Cryptocurrency has captured the world’s attention, with more people than ever eager to invest. This year, Bitcoin’s price swung from $43,835 to $70,000, demonstrating the market’s volatility. Despite this excitement, many first-time buyers dive in without clearly understanding what they are doing.

Research shows that 80% of new investors make at least one significant mistake. This can lead to unexpected losses and frustration. For instance, many who bought into hype during the Dogecoin surge found themselves on the losing end when the excitement faded.

This guide will explore five common mistakes newcomers make when buying cryptocurrency and provide guidance on avoiding them. By arming yourself with knowledge, you can navigate this complex landscape more effectively and make informed decisions.

1. Failing to Research Before Buying

The first common mistake most new buyers make is not conducting ample research. Most go straight into purchasing a coin without knowing what it entails. As of March 2024, there are over 13000 cryptocurrencies, from the oldest and largest, Bitcoin, to the many newer coins, such as Shiba Inu. Each possesses different uses and risks.

For example, people regard Bitcoin as digital gold, while Shiba Inu is recognized as an actual meme coin with an even lower value. People can make terrible investments without learning how to buy cryptocurrency and understanding these coins.

A 2024 survey revealed that out of new investors, 60% were lost because they didn’t study the projects behind most cryptocurrencies they invested in. Here, the technological setup, the team behind the idea, and how it will be implemented must be considered. This information may facilitate your decision on whether such an investment is profitable.

Also, checking recent trends, such as how a coin performed during market shifts, can offer valuable insights. For instance, if a coin has been in circulation and has attracted either new adoption or innovation, it may have potential.

2. Ignoring Security Measures

Security should be a top priority in the world of cryptocurrencies. Most first-time buyers don’t protect their assets adequately. This oversight can mean a lot of losses. According to the report, 2022 was the biggest year for hackers to steal $6.5 billion from cryptocurrency businesses.

This was primarily because of lost or misplaced wallet credentials, like forgotten passwords or private key access.

Hardware wallets that allow the coins to be stored off the internet are recommended for investors. Also, turning on two-factor authentication (2FA) on your accounts is a bonus measure for security.

Thus, someone who gets your password cannot log into your account without a second form of identification.

A recent trend proved by the Cybersecurity & Infrastructure Security Agency suggests that more investors are moving toward safer storage options as security awareness increases. It is also critical to find out what security practices are new today. By prioritizing security, you agree that your investments will be protected from threats and that you will develop a better safety net in the crypto field.

3. Chasing Trends and Hype

Many new investors fall into the trap of following trends and buying based on hype. This especially happens when prices are soaring through the roof, which usually results in disappointment. For instance, during the Dogecoin mania, many quickly invested in it without appreciating its pillars or the factors behind its mooning.

Bloomberg studies of adopted speculation show that investors who purchase during hype phases are vulnerable to losing their investments after prices adjust. This could be more evident when the holder is involved in a ‘pump and dump,’ where a coin’s price is artificially inflated before a significant sell-off occurs.

The cryptocurrency market is still considered to be nascent and highly volatile. Price surges are random and can be caused by trends on social media or a celebrity endorsing the product instead of bringing proportionate added value.

Don’t let speculation drive your decisions about which assets to use for investment but think about the more distant future of those you decide to employ. By performing proper research and analyzing the possibility of investment, you learn the difference between a trend and an investment. Remember that being an investor means you often must be rational and have enough patience and discipline to avoid following the crowd.

4. Overlooking Diversification

Diversification is a crucial strategy in any investment portfolio, yet many new buyers overlook it. Investing all your money in one cryptocurrency can be risky. If that coin’s value drops, you could lose everything. Recent trends show that a diversified portfolio can help mitigate risks. For instance, if Bitcoin drops but other altcoins rise, your losses may be offset.

Financial experts from the Financial Times suggested new investors allocate their funds across several cryptocurrencies to balance risk and reward. A well-diversified portfolio might include 50% Bitcoin, 30% Ethereum, and 20% smaller altcoins. This strategy allows you to take advantage of different market movements.

Also, consider investing in cryptocurrencies with various market caps, as larger coins are less volatile than smaller ones. This approach protects you from the volatility that often characterizes the crypto market. By spreading your investments across multiple assets, you can enhance your chances of success and reduce the impact of potential losses.

5. Neglecting to Have an Exit Strategy

Another common mistake we see is the lack of an exit strategy. Most new investors buy cryptocurrencies but are unsure when they should sell them. The crypto market can change quickly, so it’s essential to have a plan.

In the Crypto Asset Management Study, it was estimated that 70% of the new investors sold their investments at a loss because they panicked at some point because of market fluctuations. This goes a long way to show that people should always ensure an exit strategy in place if things go sour.

Setting clear goals for when to sell can help you avoid emotional decisions. For example, set a target to sell once your investment reaches a 50% gain or a 10% loss. This will make it easier for you to profit when your investments are on the rise and cut your losses when they are on the decline.

Portfolio reviews also make it easier to adapt to market situations and devise a better game plan. As market trends shift, having an exit strategy will help you stay disciplined and focused, ensuring you are ready for bullish and bearish markets.

Conclusion

Buying cryptocurrency for the first time is enjoyable, but its risks accompany it. To have a better experience, one should avoid mistakes such as not doing research, not securing the wallet, being scammed, not diversifying the investments, and not having an exit strategy.

Be patient and careful, follow trends, and do not risk more than you don’t mind losing. Cryptocurrency is more about the bigger picture, and making wise decisions will enable you to succeed in the market.