Losing Money in Crypto? Here’s How to Avoid it
Losing hard-earned money is everyone’s nightmare. The chances of experiencing such nightmares are amplified when we begin talking about investments, especially those related to cryptocurrencies. While there is no such thing as a perfect way of investing where you keep earning profits without losing any money, there are some things that crypto investors can do to avoid losing money in crypto. These things stretch from understanding the crypto jargons to implementing some tried and tested investment strategies while avoiding the common mistakes that crypto investors make.
Crypto Jargons that You Should Know
Many people lose their money while trading cryptocurrencies just because they do not have proper knowledge or idea about the various jargons used in the crypto market. So here are some common terms that you will frequently encounter while walking around the cryptocurrencies and trading them.
It is a fee that the developers pay to use the blockchain network and execute transactions.
Initial Coin Offering
Initial coin offering is basically a way in which the people raise funds to support a new upcoming project of cryptocurrency in the market.
Halving is a feature present in the code of Bitcoin. The value of new Bitcoin circulation becomes half once a defined number of blocks are mined.
HODL is an abbreviation for “Hold On for Dear Life” which refers to a passive investment strategy where crypto investors buy and hold cryptocurrencies and wait till the value increases.
These are software-based wallets. They allow users to store their cryptocurrencies. You can access by simply connecting the device to the internet. They are prone to cyber-attacks and hacks.
These are offline wallets (typically look like USB drives) that are stored to store cryptocurrencies. This helps to protect your crypto assets from attacks by hackers and cybercriminals.
Market cap or market capitalization is the total value of all the cryptocurrencies and the number of coins that have been mined till now.
Mining refers to the process of making new coins available in the market and creating a log of all the transactions among the users with respect to the coin.
Stablecoins are cryptocurrencies that are backed by some kind of physical assets like fiat money, gold, silver, etc. They are somewhat stable in their prices because the value of the physical assets backing them doesn’t fluctuate over a short period of time like hours, or days.
Altcoins are cryptocurrencies having very minimal market value. All the coins besides Bitcoin and Ethereum are referred to as altcoins.
Best Strategies to Avoid Losing Money in Crypto
When entering the crypto market, it is equally important to plan out a perfectly working strategy for your entry and exit from the market as it is to avoid making common mistakes. While mistakes will help you avoid losing money in crypto, a good investment strategy will help you earn good money.
Set Clear Objective and Invest Within Your Ability
All types of investment experts advise new investors to set clear objectives in terms of profits and asset values for themselves. This helps the investors to ensure gains while leaving a potential for an increase in the value of the assets. In addition to this, it is very important in the investment industry to set the investment amount to a value that you are not afraid to lose in case the market goes down. Sometimes investors enter the market with greed and put all of their money in cryptocurrencies with an aim to earn great profits. But due to the volatile nature of the crypto market, there is a very strong possibility of losing money in crypto.
Create Long-term Crypto Plans
While short-term investments can gain you quick profits, long-term investments on the other hand are the perfect way of letting a low-valued coin realize its value again and let the prices of the coin recover from a down-market because of market factors like supply, demand, scarcity, and so on.
Diversify Your Crypto-investment Portfolio
It is strongly possible for one cryptocurrency to rule over the entire crypto market in one day. But you can never guarantee a similar pattern getting followed the next day or even in the next hour. So, even if a coin is giving very high profits to you, it is never advisable to invest all of your money in one coin only. It is good to diversify your portfolio among many different coins having a large market cap and high liquidity and to avoid losing money in crypto.
Plan to Sell and Hold Portions
This strategy is especially valuable for short-term investors to earn maximum profits from their crypto assets. In this, the investors hold some part of their crypto holdings and sell the remaining portion when the prices of the assets are increasing. Doing so allows the investor to gain profits while still having the share to witness a further price rise.
Explore the Opportunities
The world of cryptocurrencies is vast and it is expanding since its inception. The developers have created many new avenues in the world of cryptocurrencies. They increase their utility while creating more opportunities for investors to earn money from their crypto assets. Yield farming and staking are two of the most popular use cases of cryptocurrencies. Here, investors can lend or stake their low-valued coins to provide liquidity in the liquidity pools and earn rewards for their willingness to put money in the pool.
Tips to Avoid Losing Money in Crypto
Do not Buy Coins Just Because They have Low Prices
All the coins in the crypto market have a certain value because of a definite reason. If a coin has been priced low for a long period of time, it is possible that its user rates have dropped or the project is no longer worked upon. So it’s essential to stay away from such coins if you don’t want to suffer losses.
Do not Rely on Experts’ Opinions Solely
While it’s good to take expert opinions as a beginner in the crypto world, this approach doesn’t work if you are in this for the long haul. Every investor has their own risk appetite and sum of money that they want to invest. Therefore, it is not necessary for one expert’s opinion to work for all others. It is advisable to do your own research and find the best strategy for your investment journey of not losing money in crypto.
Stay Away from Low-Liquidity Crypto
Low liquidity cryptocurrencies are a big NO, especially if you are a short-term investor. This is because if you buy a coin having low liquidity, you may have a hard time selling it at the right time and you will have no choice but to keep it.
Don’t Even Think of Timing the Crypto Market
The most exciting feature of the crypto market is that it is completely unpredictable. Nobody could have foreseen that Bitcoin which was priced at $0.0008 in July 2010 would shoot up to $38,225 in 2022. Therefore, never try to time the market based on past trends. Do your due research and find the coins which are truly valuable and will have multiple use cases in the future. Buy such coins even if they are undervalued at present.
Buy the Feature, Sell Before Execution
Whenever there is a new feature coming up for a coin in the future, its prices increase till the feature execution. This happens because investors are keen to know the feature and expect returns from them. The demand for the coin keeps increasing until the feature is executed. This is when the prices start coming back to the average value. In such a scenario, the investors must buy the coin when the feature is just out and sell it just before execution to earn maximum profits.
Do not Put All Your Money at Once
Some people may make you believe that putting all your money at once in a single asset is the key to unlocking huge profits. However, it can very easily turn the other way around and rip you off of all your money. Taking small steps in terms of crypto investments is one of the most basic rules that investors should abide by at all times.
Don’t Perceive Crypto as an Easy Way of Money-making
You may have heard of people earning a thousand bucks from cryptocurrencies on a per-day basis. This may sound like an easy way of earning quick money but it is not as easy as it looks. You will need a lot of knowledge, experience, and timing in crypto-trading.
Beware of Scams
The Crypto market being digital is as prone to witnessing scams as is any other business or operation on the internet. Stay alert whenever you come across something that looks too good to be true or evoke any hint of suspicion in your mind.
Crypto investments are just another form of investment and investors are always likely to suffer some amount of losses on some days. The key to not losing money in crypto is to prevent FOMO and FUD from getting to you. Investors must hold onto their assets and be patient because if a coin is actually valuable, it will eventually recover from falling prices.