Six cryptocurrency tips (and five mistakes to avoid)

The best trading tactics often come from years of investing in cryptocurrency markets.

With this handy guide, any beginner can learn how to come up with the best trading strategies and avoid common cryptocurrency mistakes.

In this article we will explain:

Related Guides: Should You Invest in Bitcoin? and What is cryptocurrency?

Six tips for cryptocurrency

If you want to invest in cryptocurrencies, here are six tips:

1. Have a strategy for crypto trading

It is not easy to separate genuine cryptocurrency recommendations from the scams; there are many sharks out there waiting to take your money.

Reports of crypto investment scams rose to 7,118 in the first nine months of 2021. This was up 30% on the whole of 2020, according to Action Fraud, with the average loss per victim at £20,500.

So when faced with a lot of information about a cryptocurrency, take a step back from the hype.

Try to look critically at the project or platform. How many users does it have? What problem does it solve? Avoid coins that promise the earth but have not delivered anything tangible.

2. Manage risk

Some people offering crypto trading tips may not have your best interests at heart. So don’t be tempted to make the same mistakes as others.

Set limits on how much you invest in a particular digital currency and don’t be tempted to trade with more money than you can afford to lose.

Cryptocurrency trading is a high-risk business and more traders lose money than don’t.

We explain the highs and lows of the digital currency.

3. Diversify your crypto portfolio

It doesn’t pay to invest too much in one single cryptocurrency. Or as they say: don’t put all your eggs in one basket.

As with stocks and shares, spread your money between different digital currencies.

This means you don’t run the risk of being over-exposed if one of them falls in value – especially as the market prices of these investments are highly volatile.

There are thousands to choose from, so do your research. Examples include worldcoin and safemoon.

Find out about the alternatives to bitcoin.

4. Be in it for the long haul

Prices can rise and fall quite dramatically from day to day, and novice traders are often tricked into panic selling when prices are low.

Cryptocurrencies are not going away. Leaving money in the crypto market for months or years at a time can offer the best rewards.

5. Automate purchases

Just like with ordinary stocks and shares, it can help to automate your crypto purchases to take advantage of pound cost averaging.

Most cryptocurrency exchanges, including Coinbase and Gemini, allow you to set up recurring purchases.

This is where crypto investors tell the platform to buy a fixed amount of their preferred cryptocurrency each month – for example £100 worth of bitcoin. This means that they get a little less of the currency when prices are high, and a little more when prices are low.

It takes the stress out of trying to time the market by either buying a currency at what you think is the lowest possible price or selling at the highest price. This is something that even professionals in the market struggle to get right.

6. Use trading bots

Trading bots can be useful in some circumstances, but they are not recommended for beginners looking for crypto investment tips. Often these are just scams in disguise.

If there was an actual algorithm that perfected your buy and sell trades, everyone would be using it!

Five Common Crypto Mistakes

The latest research from the UK regulator, the Financial Conduct Authority, has shown that around 2.3 million Brits own cryptocurrency in some form.

It is very easy to get caught up in the hype of news headlines. Crypto mistakes are surprisingly common, and below we list a few of them.

1. Buy only because the price is low

Low prices do not always represent bargains. Sometimes prices are low for a reason! Watch out for cryptocurrencies with declining user rates.

Also, often developers leave a project and it stops being updated properly, making the cryptocurrency insecure.

2. Go all-in

Some of the more suspicious trading platforms suggest that you maximize your money by betting as much as possible. It’s a quick way to the poor house.

Better crypto investment tips would be to only use a certain portion of your investment capital – say 5% – and always keep an emergency cash fund in an easy access savings account that is never invested in the market.

3. Think crypto is ‘easy money’

There is nothing easy about making money trading any kind of financial asset, whether stocks and shares or commodities like silver and gold. The same can be said for cryptocurrency.

Anyone who says otherwise is probably trying to trick you into making crypto mistakes.

4. Forget your crypto passphrase

If you have a hardware wallet to store your crypto offline, forgetting your passphrase is like losing the keys to a bank vault.

Without your passphrase, all your crypto will be unrecoverable.

5. Falling for scams

Be very wary of crypto deals that sound too good to be true. We outline four common crypto scams to watch out for:

Cloud multiplier scam

Fraudsters sometimes contact victims via email or text with an “investment opportunity”. They promise to give investors double or triple the amount they put in bitcoin if they send their cryptocurrency to a specific digital wallet.

REMEMBER: Offers of free money should always be viewed with great skepticism

Pump and shower

Criminals can easily inflate or deflate the price of very small or unknown cryptocurrencies, sometimes causing the value of these currencies to skyrocket.

Sometimes criminals will own a lot of a particular cryptocurrency (by pre-mining a lot of it before it is available to the general public).

When unwitting traders rush in to try and grab a piece of the action, the criminals wait for the price to rise before selling all their coins and causing the price to crash.

They can inflate the price by promoting it on social media, before selling it at the higher price.

Malicious wallet software

The best crypto tips will tell you to stick with big name crypto wallets like Ledger, Trezor, Exodus or MetaMask.

Dodgy or unknown wallets you find on Google Play or the App Store can steal your crypto funds with dodgy code.

Fake coins

With so many cryptocurrencies on the market, it can be hard to tell what’s real and what’s not.

When you invest in fake coins, criminals can steal your identity and often your hard-earned money.

Don’t take someone else’s word for it and use as many sources as possible to do your own research on coins before you buy them.

Know your crypto lingo

There is a lot of jargon out there in cryptoland and it can often be difficult to decipher.

Use this helpful list to take advantage of the best crypto tips and avoid common cryptocurrency mistakes that can blow up your trading account.

Altcoin: A portmanteau of “alternative” and “coin”, altcoin refers to any cryptocurrency other than the original one, bitcoin. Cryptocurrency exchanges: just like regular stock exchanges, Coinbase, Binance, Gemini and Bitstamp allow traders and investors to buy and sell – except that they trade cryptocurrencies here. Unlike standard stock markets, cryptocurrency exchanges are online only and are open 24 hours a day, seven days a week. Limits: most exchanges do not set limits or restrictions on the number of cryptocurrency transactions their users can make in a day. On turbulent trading days, when cryptocurrency prices move up or down very quickly, some brokers may short-stop people depositing funds on their platforms. Market cap: the total value of a cryptocurrency. It is calculated by multiplying the price of a cryptocurrency by the total number of coins in circulation. It is a useful metric to compare the total value or size of different cryptocurrencies. Shorting: “shorting” cryptocurrency means betting on the price going down rather than up. Forks: a cryptocurrency fork is a split in a blockchain where two separate blockchains are created. This is sometimes due to a disagreement between developers about how the blockchain should be organized. In 2017, bitcoin forked into two separate blockchains: bitcoin and bitcoin cash. ICO: this is an initial coin offering where new cryptos are sold to investors for the first time. It is similar to an initial public offering (IPO) in the stocks and shares world. Margin trading: when platforms talk about margin trading, it means that investors borrow money to increase their bet on a cryptocurrency. Be very careful, however, because margin trading can dramatically compound losses if a trade doesn’t go your way. Fiat: A fiat currency is one that is backed by a sovereign government. For example, sterling, US dollars or Indian rupees. Cloud mining: people can “mine”, or create, cryptocurrencies to compete for rewards in the form of newly created crypto. Cloud mining uses remote data centers with shared processing power, like the kind that power Google software, to pool resources and reduce the cost of mining.

Be extremely careful as many cloud mining companies are just scams. An incredible amount of computing power is required to mine the best cryptocurrencies. Anyone offering easy cloud mining rewards is likely to be a charlatan.

Bull markets and bear markets: these are phrases borrowed from traditional stock markets. A bull market means traders are confident in the prospects for a particular investment, meaning they will keep buying and prices will continue to rise – while in a bear market traders are nervous and prices will generally fall. Sell ​​orders: a sell order is an instruction given by traders to a platform to sell cryptocurrency they own when the price reaches a certain level. In traditional markets this is referred to as a “stop loss”.

More information

There are many more guides on Times Money Mentor to guide you through cryptocurrency markets and help you make the most of your money. This includes: