Cryptocurrencies: 5 Mistakes To Avoid When Investing In This Market

Like traditional exchanges, cryptocurrencies had a tough first half of 2022. “Bitcoin has entered its fourth bear market (bear market, editor’s note)” in 13 years, notes Vincent Boy, an analyst at the brokerage IG. And it took the entire crypto market with it. Since its peak in November, the price has fallen more than 70%, to below $19,000 on Thursday, June 30. A dizzying dive, but not a first. “This drop is impressive for new entrants, but is starting to become commonplace for long-term investors,” explains Vincent Boy.

Although cryptocurrencies are increasingly correlated with stock prices, especially of major technology companies listed on the Nasdaq in the United States, they are still characterized by their very high volatility. Therefore, when investing in this asset class, you need to be particularly careful, otherwise you risk losing all your money. Here are five mistakes you absolutely must avoid if you hope to make a profit in the crypto market.

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Invest money you need fast

For starters, it is recommended that you only invest the money that you do not need, today or tomorrow. You should invest a reasonable portion of your savings, which you are willing to lose without affecting your daily life or your standard of living. Cryptocurrencies are indeed a risky investment, with no guarantee of the invested capital. So you can lose everything.

According to Stanislas Barthelemi, consultant at Blockchain Partner, a consulting firm affiliated with KPMG, it is generally advisable to invest “between 5% and a maximum of 10%” of your portfolio in crypto assets.

However, in the medium to long term, bitcoin shows an impressive performance. Since January 2015, despite the sharp decline in the past six months, it has risen by more than 1.100%. As with shares, it is an investment that is therefore preferably considered in the long term in order to hope for a nice capital gain.

Invest all your money in one go

You should also avoid investing all your savings at once. Otherwise, you risk market swings and a possible crash. This is the case, for example, if you invest all your savings just before a sudden price drop.

Therefore, to reduce your exposure to volatility, it is recommended to invest small amounts at regular intervals regardless of the evolution of bitcoin and other cryptocurrencies. This programmed investment strategy has become popular in the crypto world under the term “DCA” (dollar cost averaging). To do this, you must plan to buy a fixed number of cryptocurrencies depending on your resources: 100 euros per week or per month for example.

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This passive strategy, which is very easy to implement, is well suited for retail and novice investors. It just asks you to estimate well in advance how much savings you can afford to invest regularly over a period of time, say for two years or ten years.

Follow the trend and sell everything when the market drops

As with the stock markets, you should avoid trading on pure imitation. And especially to panic when prices fall. At these moments it is necessary to show patience and not to adopt herd behaviour. You need to take a step back from your investment, consider it long term. Bitcoin is used to dizzying dips, which didn’t stop it from bouncing back afterwards.

If you sell your bitcoins or your ethers when prices start to fall, you run the risk of incurring a capital loss or recovering a smaller capital gain than if you had postponed the resale of your assets for months or even years.

Only buy when prices are rising and are already high

Likewise, it is not wise to buy until prices have already risen sharply after a sharp decline, nor to acquire cryptocurrencies en masse in a moment of euphoria when these assets see their value rise. You have to keep a cool head and take another step back from your internship.

The ideal is to take advantage of the market’s decline to acquire cryptocurrencies at lower prices and hope for better capital gains later, rather than buying already highly valued assets, which may still rise, but also see their prices fall. .

Invest your money in a cryptocurrency

Finally, it is important to diversify your crypto investment. But to do this, you should not be satisfied with investing in different cryptocurrencies without checking the project developed behind each of them. These assets are not interchangeable, far from it. In particular, you should be able to consult the “white paper” of any cryptocurrency on the internet, which should be detailed and clear about the blockchain operation of each of these assets.

In addition to bitcoin and ether, new crypto projects are born almost every day. There are already more than 20,000 cryptocurrencies, according to CoinMarketCap, one of the reference platforms for the evolution of market prices. The ideal is to invest in the most promising projects, as the associated cryptocurrency will have a better chance of valuing over time. Conversely, we should avoid crazy projects, called “shitcoins” in the crypto community.

There are also many scammers out there looking to capitalize on the hype surrounding these new assets, and scams abound. So stay vigilant and be especially careful with cryptocurrencies that have just been created. Some can artificially inflate their price before suddenly collapsing, until they are worth nothing or next to nothing.

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