades and exchange fees that contribute to your money leaks and losses.

Being influenced by social media trends when crafting the trading strategy

Inherent to such a complex and abundant realm, the internet and social media websites abound to attract misinformation or outdated data presented as new like magnets. Many newcomers to crypto tend to get lost in the floods of data and commence their trading spree following advice from an in-vogue influencer boasting a million-worth portfolio built from relatively obscure and immature projects. While Bitcoin and other cryptos created fortunes for early adopters who acquired them well before they were making all the headlines and discussions is an example that made an exception from the regular, winning the jackpot is not always this straightforward. Sometimes, investing in relatively unknown inventions can represent a trap for even the most seasoned investors, becoming a low-key Ponzi scheme.

It's wise to consider the opinions of others who explored the crypto market, but the same can be said about carrying out your own, personal research. Starting from the assessment of the asset’s white paper and going as far as discovering the funding rounds that can expand your knowledge better is always preferred over getting all your insights from social media.  

Overspending or putting in money you can’t afford to lose

There’s a reason behind the prominence of the motto that states you should avoid investing more than you’re comfortable with losing at all costs, and this is because many rushed or over-optimistic investors have placed wrong bets that ruined their budgets. You shouldn’t ever put more money on a crypto order than you’re ready to bid farewell because nothing can guarantee that you’ll make profits or, at least, have the same amount return to your wallet when you want to quit your investment.

There are many unpleasant real-life stories of investors who have lost massive borrowed amounts of money or life savings, so, yes, such risk is real and can happen to the best of us. Hilariously enough, you can fall victim to greed and FOMO even after winning the jackpot, naturally leading to an equally devastating outcome. So, keep your feet on the ground and your savings aside to minimize any risk of mucking it up.

Chasing bargain-basement coins

What many do wrong is that they dream of yachts bought with what was previously an asset worth close to zero. Plenty of uneducated and unseasoned investors purchase cheap, cut-price crypto coins after being convinced by a shady influencer who states there’s a larger room for returns when going this way. Say one’s offered two currencies priced at less than $0.1, respectively $50. These unreliable individuals with influencing aspirations would encourage the acquisition of the former coin, stating it’s more probable for it to double and rise to $0.2 instead of seeing the other one hit the $100 mark.

This is an example of a widespread trap you should be aware of. Numerous factors influence the movement of a price, such as the real-world value and circulating supply in question, which must make you realize that no private jet can come for free or a few dollars, regardless of how convincing the marketing is.

So, do you feel prepared to face all these threats and risks and avoid partaking in the category of crypto investors who make minor yet preventable mistakes?