- >News
- >Ask CryptoVantage: What Are the Biggest Mistakes People Make With Crypto?
Ask CryptoVantage: What Are the Biggest Mistakes People Make With Crypto?
The emerging market of crypto is a turbulent sea to navigate, mistakes are often made. The tales of veterans and newcomers alike going bust investing in crypto are almost uncountable.
People make mistakes all the time, but mistakes in the field of cryptocurrency can result in financial losses. So what are the biggest mistakes people make with crypto? And how can they be avoided? Read on to find out.
1. FOMO, the Fear of Missing Out
There was a journalist that once could have come out of his crypto position ahead by seven million dollars. He chose to hold and ended up losing the opportunity, believing the market could go higher. He had a fear of missing out on additional gains. Had he known better about the volatility of crypto, he might have chosen to quit while he was ahead and exit the position in time.
This is still by far the biggest mistake people make with crypto. Everyone has heard about get-rich-quick stories detailing how people ranging from teenagers to people in their early 30s became millionaires overnight ‘because of cryptocurrency’. Unfortunately, catching lightning as the fable implies isn’t a reliable investment strategy.
Jumping into any cryptocurrency, whether it’s BTC, ETH, or the latest altcoin fork without knowing about the class of assets is a good way to lose money. Understanding the use case of a given token and knowing the dates of major updates to the network, for example, are good basic facts to get to know about a cryptocurrency before you dive in and invest right away.
2. Getting Killed on Fees
Fees can make or break a cryptocurrency investment strategy. Maybe don’t make that ETH trade during periods when ETH gas fees are extremely high. Double check the transactions you make when you make them, if you just hit continue without taking note of the fees, you could be signing away a lot of money. You could also consider a Layer-2 solution to dodge the majority of fees. Fees are hidden all over the place in the world of DeFi.
Before using a credit card to purchase tokens on an exchange, you might want to check if your bank charges you any fees for purchasing cryptocurrency to begin with. These can be as large as 3% or more.
Some exchanges may promote certain tokens and offer reduced fees for trading or staking those tokens. Knowing which exchanges offer a fee structure that works for you can make the difference between profits and losses.
Lastly, if a token you’re trading in is proof-of-stake, you should do your homework on whether or not it’s worth it to stake the token or do something else with your money. Some reports indicate that you can earn as much as 5% annually through staking, and as high as 12% by staking certain assets. Knowing what kind of rewards an exchange platform offers for staking certain assets can be worth spending the time to do your homework before you invest.
3. Hot Wallets
“Not your keys, not your coins” is an infamous saying among cryptocurrency investors. A hot wallet is any wallet that is connected to the internet. This includes wallets on exchanges, which should never be considered a safe place to store your crypto longerm. Take FTX for example. If you held your cryptocurrency on FTX, then you probably lost your tokens or may otherwise face a legal struggle to receive them back. It’s not the only one, either, as Mt.Gox, QuadrigaCX and numerous other exchanges caused massive problems for their customers.
It’s considered best practice in the world of cryptocurrency to store your cryptocurrency in a wallet that you control the keys to. At minimum, a software wallet on any device is recommended for this. However, there are a number of options for securely storing your cryptocurrency safely and securely. They range from the simplest cold storage hardware wallets to hardware wallets you can purchase tokens with using the wallet device itself.
There’s something for everyone when it comes to storage of crypto these days and any one of them are great as long as it’s not a wallet on an exchange. As long as you hold the private keys to your wallet, you can claim 100% ownership over it. On an online exchange, you don’t have the private keys. The company running the service does, which means they hold all the cryptocurrency in the wallet.
Conclusion: Crypto is Just Different
To sum up, the biggest mistakes people make with crypto are succumbing to FOMO, not paying attention to fees and staking structures, and leaving your crypto in an online wallet. Always know what you’re investing in, and that includes the magic internet money that makes people rich overnight, allegedly. And to make sure that your magic internet money stays magic, you have to promote its growth with nourishing fee structures and a wallet that you have the keys to, ideally a wallet with cold storage.
Really as long as you don’t dive headfirst into cryptocurrency and treat it like any other investment you should avoid most of the really bad mistakes. There’s certainly a learning curve to the world of cryptocurrency, but you can educate yourself on avoiding the largest pitfalls out there.
