As a cryptocurrency investor, I have noticed several commonalities among new investors in the market. Observing them enabled me to reflect on the mistakes I made when I initially purchased cryptocurrencies. I’ve learnt that investing is a skill that many people don’t possess because they’re impatient and impulsive—two traits that contribute to losses.
In the last few months, several cryptocurrencies surged by a few hundred percent, piquing the interest of retail investors. As a result, more money poured into the crypto market, with newbies hoping to get their share of the pie.
What does it take to be successful with crypto investments? The best way for me to answer is by sharing my experience.
The Biggest Mistake New Crypto Investors Make
In 2017, after I improved my financial knowledge, I began searching for profitable investments. My first stop was the bank. They offered a six percent annual interest rate for fixed deposits, which I thought was decent. The next avenue I explored was stock investments. I learnt that the fees for account management were an important factor to consider, so I asked consultants the right questions. The answers I received led me to conclude that stock investments could be profitable over a long period. But I wanted high rewards immediately.
In December 2017, Bitcoin had surged significantly, leading to mainstream coverage. That was my introduction to cryptocurrencies. In January of the following year, Bitcoin had topped out at around $19,000 while other cryptocurrencies seemed poised for significant price spikes.
A particular cryptocurrency had surged more than a thousand percent and the market awaited major developments with this crypto, anticipating further gains. Believing that I would catch the last wave of the cycle, I entered the market.
Over the next several months, I watched my portfolio decrease in value, eventually resulting in a ninety percent loss. I had bought at the top.
The biggest mistake new investors in the crypto market make is being lured into the market with hype after assets have increased in value by several hundred percent. If an asset’s value has increased that much, how much more value can it gain? Probably not much.
How did I react to the sharp decline of my portfolio’s value?
Wealth is Transferred From the Impatient to the Patient
That’s a Warren Buffet quote that I paraphrased, but it’s true. The biggest reason most crypto investors don’t make any money in the market is because they’re impatient. They observed cryptocurrencies that surged significantly in a matter of weeks but forgot to consider that those assets had accumulated (price ranged) for several years before the bull run.
Had I acted impulsively and sold my assets to avoid further losses, I would’ve realised a loss. Instead, I waited for prices to recover. It took about two years for the price to reach my entry point. I reached break-even and then waited longer. Another five years later, the price of the asset that I had bought had surged several hundred percent. I waited seven years, but it paid off.
Most rookie investors have no patience, and they panic when their investment decreases by ten percent. In highly volatile environments, prices of cryptos can decrease by thirty percent in a day, sometimes even more. It’s common for most cryptocurrencies to lose eighty percent of their value after a major bull run.
Many newcomers to the market don’t have the stomach to digest such losses, so they liquidate their positions out of fear.
The Most Important Factor to Consider About Crypto Investments
Some cryptocurrencies have high transaction fees. Others enable swift peer-to-peer transactions. Certain cryptos have special use-cases. All those factors are important to consider. In my opinion, the most important factor is knowledge of the asset. You need to understand why you’re investing in it. Choosing the most popular one may not be a good enough reason.
The asset I chose was developed by a prominent tech company that had partnerships with banks, enabling instantaneous, global money transfer with its crypto.
Doing research about any investment is extremely important, especially for a new asset class such as cryptocurrencies. It’s not good enough to look at the history of the price and base your decision upon that.
Here’s an important term that I learnt: Show me the charts and I’ll tell you news.
Understanding that concept helped me anticipate price volatility and the reason for the movement. If you don’t understand this concept, I’d recommend studying it in depth before investing in any asset. It helped me develop patience and avoid impulsive reactions.
The most effective solution for handling extreme price volatility, in most cases, is to take your mind off investments and go for a walk. In many cases, the problem solves itself, meaning that prices correct after a certain period. That’s not always the case, but macroeconomic factors are out of your control and environments change.
Final Thoughts
Even if you learn from all of my mistakes and incorporate the strategies that helped me to be profitable in crypto investments, it doesn’t mean that you’ll be successful. Do extensive research into any investment, and don’t let anyone rush you into investing. The financial markets are not going anywhere. There’s no need to rush. In my experience, whenever I made a hasty decision, it turned out to be the wrong one. Take your time, and be certain that you want to invest in a specific asset.
The only people who aggressively try to persuade you to invest immediately do not have your best interests at heart. Scarcity is not synonymous with real investments. There are plenty of assets and enough time for you to make an informed decision.
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