Avoid the 10 Biggest Mistakes New Crypto Investors Make

Investing in crypto can be exciting, but many new investors fall into common traps when it comes to trading and investing in cryptocurrencies. From poor security practices to a lack of knowledge about crypto markets, new investors can quickly lose money.

Here are the 10 most common mistakes new crypto investors make and how you can avoid them.

1. Lack of Basic Crypto Knowledge

New crypto investors may be attracted to all the hype surrounding Bitcoin and other cryptocurrencies, but investing in crypto requires understanding the asset class and how it works. Investing in an asset you don’t understand or trying to trade crypto without understanding how it works is a recipe for disaster. Educating yourself about different crypto projects and the goals of each crypto company will make you a better investor.

2. Ignore fees

Although there are many ways to buy crypto, new investors can jump into purchases without understanding how the blockchain fees, exchange fees, and other fees work. For example, buying crypto with a credit card can incur large surcharge fees (3% or more), incur a transaction fee of 1% of the exchange, and require blockchain fees to process the transaction. Depending on the average blockchain fees at the time you buy the cryptocurrency, you could end up paying hundreds of dollars in fees to different entities.

Before you buy, it’s best to learn about the fees you may face and find the exchanges and times when purchases are less expensive. This can save a lot of money in the long run.

3. Short-term thinking

The promise of “get rich quick” within the market has many new investors thinking only short term. And while there is a possibility of earning massive profits on a crypto investment, there is also a possibility of losing all your funds to a bad investment move.

Having a long-term investment mindset will help you choose your crypto investments more carefully. Concentrate on choosing higher quality projects with long track records. Getting rich in 90 days is a quick way to lose everything, but thinking of crypto investing as a multi-year process will help you build a more thoughtful crypto portfolio.

4. Keep Crypto in Online Wallets

Cryptocurrency is a digital currency that requires a digital wallet to store it. Although using an online wallet is more convenient, it is also much riskier than storing your crypto offline. Online wallets are more vulnerable, and hackers can drain your wallet through crypto scams or hacks. The safest way to store your crypto is in an offline hardware wallet, which is essentially a USB stick with advanced hardware and software encryption to protect your crypto’s private keys.

5. Forget Crypto Passwords or Seed Phrases

Because cryptocurrency is held in a digital wallet, these wallets require passwords to access. If you forget your password, your cryptocurrency may not be recoverable. Even if you don’t forget your password, you will need to remember (or store and have access to) your cryptocurrency private keys. These are long alphanumeric sequences that are difficult to memorize. If you lose or forget these keys, you lose your cryptocurrency because they cannot be recovered.

Most wallets have a backup seed phrase to access the funds, but if that seed phrase is lost or forgotten, there may be no alternative option to get your funds back.

6. Wrong wallet address

Transferring crypto between digital wallets is how you handle crypto from an exchange or send funds from one party to another. But a common mistake new investors make is transferring crypto funds to a wallet, only to mistype the wallet address.

When this happens, the crypto is sent to an incorrect wallet address and may be unrecoverable. While expensive repair service providers claim to be able to help, their services can only go so far—the recipient must choose to cooperate.

7. Being cheated on

As a new asset class, the cryptocurrency market is full of scammers. Chainalysis, a blockchain analytics company, found that scammers collected $10 billion in crypto in 2021. The figure dropped in 2022 ($6.5 billion) and 2023 ($4.6 billion), but a significant amount of money is still being stolen.

These criminals use sophisticated techniques to gain access to your crypto wallet or to convince you to transfer your cryptocurrency to them. Their favorite tactics are romance scams (pig slaughter), Ponzi schemes, phishing, extortion, carpet pulling, giveaway scams and charity scams.

Crypto scams can happen through email or messaging apps, with perpetrators pretending to act in your best interest or that of others. Welsh can be compromised by simply connecting the online wallet to an application and allowing it to access funds. Although this is common practice for many crypto applications, scammers can use this technique to drain crypto wallet funds.

To avoid these scams, never connect your online wallet to an untrusted app, and keep most of your crypto funds in offline hardware wallets. Also, never give out your wallet password, seed phrase, or private keys.

8. Use of Leverage

New crypto investors may be enticed by stories of rags to riches through crypto trading and try to use leverage to multiply their returns. The problem is that leveraged trading requires upfront collateral; if a trade goes bad, you can lose all your funds. Remember, leverage works both ways – it can multiply your losses just as easily as your gains.

New crypto investors would do better to avoid trading with leverage, and use it only after gaining sufficient trading experience.

9. Overcomplicated Trading Strategy

New crypto investors who try to jump right into complicated trading strategies because some YouTube influencer said it was a good idea can quickly lose money. Learning technical analysis, conditional orders and how the crypto markets work takes time.

Investing in crypto can actually be simple. There is no need to create a complicated trading strategy to try and grow your portfolio. Like traditional investments, you can use the dollar-cost-averaging strategy without actively trading and tying yourself to crypto cards 24 hours a day.

10. Order Errors

While some crypto exchanges, like Coinbase, specialize in making it easy to buy crypto, many have complicated order forms and trading platforms that confuse new users. When placing an order, a simple decimal point error can cost thousands, multiplying losses. For example, a mistake cost one seller nearly $300,000 when he sold a premium NFT for 0.75 Ether instead of 75 Ether.

To avoid these costly mistakes, always check your orders or transfers before submitting them. Crypto transfers are irreversible unless the person you’re transferring them to is willing to return them, so it’s best to check before submitting a transaction.

The Bottom Line

Investing in crypto can feel overwhelming, especially if you’re just starting out. However, learning more about blockchain and cryptocurrency investments and how they are targeted by thieves can reduce your chances of losing thousands of dollars or becoming a victim.

The comments, opinions and analyzes expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more information. As of the date this article was written, the author does not own cryptocurrency.