Cryptocurrency is often presented as money for the masses, and for this reason, many people have the idea that it’s more accessible and easier to trade than traditional financial instruments. The truth is that the world of crypto is incredibly complex, and even people who have been in it for years often don’t understand market reactions. Crypto is still new to most investors, and many people end up disillusioned with their results when they first get started. But that’s mainly because they didn’t really understand cryptocurrency investing or went in with false ideas.
Let’s take a look at a few of the most common reasons why people end up getting burned with cryptocurrency.
You’re Getting Your Information from YouTube and Social Media
A lot of crypto investors have an independent and anti-establishment mindset. This is not only reflected in their investments, but where they decide to get their information.
If you’ve been in crypto circles for a while, you will know how distrustful people in these spaces are of traditional media. Many will prefer getting their information from a few people on YouTube or people on social media groups. The problem is that a lot of the information there is biased. You’ll rarely hear someone on YouTube say something bad about bitcoin for instance, and the reason for this is simple: they’re personally invested.
Would you trust someone whose whole lifesavings are in one stock or stocks from one particular industry? It’s surely in their interest that the stocks go up, so they’re less likely to give you information that will hurt them. But for some reason, some people seem to think that it’s not the same with crypto.
We would suggest that you think twice about listening to rosy news about cryptocurrencies from people you come across online. Instead, you need to look at as many sources as possible, and that includes reputable media outlets.
They Think that Every Bad Information is FUD
“FUD” is a term you’ll hear a lot about in crypto. It stands for “Fear, Uncertainty, and Doubt.” This comes from the idea that major financial institutions and governments are conspiring against crypto and are flooding the media with messages that discredit it.
The problem with this is that many end up dismissing any kind of negative information as FUD. But things such as poor adoption rates, issues with cryptocurrencies, or the failure of certain projects are something that you should know about. Again, this isn’t something that you see with regular investors, and bad information should play an important role in your decisions.
They Get Caught by FOMO
“FOMO” or the “Fear of Missing Out” is another common acronym in crypto circles. A lot of people are into bitcoin now because they have seen people becoming millionaires over the years and they don’t want to miss the money train. But we have bad news for you: if you didn’t invest in bitcoin in the early days, this ship may have sailed a long time ago.
It’s very unlikely that bitcoin will make the same jump as it did from the times it was around $500 to now. Even if bitcoin went to 1 million, it would still be a modest profit compared to what early investors got, and there’s nothing that guarantees it will get anywhere near that mark. Not only that, but buying when everyone is in a frenzy increases the chances that you buy them when their price is too high.
They Think they Can Trade Crypto Like Any Other Investment
There are also many misconceptions about how crypto trading works, and many people assume that they can do the same things with crypto as they do with stocks or the currency markets. However, there are fundamental differences between them that people need to understand.
For one, cryptocurrency markets are not always as liquid as these assets. Trading them for fiat money is also not always easy either. Then there’s the volatility. It is not uncommon for crypto to go for wild swings, and many will start panic selling as a result. But they fail to understand that that’s the way it is with crypto. So, before you start investing, you have to know what separates crypto from other investments and adapt your strategy accordingly.
Not Having an Investor Profile
You need to establish your investor profile before you spend a single dollar on cryptocurrency. Those who have a profile and don’t have a clear strategy from the get-go are set to fail. There are mainly three types of investors: conservative, moderate, and trader.
We would first like to say that cryptocurrency is not the best for traders. This is because of the high trading fees, the length of the transactions, the lack of liquidity with certain coins, and the lack of options from exchanges, like leverage for instance.
The only exception here would be bitcoin ETFs, which are still under discussion right now. If you want to know how a bitcoin ETF works, we suggest you check out Wealthsimple today. Their guide explains how a bitcoin ETF would theoretically work, along with hypothetical pros and cons. They also explain some of the alternatives to crypto ETFs that you can use if you want to get involved in crypto but not deal with some of the drawbacks of holding it.
Most cryptocurrency investors today fall into the moderate category. These people will have diverse assets and different positions on their investments, and will go between holding and trading.
Holders, or “hodlers” as they are commonly referred to in crypto, are your crazy evangelists. They believe that you should never, under any circumstances, sell your cryptocurrency. This might seem extreme, but a lot of people in the community think like this.
These people are usually more into the idea of crypto instead of what’s happening in the market. They believe that cryptocurrencies are the future currencies of the world, and they also have a very strong anti-establishment sentiment.
This is a very dangerous road to take if you’re an investor and a bad strategy for any asset. You don’t know where crypto is going to go in the next few years. Also, you don’t know which one will still be around and which ones will fizzle out.
They will also often have way too much of their assets invested in crypto. Mark Cuban, while being big on crypto, also said that no one should invest more than 10% of their portfolio in them, and we tend to agree. This would allow you to adjust how much exposure you have if you see long-term trends solidifying instead of holding any and every coin until eternity.
They Don’t Understand What Crypto Is
It’s sad to see how many people who are invested in crypto have little idea of what it is. Like we said earlier, crypto is a very complicated asset, perhaps one of the most complicated. Going in without any understanding of crypto means that you’ll depend on biased opinions and people who are just as much in the dark as you.
First of all, you should understand that cryptocurrency is still very far from mass adoption. You should also know that there is a strong chance that bitcoin will never succeed as a currency. That’s something that very few people in these circles will tell you, but everyone secretly knows.
The thing is that, bitcoin, like many other cryptocurrencies, has fundamental flaws that make them difficult to use as currencies. In the case of bitcoin, transaction times can be very slow and the network can only handle a handful of transactions per second. Having to wait 10 minutes for an order to go through is not something most people are accustomed to, and is one of the reasons why it’s not widely used for purchases yet.
Another misconception about bitcoin is that people can buy everyday items with it. In reality, bitcoin is very bad for small transactions because the fees are so high. Not only that, but these fees can fluctuate depending on how much congestion there is on the network. We can already see how this can be an issue for customers.
So, before you start investing in crypto, understand what they are and don’t become a religious investor. Before you get into ideology, have a clear idea of what they are and make sure you’re realistic.
Only Caring About Bitcoin
Too many people go in only caring about bitcoin. Some will also include Ethereum or something like XRP or Litecoin. But there are so many interesting projects out there and ICOs that you could check out. They are often those with the most growth potential and can give you much better returns than Bitcoin ever could. So, we suggest that you educate yourself on other cryptos besides the big 3 or 4 names.
These are just some of the reasons why so many new investors fail when they get involved in crypto. You should treat them just like any other asset and do your research before you get invested in them. You also have to make sure that you get your advice from as many outlets as possible so you can have a fair and balanced opinion.