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Investing in crypto may be easier and faster than ever — you can now opt to invest through online brokers like Robinhood and SoFi Invest or crypto exchanges like Coinbase and Gemini— but it’s far from being a foolproof venture. Many of the same risks and pitfalls that vexed crypto pioneers can still cause headaches for those entering the field today. That’s not to say that navigating the crypto universe requires a masters in computer science or finance; rather, it just means that some of the financial resources, protections and patterns investors have come to expect when trading stocks and bonds will be different when trading crypto.
Learning the rules of this new digital investment game is essential and could potentially save you from making mistakes worth thousands, or even millions of dollars. Here are a few mistakes that new crypto investors often make when they get started, as well as some things to consider before taking the plunge.
Mistake No. 1: You don’t buy the right stuff
If you decide to buy Bitcoin, make sure it’s the genuine article. One of the biggest mistakes new investors make is buying the wrong coin. Just because it has ‘Bitcoin’ in its name doesn’t mean it’s a Bitcoin. There’s Bitcoin Cash, Bitcoin Gold, Bitcoin SV, Bitcoin Private and dozens of other direct offshoots of the original cryptocurrency that have the word “Bitcoin” in its name. That’s not to say that these offshoots are bad or scams, it’s just that they aren’t the original Bitcoin that has become widely traded and quoted. But if you do buy the wrong coin, it isn’t the end of the world. You can always sell it back and buy the right one, hopefully at a profit.
Ready to get into crypto? You can buy Bitcoin, Ethereum and other cryptocurrencies via online brokers like Robinhood and SoFi Invest or crypto exchanges like Coinbase, Gemini or eToro.
Mistake No. 2: You’re not prepared for a wild, wild ride
You’re going to need nerves of steel if you get into this space because the volatility is extreme. “Compared to the analog world or the traditional finance world, volatility is kind of off the charts,” Theresa Morrison, a certified financial planner in Arizona, told Marketwatch.
Morrison recommends that new investors commit a nominal sum at first, even as low as $50 a month, to an established cryptocurrency they understand, and then to forget about it. The swings in volatility are such that if an investor is constantly eyeing the market it could drive them crazy.
Furthermore, if you’re new to the crypto world, you may want to stick to cryptocurrencies that you know and understand at first. “I like my clients to look at established coins first – the ‘Blue Chips’ of crypto, if you will, namely Bitcoin and Ethereum,” says Erik Goodge, an independent certified financial planner based in Indiana.
Mistake No. 3: You don’t double and triple check the address
Believe it or not, many new and veteran cryptocurrency traders have lost money sending their coins to the wrong place. Unlike a bank wire transfer that can be halted or a check that can be canceled, there’s often no recourse if you make a fat-finger error.
“I got a good buddy who was trading Stablecoins and he sent USDT to a USDC address and lost $4,000,” Adam Blumberg, a financial planner in Houston, recounted. “He texted me saying that this transaction is two days old and he doesn’t know what’s going on. When he sent me the transaction I told him he had accidentally sent it to a USDC account and asked me if he could call them to fix it and I was like ‘no, it’s gone – you should have called me first before you did this.’”
Ready to get into crypto? You can buy Bitcoin, Ethereum and other cryptocurrencies via online brokers like Robinhood and SoFi Invest or crypto exchanges like Coinbase, Gemini or eToro.
Mistake No. 4: You forget your password
While there will only be 21 million Bitcoins that will ever be mined, less will trade because many of them are simply lost forever as people have forgotten the passwords to their digital wallet. You often can’t call somebody to reset your password, if you forget it or lose it then you’re locked out. Around 20% of the Bitcoins mined so far are lost in stranded wallets, according to Chainalysis, a cryptocurrency data firm.
Therefore, how you store your password is critical and needs to be thought out in advance before you start trading. Writing it down on a piece of paper is the first step but even that has its own concerns as it can then be stolen and used by someone else. Also, paper is not the most durable material. “I have clients who wrote down their passwords and kept them in a special place in their house,” Blumberg said. “But a couple of years ago, when Houston was hit with those terrible floods,” many of those carefully hidden passwords dissolved in swamp water.
Blumberg recommends putting the password in a flood-safe and fire-proof container or keeping it in a bank safety deposit box. As an alternative to writing it on paper, he has seen some clients get their passwords stamped on metal that can resist the elements.
Ready to get into crypto? You can buy Bitcoin, Ethereum and other cryptocurrencies via online brokers like Robinhood and SoFi Invest or crypto exchanges like Coinbase, Gemini or eToro.
About the author: Cyrus Sanati has been a financial journalist and columnist for nearly two decades, covering a wide variety of topics from the energy markets to digital currencies. His work can be seen in a variety of publications, including The Wall Street Journal, The New York Times, Fortune Magazine and Breakingviews. He is a graduate of UCLA and earned post-graduate degrees in journalism and business from Columbia University.
Also see: What you need to know to start investing in cryptocurrency right now
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