6 Mistakes Investors Make When Building a Crypto Portfolio
The past few decades have seen cryptocurrency take the world by storm. But in the process of growing from a niche investment to a mainstream phenomenon, there have been many pitfalls along the way. Cryptocurrencies are extremely volatile and continue to rise or fall based on supply and demand.
As the cryptocurrency market continues to grow, many investors have taken notice. From individuals looking to become part of the crypto movement to institutions trying to get ahead of the curve, there are thousands of reasons people are flocking to digital currencies. Despite being decentralized, open source, and transparent, the crypto industry is a double-edged sword if you’re unfamiliar with the changing trends and market behaviors.
This can be confusing for new investors who want to build their portfolios without relying on any specific platform or brand name. If you’re an investor looking to expand their portfolio by investing in crypto, here are a few things you need to be on the lookout for.
Mistake #1: Ignoring the risk-factor
A portfolio is built considering diversification, risk factors, and return ratio. It is a combination of all your investments. Amateur investors are often more interested in highly profitable investments without having a contingency. Unfortunately, they forget that they are equally vulnerable to huge losses.
Ignoring risk even if a certain currency is doing well can be costly. It’s always better to check out multiple options and invest in small chunks rather than betting on one coin.
By diversifying your portfolio, you can minimize the impact of a single cryptocurrency on your overall returns when it experiences a decline in value or, even worse, gets delisted from exchanges or trading platforms. Your portfolio’s investments should be split into high, medium, and low-risk categories. You can invest in stable coins or buy Shiba Inu and other cryptocurrencies to ensure your portfolio stays diverse and stable.
Mistake #2: Ignoring the history of crypto
You need to know what you are doing! You should always be on the top of your game by staying updated on the recent changes as well as reading up on a certain coin’s history, performance, and future predictions. Knowledge is power, so if you want to become successful in crypto, you must be knowledgeable about the subject matter.
Each cryptocurrency has unique benefits and disadvantages, which investors must understand before investing. Be aware of the risk percentage and invest only what you can afford to lose.
Although you can learn helpful tips from traders on YouTube or Twitter, it’s crucial to make your own decisions by considering all factors and their long-term and short-term impacts. Ensure that you grasp the specific problem a new cryptocurrency is attempting to address, what sort of people are investing in it, and who designed it before making a decision. Never buy a coin based on someone’s advice, particularly social media influencers and celebrities.
You can also find a list of eco-friendly cryptocurrencies that aim to protect the environment. If this is something that aligns with your values, you should consider investing in one.
Mistake #3: Not checking in frequently
The cryptocurrency market moves so fast, and it’s always changing. Unlike the stock market, you need to constantly check the market value of the coins you have invested in. Checking once a day won’t do any good if you want to get the most out of your assets; you need to check more frequently—perhaps once an hour.
We know it seems ridiculous to hit refresh after every little while to see if the value of your coin has gone up or down. This is why we’d recommend looking into watch lists online. Websites like this provide an excellent platform to monitor your coins and receive alerts if the value goes up or down your limit.
Mistake #4: Following the herd
It’s not enough to just buy crypto; you need a strategy. The market moves so fast, and it’s always changing. If you don’t have a strategy and are just buying whatever sounds interesting or in trend, you won’t be able to stay on top of it. One important thing about crypto is that the prices move so fast that if you don’t have a strategy and just buy whatever looks appealing, you won’t be able to comprehend the trends or predict future projections.
“FOMO” or fear of missing out, is a common phenomenon people experience in the crypto world. New investors unaware of market volatility can invest a large chunk in a coin that previously saw a huge hike in its value. It’s crucial to consider that just because your friends made huge profits once, you will see the same outcome next time.
Know what’s good for you and don’t haste!
Mistake #5: Purchasing a cheap coin
While the price of a coin can be a very important factor in deciding whether or not it’s worth buying or selling, low-cost coins aren’t always a good investment.
It may look like your losses will be minimal and easily recoverable, but if you operate with this mindset, you’ll soon become used to investing in projects that are low risk, low reward.
Low costs are not always a sign of a good deal. Prices can be intentionally low to draw unsuspecting investors in. Be wary of cryptocurrencies that have declining user rates. Additionally, developers frequently abandon projects, preventing them from being properly updated and leaving your portfolio vulnerable.
Mistake #6: Believing that cryptocurrency equals “easy money”
Traders who believe cryptocurrency is easy money compared to traditional investment methods are often those with little understanding of the market. Cryptocurrencies indeed offer high-risk, high-reward scenarios like any other investment, but it’s important to understand what you’re getting into.
Focus on the big picture at all times. Investing in cryptocurrencies should just be one component of your portfolio. You should also be looking into the value of more established, conventional investments like real estate, gold, stocks, other currencies, etc. Make sure your entire investment portfolio is as diversified as your cryptocurrency portfolio.
Often, fear of missing out on something great is a greater motivator for investors. It’s a worthwhile consideration, seeing the potential gains of this industry, but it’s also easy to make mistakes.
If you follow the above-mentioned advice, you’ll be better equipped when it’s time to cash in on your investments. The cryptocurrency market can be highly volatile, and it’s important to learn and adapt rather than play by the rules to avoid future losses. Bad crypto investments are not worth the money or effort, and your crypto portfolio’s first steps should always be rooted in logic, prudence, and an eye for long-term gains.