Crypto Buying Guide: Mistakes to Avoid When Buying Crypto

When buying crypto, caution is your best friend. But there are some common crypto buying mistakes that investors make when they are not aware of how the crypto markets work, or how the scammers operate. In this article, we will discuss the most common mistakes people make while buying crypto, and also learn about the types of crypto scams that are designed to defraud crypto investors. 

Why You Should Be Careful When Investing in Crypto?

First, the volatility in the crypto market is high. Prices can skyrocket or plummet overnight. For instance, Bitcoin hit highs around $64,000 in 2021 and then dropped below $20,000 in 2023. Such swings can be thrilling but risky if you’re not careful.

Scams are another big concern. In 2023 alone, crypto scams led to over $1 billion in losses. Phishing attacks, fake ICOs, and scammy trading platforms are common. Always verify every detail before investing. Use well-known platforms that enforce strong security measures.

Regulatory changes also play a huge role. Governments worldwide are still figuring out how to regulate cryptocurrencies. This can lead to sudden rule changes that might affect your holdings. Staying informed about legal developments is crucial.

Lastly, security breaches are a real threat. Even major exchanges aren’t immune to hacks. In 2018, Coincheck lost $534 million to hackers. Using strong passwords, enabling two-factor authentication, and storing large amounts in offline wallets can help protect your assets.

In essence, take your time, do your homework, and don’t rush into any investment. Staying cautious helps you stay in control of your investments.

10 Mistakes To Avoid When Buying Crypto

When you’re trying to invest in crypto you have to be careful. Here are 10 mistakes to avoid when buying crypto:

Ignoring Research

Jumping into crypto without research is like walking blindfolded. Each coin has its backstory, technology, market trends, and risks. Spend time learning about them. Overlooking this step could lead to poor investment choices.

Neglecting Security Measures

Not setting up strong security like two-factor authentication (2FA) is a big risk. Crypto exchanges and wallets are prime targets for hackers. Always use strong, unique passwords and enable 2FA to protect your assets.

Using Non-Reputable Exchanges

Opting for an unknown or less reputable exchange might be tempting due to lower fees or less stringent ID checks. However, these platforms might lack adequate security measures and could even shut down, taking your funds with them. Stick to well-known exchanges with solid security reputations.

Falling for Scams

Scams are rampant in the crypto world. From too-good-to-be-true investment returns to fake ICOs, always scrutinize offers. In 2023, crypto scams cost investors over $1 billion. Verify every offer’s authenticity before committing your money.

Overlooking Fees

Not understanding the fee structure can eat into your profits. Some exchanges charge higher transaction fees which can accumulate over time. Understand the fees for trading, withdrawing, and any other hidden charges.

Investing More Than You Can Afford to Lose

Crypto markets are volatile. Prices can dramatically rise or fall. Never invest money that you can’t afford to lose. Always consider your financial stability first.

Ignoring Tax Implications

Crypto transactions can be taxable events depending on your country’s laws. Not reporting your crypto earnings can lead to legal troubles. Keep records of all transactions and consult a tax professional.

Following Hype Blindly

Investing based on hype rather than solid data is risky. Cryptocurrencies can be hyped up by influencers or investors looking to pump and dump. Make decisions based on thorough analysis rather than social media trends.

Neglecting Wallet Backups

Failing to backup your wallet can result in the loss of your cryptocurrencies if your device fails or gets lost. Regularly backup your wallet to different secure locations.

Having No Investment Strategy

Entering the market without a clear strategy is like sailing without a map. Set clear goals, understand your risk tolerance, and have a plan for when to buy or sell. This approach will help manage risks and secure potential gains.

By avoiding these common pitfalls, you can make more informed decisions and protect your investments in the volatile crypto market. Remember, thorough preparation and cautious strategy are your best tools in the crypto trading arena.

Suggested Reading: What to Keep in Mind When Buying Crypto from a Crypto App

Best Practices To Follow

Ready to buy crypto? Great! Here are some best practices to keep you on track and avoid common pitfalls:

Do Your Homework

Before you buy, research thoroughly. Understand the cryptocurrency you’re interested in. Check its history, technology, market performance, and read its whitepaper. This homework helps you make informed decisions.

Choose Reputable Exchanges

Always use well-known and trusted exchanges for your transactions. These platforms have better security measures and customer support in case something goes wrong.

Secure Your Investments

Enable two-factor authentication (2FA) on all your accounts. Consider using a hardware wallet to store your crypto, as it keeps your private keys offline and safe from hackers.

Be Aware of Fees

Understand the fee structure of the exchange you use. Look out for trading fees, withdrawal fees, and any hidden costs. Knowing these can help you manage your investment costs better.

Invest Responsibly

Only invest money that you can afford to lose. Crypto markets are volatile; prices can drastically change quickly.

Keep Records

Maintain detailed records of your transactions. This is crucial for managing your portfolio and essential for tax purposes.

Stay Updated

The crypto market evolves rapidly. Keep up with news and developments in the space to stay informed and ready to act on changes that could affect your investments.

Use Strong Passwords

Set up strong, unique passwords for your crypto accounts. Avoid using easily guessable passwords and change them regularly.

Types of Crypto Scams to Watch out for

Diving into the world of cryptocurrencies can be exciting, but it’s crucial to stay alert. Scammers are always on the lookout for new victims, especially in an area as lucrative as crypto. Here’s a rundown of some common types of crypto scams and the latest data to keep you informed.

Phishing Scams

Phishing is one of the most prevalent crypto scams. Scammers send emails or messages that look like they’re from a trusted exchange or wallet provider. These messages often lure you into clicking on malicious links. Once clicked, these links can steal your login credentials or trick you into entering them on fake websites. In 2023, phishing was responsible for a significant chunk of the $1 billion lost to crypto scams. Always double-check URLs and never share your private keys or passwords.

Fake ICOs (Initial Coin Offerings)

Initial Coin Offerings are a way for new cryptocurrencies to raise funds. However, not all ICOs are legitimate. Scammers often create fake ICOs to lure investors with the promise of getting in early on a new, promising coin. They collect the money and disappear without distributing the coins. To avoid this, thoroughly research any ICO by reading the whitepaper, researching the development team, and checking independent reviews.

Ponzi and Pyramid Schemes

These schemes promise high returns in a short time but rely on the influx of new investors’ money to pay earlier investors. Eventually, these schemes collapse when there aren’t enough new investors. One infamous example is BitConnect, which was exposed as a Ponzi scheme in 2018 after raising approximately $2.4 billion. If a project offers consistent returns regardless of market conditions, it’s a red flag.

Pump and Dump Schemes

In a pump and dump, a small group of investors will inflate the price of a less-known cryptocurrency by spreading positive, but false, information. Once the price has increased, they sell their holdings at a high price before the reality catches up and the price plummets. Always be wary of obscure coins with sudden price spikes and too-good-to-be-true news stories.

Wallet Scams

Some scammers offer fake wallet apps, which you might download thinking they are legitimate. Once you deposit your crypto, the scammers have access to it. In 2022, there were reports of several such wallet apps appearing in popular app stores. Always download apps from verified developers and check user reviews carefully.

Ransomware

This malicious software locks you out of your computer and demands a ransom, typically in cryptocurrency, to unlock it. This way, the transaction cannot be traced back to them. Keeping your antivirus software up to date and avoiding suspicious links are good ways to protect yourself.

Always remember, the more informed you are, the better your chances of becoming successful with crypto investments. Avoid these common crypto buying mistakes. Keep learning, stay vigilant. Happy trading!

FAQs

1. What is the most common mistake new crypto investors make?

The most common mistake is not doing enough research. Many new investors buy cryptocurrencies without understanding the market trends, the technology behind the tokens, or the credibility of the issuing company. Taking the time to study these aspects can prevent poor investment decisions.

2. How important is the choice of crypto exchange?

Very important. Choosing a reputable crypto exchange is crucial because it affects the security of your funds and the range of available features. Established exchanges have better security protocols, customer support, and are less likely to suffer from operational issues like transaction delays or unexpected downtime.

3. Why should I use two-factor authentication (2FA) when buying crypto?

Two-factor authentication adds an extra layer of security by requiring not only a password and username but also something that only the user has on them, like a physical token or a mobile phone app-based confirmation code. This makes it much harder for unauthorized users to access your funds.

4. Can investing more than I can afford to lose be a big mistake?

Yes, absolutely. The crypto market is known for its high volatility. Prices can swing wildly in short periods, which can lead to significant losses. Investing more than you can afford to lose can put you in financial jeopardy, especially in a market downturn.

5. How can I keep track of the fees associated with buying crypto?

Before you commit to an exchange or a transaction, always review the associated fees. These can include trading fees, withdrawal fees, and any other service charges. Most exchanges list their fee structures on their websites. Understanding these fees is crucial for calculating the total cost of your crypto transactions and ensuring you are not caught off-guard by hidden charges.