After attracting $ 7 billion in VC Funding during the first 3 months of 2022, the Cryptocurrency & Decentralized Finance industry officially became the most attractive Fintech sector for investment globally. This is an irrefutable testament to the accelerated rate of adoption of cryptocurrencies and DeFi services by new retail and corporate investors around the world.
However, there are some common mistakes that new & existing crypto investors typically make as they try to navigate the crypto markets. These mistakes have led to Crypto losses ranging from a few hundred dollars to entire life savings and sometimes billions of dollars worth of DeFi investments getting drained in a heartbeat — all due to one wrong stroke of a key.
And the catch is that, while newbies are expectedly more error-prone, even experts, otherwise called degen traders, are not entirely immune to committing these costly mistakes.
In this article, you will learn what these errors are, as well as the easy steps that you can take to prevent them from happening.
What Are the 5 Biggest Mistakes When Investing in Crypto?
Here is a non-exhaustive list of 5 of the most common, and potentially most costly errors that crypto investors make.
- FOMO
- Not Getting Coverage.
- Over Diversification
- Lost Keys & Seed Phrases
- Sending Crypto to Wrong Address/Network
Now let’s discuss each of them sequentially.
- FOMO (Fear of Missing Out)
The classic “Fear Of Missing Out.” It refers to a common occurrence where crypto investors make impulsive trading decisions largely based on short-term movements in the markets — instead of taking well-planned data-driven and/or expert-guided decisions.
FOMO mistakes typically occur in 3 ways:
- When you purchase a Token that you have not properly researched simply because the price is skyrocketing.
- When you react and sell a Token immediately at the sight of a downward trend without understanding the fundamental details behind the price drop.
- When you conscientiously or inadvertently take investing advice from non-accredited advisors i.e. crypto “Influencers”. These are popular personalities who give one-sided opinions, including false or misleading statements to spread FUD i.e. negative perceptions about a certain crypto asset or to outrightly “Shill” a token in a bid to artificially inflate the prices.
A classic example of FOMO occurred in Jan 2022 when American news agency CNBC reported that Kim Kardashian and Floyd Mayweather had been sued by investors over an alleged crypto scam. The class action highlighted how the A-list celebrities had used their influence to mislead them to pour funds into a certain EthereumMax token, which eventually lost 97% of its value, barely 4 months after Kim Kardashian and Floy Mayweather had promoted the token on their Instagram pages.
Unbeknownst to many, a similar case in 2018, had seen Mayweather pay over $600,000 in a settlement with the US Securities and Exchange Commision (SEC). Similarly, Charles Randell, chair of the U.K. ‘s Financial Conduct Authority, had also singled out Kardashian’s Instagram ad for EthereumMax in a speech, back in 2021, warning about crypto scams where “social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation.”
Ethereum max is only one out of hundreds of similar FOMO cases around the world. Here’s how you can avoid falling victim.
How to Avoid FOMO
To avoid making these dreadful FOMO mistakes in crypto investing, here are some steps that you can take.
- Create a personal Investment plan
— Mistakes can be avoided or mitigated with the right planning and risk assessment. How much returns do you wish to earn, and for what term (long-term or short-term)? What is your risk appetite and expected financial capacity? These are some of the questions you need to answer when you draw up your overall financial plan.
- DYOR (Do your own research)
— DYOR is one of the most popular phrases in crypto. Yet not many people adhere to this crucial principle. The idea behind the DYOR mantra is for you to ask objective questions, and seek relevant information about a project before you invest in the token. Data-driven and knowledge-based research will help you identify the right crypto assets to purchase, hold or sell at any given time.
Ideally, in addition to market data about the historical price movement, you also want to find out information about the founders/promoters of the project, the problem that the project solves, its competitors, challenges, as well as the potential growth opportunities of the Crypto project and its ecosystem.
2. Not Getting Coverage:
Quite evidently, the Crypto & DeFi industry is fraught with some major risks, such as DeFi Hacks, Smart contract exploits and Stablecoin de-pegs.
But despite recording an alarming $1.2bn in crypto losses from various DeFi exploits in 2022 alone, many investors still remain apathetic or unaware that there are DeFi protocols that offer Insurance Coverage that can protect them from falling victim & making huge losses.
Risk is an inherent part of investing in every sector, and the blockchain industry is no exception. Therefore, it behooves every investor to deploy proper risk management strategies to mitigate crypto-relate risks. Getting Coverage means that you can claim a full-refund if you fall victim to an attack by Hackers, Stablecoin De-peg or Smart contract exploits like flash loans.
How to Get Coverage For Your Crypto Assets
To get Coverage for your crypto assets, it’s quite an easy process. InsurAce is a DeFi Protection protocol that allows users and investors in DeFi services to purchase coverage for their crypto assets against various risks that are inherent to the blockchain space.
Step 1 — Visit InsurAce.io
Step 2 — Connect Wallet
Step 3 — Click on “Buy Cover”
Step 4 — Select your desired Token(s).
And there you go. InsurAce deploys an automated mechanism, that computes your applicable Premium in real-time. Unlike TradFi coverage firms, InsurAce is a blockchain-native platform with an experienced team of experts that have the specialized technical know-how about the blockchain industry.
Advantages of Getting DeFi Coverage with InsurAce
- Claim 100% refunds if you fall victim to hacks & smart contract exploits
- Fast payouts.
- Low premium.
- Privacy — No KYC restrictions.
- Multi-Chain Access i.e the InsurAce platform that is deployed on the BNBChain, Ethereum, Polygon(Matic), Avalanche among others.
Over the last 2 years, InsurAce has emerged as the Industry leader in the DeFi coverage space. The platform gained plaudits from within and beyond the blockchain space, having made a record payout of $11.7m to 155 victims of the devastating TerraUST crash, back in May 2022.
3. Losing your Keys —
According to a recent report from Glassnode, Over $100 billion worth of Bitcoin and other crypto assets is estimated to be lost forever. All due to seemingly flimsy reasons like lost keys, damaged wallets & forgotten keyphrases.
Cryptocurrencies make use of a unique set of security protocols. Methods of Storage & safekeeping are a lot different. i.e. there’s no “forgot password”, or “reset account” option if you lose your keys or seed phrases.
How to Avoid Losing Your Keys
- Cold Storage — if you’re using cold storage methods like Paper wallets or Hardware wallets, ensure that you keep them in a safe space.
- Software Wallets — If you lose passkey or seed phrase(s) you may permanently lose access to your software wallets. Hence, you should endeavor to write them down, and make copies if possible.
4. Sending Crypto to the Wrong address/Wrong Network:
Blockchain transactions are irreversible. If you send crypto to a wrong address, or you select the wrong wallet Network, you may lose your tokens forever. And unlike TradFi banking, there are no customer support lines to help with the situation.
How to Avoid Sending Crypto to the Wrong Address/Wrong Network
- Before initiating & validating any transactions, Always take a few extra seconds to verify that you have selected the write Address on the correct blockchain Network.
- Double-Check & Read Aloud
- Read User Guides.
- When in doubt, Contact Support for Technical Advice.
5. Over Diversification:
In a bid to mitigate volatility risks in the crypto markets, some investors may choose to diversify their portfolio by holding several cryptocurrencies simultaneously. Diversification is a good risk management tool, but over-diversification can lead to an investor holding a large number of underperforming assets, thereby incurring significant losses.
How to Avoid Over-Diversification
To avoid over-diversification, these are a few methods that you can deploy:
- Explore Crypto Indexes – Diversifying your crypto investments is a great way to minimize risks. There are several blockchain protocols that provide special synthetic assets called Crypto Indexes. A crypto index is a token that is composed of an underlying selection of cryptocurrencies. These underlying assets are typically grouped together and weighted by market capitalization.
Purchasing Crypto Indexes will allow you to gain exposure to a few high-quality crypto projects and monitor them at a glance — while you avoid the risk of over-diversification.
- Yield Farming — Another way to avoid overdiversification is deposit your tokens in liquidity pools, to earn Staking rewards. By doing this you will get to diversify your position and earn passive income with having to rely solely on market trends.
Final Words/Disclaimer :
This article is written for informational and educational purposes alone and does constitute any form of Financial Advice. Ensure to DYOR before making any trading decisions and consult an accredited financial advisor where required.
