Fortunately, with this handy guide, any beginner can learn how to avoid common cryptocurrency mistakes, pick up top tips and make the most of their investment money.
In this article, we will explain:
- Cryptocurrency tips, and trading strategies
- The top cryptocurrency mistakes, and how to avoid them
- How to decipher crypto jargon
Have a strategy for crypto trading
It isn’t easy to separate genuine cryptocurrency recommendations from the scams; there are lots of sharks out there waiting to take your money.
In 2020, according to the UK fraud-alert service Action Fraud, reports of crypto investment scams surged by 57% year on year to 5,581, with investors losing a total of £113m.
So when you’re confronted with a lot of information about a cryptocurrency, take a step back from the hype.
Try to look critically at the project. How many users does it have? What problem does it solve? Does it have any links with industry? Avoid coins that promise the Earth but haven’t delivered anything tangible.
Some people offering crypto trading tips might not have your best interests at heart. So don’t get stung making the same mistakes as others.
Set limits on how much you invest in a particular digital currency and don’t be tempted to trade with more money than you can afford to lose.
Cryptocurrency trading is a high-risk business and more traders lose than not.
Diversify your crypto portfolio
It doesn’t pay to have too much invested in one single cryptocurrency.
As with stocks and shares, spread your money out among different digital currencies.
This means you don’t risk being over-exposed should one of them plummet in value – especially as the market prices of these investments are highly volatile.
There are thousands to choose from, so do your research.
Be in it for the long term
Prices can rise and fall quite dramatically day to day, and novice traders are often duped into panic selling when prices are low.
Cryptocurrencies aren’t going to go away, and leaving your money in the market for months or years at a time could offer you the best rewards.
Automate and consider trading bots
Most cryptocurrency exchanges, including Coinbase and Gemini, allow you to set up recurring buys.
This is where crypto investors tell the platform to purchase a fixed amount of their preferred cryptocurrency every month – for example, £100 worth of bitcoin. It means they get a bit less of the currency when prices are high, and a little more when prices are low.
That takes the stress out of trying to time the market by either buying a currency at what you think is the lowest possible price or selling at the highest price. It’s something that even market professionals struggle to get right.
Trading bots can be useful in some circumstances, but they don’t come recommended for beginners looking for crypto investment tips. Often, they are just scams in disguise.
If real algorithm existed that timed your buy and sell trades to perfection, everyone would be using them!
It’s very easy to get caught up in the hype of news headlines. Crypto mistakes are startlingly common, and below we list some of them.
1. Buying just because the price is low
Low prices do not always represent bargains. Sometimes prices are low for a reason! Watch out for cryptocurrencies with falling user rates.
Often, too, developers leave a project and it stops getting properly updated, making the cryptocurrency insecure.
2. Falling for scams
Cloud multiplier scams
Fraudsters sometimes contact victims by email or text with an “investment opportunity”. They promise to give investors double or triple the amount they have put into bitcoin if they send their cryptocurrency to a particular digital wallet.
REMEMBER: Offers of free money should always be viewed with great scepticism.
Criminals can easily inflate or deflate the price of very small or unknown cryptocurrencies, creating fake buy or sell orders and sometimes sending the value of the currencies skyrocketing by hundreds of per cent at a time.
When unwitting traders rush in to try and grab a piece of the action, the criminals cancel the orders — which they were never going to fulfil in the first place — and in some circumstances that can cause the price to crash.
Sometimes criminals will own a lot of a particular cryptocurrency (through pre-mining much of it before it is available to the general public).
They can pump up the price by promoting it on social media, then selling it on crypto exchanges at the higher price. Then they disappear.
Malicious wallet software
Dodgy or unknown wallets on Google Play Store or the App Store can steal your crypto funds with dodgy code.
With so many cryptocurrencies on the market, it can be difficult to tell what’s real and what’s not.
When you invest in fake coins, criminals can steal your identity and often your hard-earned money. They do this through phishing – persuading you to click on links in emails that install spyware on your computer.
Don’t take anyone else’s word for it and use as many sources as possible to do your own research.
3. Going ‘all-in’
Some of the more suspect trading platforms suggest you should maximise your money by betting as much as possible. This is a quick way to the poor house.
Better crypto investment tips would be to only use a certain proportion of your investing capital — say 5% — and always keep an emergency cash fund that never gets invested in the market.
4. Thinking crypto is ‘easy money’
There’s nothing easy about making money through trading any kind of financial asset, whether stocks and shares, commodities like silver and gold, or cryptocurrency.
Anyone who says different is probably trying to trick you into making crypto mistakes.
5. Forgetting your crypto keyphrase
If you have a hardware wallet for storing your crypto offline, forgetting your keyphrase is like losing the keys to a bank vault.
Without your keyphrase, all your cryptos will be irretrievable.
Know your crypto lingo
There is a lot of jargon out there in crypto land and often it can be difficult to decipher.
A portmanteau of “alternative” and “coin”, altcoin refers to any cryptocurrency other than the original one, bitcoin.
- Cryptocurrency exchanges
Just like regular stock exchanges, the likes of Coinbase, Binance, Gemini and Bitstamp allow traders and investors to buy and sell — except that here they are trading cryptocurrencies. Unlike standard stock markets, cryptocurrency exchanges are online-only and are open 24 hours a day, 7 days a week.
Most exchanges do not set limits or restrictions on the number of cryptocurrency trades their users can make in a day. On turbulent trading days, when cryptocurrency prices are moving up or down very quickly, some brokers may put a short-term halt on people depositing funds on their platforms.
“Shorting” cryptocurrency means betting on the price going down rather than up.
A cryptocurrency fork is a split in a blockchain where two separate blockchains are created. This is sometimes but not always because of a disagreement between developers as to how the blockchain should be organised. In 2017, bitcoin forked into two separate blockchains: bitcoin and bitcoin cash.
An ICO is an initial coin offering, like an initial public offering (IPO), or float, in the stocks and shares world. An ICO is where new cryptos are sold to investors for the first time.
- Margin trading
When platforms talk about margin trading, they mean investors borrow money to increase their bet on a cryptocurrency. Be very careful, though, because margin trading can dramatically exacerbate losses if a trade doesn’t go your way.
A fiat currency is one that is backed by a sovereign government. For instance, sterling, US dollars or Indian rupees.
- Cloud mining
People can “mine”, or create, cryptocurrencies to compete for rewards in the form of newly minted crypto. Cloud mining uses remote data centres with shared processing power, like the kind that powers Google software, to pool resources and cut the cost of mining. Be extremely wary, as many cloud mining companies are just scams. An incredible amount of computing power is needed to mine the top cryptocurrencies. Anyone offering easy cloud-mining rewards is likely to be a charlatan.
- Bull markets and bear markets
These are phrases borrowed from traditional stock markets. A bull market means traders are confident in the prospects for a particular investment, meaning they will keep buying and prices will keep rising – whereas in a bear market, traders are nervous and prices will generally fall.
- Sell orders
A sell order is an instruction given by traders to a platform to sell cryptocurrency that they own when the price hits a certain level. In traditional markets, this is referred to as a “stop loss”.
- Order book
An order book is a list of all the traders on a particular cryptocurrency exchange or brokerage who want to buy or sell cryptocurrency for a certain price.
There are many more guides on Times Money Mentor to steer you through cryptocurrency markets and help you make the most of your money.