Common Investment Mistakes Made By Beginners in The Cryptocurrency Ecosystem

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March 13, 2019 by
Common Investment Mistakes Made By Beginners in The Cryptocurrency Ecosystem

What is the cost of making a mistake as a newbie in the evolving Blockchain and cryptocurrency ecosystem? Quite priceless!

Mistakes within the cryptocurrency industry comes with a drain on the bearer because these mistakes most often come with irreversible consequences. While the end-to-end encryption for protection (a feature of the integrated blockchain technology) is meant to provide maximum digital security, it does not provide a get-back guarantee for unbacked losses.

As a beginner in the cryptocurrency world there is a myriad of mistakes possible. Taking a holistic look at this would give the investor a wide latitude of information to guard against common mistakes that plague entry players in the cryptocurrency market.

Losing Private Security Keys/Locks

Failure to shut the door is harmful and potentially destructive but shutting the door without access to the key is the apocalypse. Regularly, there are under-reported cases of cryptocurrency losses but some are marked due to the enormity of the operation.

In November 2017, more than $300m of cryptocurrency was lost after a series of bugs in a popular digital wallet service led to a developer to accidentally taking control of and then lock up the funds, with the owners calling for a “hard fork”. Also in February 2019, it was reported that about $190m worth of cryptocurrency was locked away in an online black hole after the founder of the currency exchange died. These are drop-in-the-ocean examples of many incidences of security mishaps.

The cryptocurrency holders are the weakest security link, so the safest way to protect your cache is to use wallets. These wallets can be hardware or software. Hardware wallets are comparatively better than software wallets because of the enabled feature to validate operations. They are also secured against viral attacks which are the common defaults of the software wallets.

Despite the comparative edge of the hardware wallet, it can have design and implementation flaws like intentionally embedded hidden bugs that make it susceptible to hacks. Trezor, a hardware wallet provides full-end security for cryptocurrency private keys, thus appearing to be quite reliable. Unlike several other wallets, Trezor comes with an easy-to-use interface and provides security for transactions by encrypting a user’s private keys.

Poor Research/Information-Deficient Investments

There are several things to consider when investing in a token. Before an ICO or listing, most developers give out coins through referrals or affiliate programs, airdrops, performing tasks and getting paid in coins, proof-of-work, and proof-of-stake systems, e.t.c. These are not considered investment instrumentations but are for the founders to advertise their products.

On the part of the beginner investor, there has to be due diligence before investing. An investment in any of the coins must be preceded by understanding the underlying technology, the intrinsic value of a coin, the valid test for most altcoins which are yet to test the market, and the track records of the founders, a bit about previous experiences and identities (if possible). Many coin developers have swindled their followers by creating fake ICOs, only to go under when they have garnered millions of investors dollars.

Investing (Gambling) in HYIP

HYIP as an initialism stands for High Yield Investment Program. These are unsustainable schemes that promise a compounding percentage on any principal invested. Most of these schemes make outrageous ROI promises. The crypto market is not exempt from these schemes but for a new investor, it is important to know that HYIP is Ponzi Scheme and pay previous investors with the money invested by the new investors – in most cases, there isn’t a payout.

Fear, Uncertainty, and Doubt

Investing takes courage as much as it takes carefulness, one cannot be careful to a fault. The emotional view of investing demonstrates the overarching relationship between investing and psychology. While the volatility of the market is taken into consideration, like it has been mentioned earlier, the intrinsic value of a token is necessary to evaluate the market value of it.

Many traders approach the market with sheer short-termism as a strategy most often than not, this fails. Speculative trading might be too early to go alone as a beginner unless hedged against the trades of the experienced traders but every investor must be at alert to change positions quickly as the market changes its direction.

Investment is about realism and this involves the most objective analysis of the fortunes and performance of a currency. Every time the price of token rallies or declines, it calls for cautiousness knowing full well that the decentralized nature of the blockchain technology makes it diametrically different from the operations and regulations of the fiat currencies.

Groupthink Investing

The activities of the crypto market have repeatedly shown that no information, research or strategy is infallible. While peer-based groups can provide help through to the art of trading signal for potential opportunities, sophisticated bots that provide information for changes in the volume or marginal increase percentage, and portfolio reviews, the investor must be wary of being herded to Groupthink. This is because as in the conventional money market, the regular market forces still affect the swing in currency price.

Buying Bullish and Selling Bearish

Flip-selling might be rewarding but it comes with its existential challenges. It is common business practice to buy when the value of a commodity is low and sell in the long run, or selling when the value of the commodity is going down, especially when the overhead cost of acquisition has been covered. It is also common practice to hold some back (HODL as is said in the crypto circle), sell when it has increased, then buy it again when it is at the bottom, the cycle continues.

If the value of the commodity keeps increasing in the long run, like Bitcoin and some other Altcoins, then you can’t really go wrong with this strategy. Because most new investors don’t have a grip of the dynamism of the market, they are wont to buying bullish and selling bearish which is against the market run of play. This is the easiest way to go bankrupt. Having in mind that the previous performance of a token is not a guarantee against its future performance.

The dos and don’ts are not exhaustive but these form the basic knowledge block for any entrant into the market. Despite the risks of trading and the volatility of the market, the rules have not changed and if diligently followed with the instincts as a guide, should keep the investor safe.

One Reply to “Common Investment Mistakes Made By Beginners in The Cryptocurrency Ecosystem”

  • Each software requires updates to keep them up to date with the changing dynamics and to enhance their offering. In the dictionary of Crypto, it is termed as “forks”. As you have heard already, Soft Fork and Hard Fork are two types of forks. If put in simple words, the only difference between the two forks is that Soft Fork also supports the prior version of the software whereas Hard Fork is a permanent alteration which is not compatible with the earlier version.

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