This post is brought to you by Luno.
Cryptocurrency isn’t just a craze but an industry that could potentially yield high rewards. However, similar to other kinds of investment like stocks, bonds, and properties, investing in cryptocurrency shouldn’t be taken lightly. With cryptocurrency still being relatively new, you could be vulnerable to risks and suffer losses if you are not equipped with the right knowledge.
For new investors, cryptocurrency investment can be easy to digest if you know the basics, like how each digital coin works, sending and receiving them, and securing them. So, before you start investing in cryptocurrency, here are the five common mistakes many new investors make and tips to avoid them:
1. Failing to understand the fundamentals of cryptocurrency investment
Whichever digital assets you’ve decided to invest in, not knowing and understanding the basics of investing is a typical newcomer mistake. Be very careful with your money. Gather as much information as you can and learn how cryptocurrency investment works, either independently or through professional guidance.
Also, here are a few things to bear in mind:
- Use a regulated cryptocurrency exchange like Luno to ensure the best security for your digital assets.
- Use strong and unique passwords for accounts and never share them with anyone.
- Enhance the security of your cryptocurrency account by enabling 2-factor-authentication (2FA). This security measure will add an extra layer of protection.
2. Inadequate or zero investment strategy
An inadequate or zero investment strategy is like jumping off a cliff without wearing a parachute. So, what kind of investment strategy for cryptocurrency should you use? Ask yourself these questions: What is your investment time horizon? Do you want to be an active investor or a passive one? What is your risk tolerance? (More on this in the next tip).
As a beginner, it might be helpful to follow a well-known investing method called Dollar-Cost Averaging (DCA). This method involves regularly buying fixed amounts of a particular asset, regardless of the price. You purchase more of the asset when prices are low and less when prices are high, but always at the same currency amount. The DCA method protects you against price fluctuations and downside risk (as long as prices go up over the long term). This can give you peace of mind when investing in cryptocurrency.
3. Not managing risk effectively
Like traditional investments, anyone interested in cryptocurrency investment should already know their risk profile. According to Investopedia, a risk profile evaluates an individual’s willingness and ability to take risks. It is crucial for determining a proper investment asset allocation for a portfolio. You can apply this to the investment of your digital assets as well.
Based on this, you will be able to set a limit on your cryptocurrency investment amount. So, don’t always believe and follow the hype where you’re required to trade with more money than you can afford. The harsh reality is that cryptocurrency investment is a higher-risk investment where traders may potentially face losses, so invest carefully and smartly.
4. Purchasing simply due to the low price
Low prices do not always mean good returns. Sometimes, there must be a solid reason why the prices are low. Be on the lookout for cryptocurrencies with falling user rates. Another example is a project which has been abandoned by developers means the project won’t be updated with the latest patches and technology. This makes it less secure than a project with a lot of legitimate developer activity.
5. Beware of common cryptocurrency scams
There will always be scammers lurking in the digital realm, eagerly waiting for a vulnerable investor to take the bait. So, if you stumble upon a cryptocurrency deal that sounds too good to be true, be extra cautious. First, you must know at least four common cryptocurrency scams as follows:
- Fake Coins
Since there are thousands of cryptocurrencies on the market, investors may find it challenging to identify genuine coins from fake ones. Furthermore, if you had mistakenly invested in counterfeit coins, your identity and hard-earned money can be stolen. Therefore, instead of relying on one source, use as many credible sources as possible when doing your research on coins before purchasing them.
- Malicious wallet software
It’s safer and best to stick with a regulated wallet like Luno. Unknown or dodgy wallets that can be found on mobile app stores or on Google searches can steal your crypto funds without your knowledge.
- Pump and dump schemes
While not possible with legitimate cryptocurrencies like Bitcoin and Ethereum, criminals can easily manipulate the price of small or even unknown cryptocurrencies by inflating or deflating the cryptocurrencies’ value.
When traders jump on the bandwagon, thinking it will lead to a jackpot, the criminals sneakily wait for the price to increase before selling all their coins, causing the price to crash. This is known as a pump-and-dump scheme.
- Cloud multiplier scams
Scammers would sometimes contact their victims via text or email, baiting them with a solid “investment opportunity”. Investors are given promises like double or triple the amount they’re investing into a coin or project if they send their cryptocurrency to a particular digital wallet. Remember, offers of free money are always too good to be true.
Start your cryptocurrency investment with Luno, the leading and regulated digital asset platform in Malaysia
Getting started with cryptocurrency investment is convenient and fast. If you’re wondering how to start investing in cryptocurrency, you can begin your crypto journey with Luno. You will also have access to various learning resources on Luno which will help you to understand what cryptocurrency is, its pros and cons and how to safely invest in it.
You can also earn free Bitcoin from Luno’s referral programme when you refer to your friends and family in Malaysia as well as in Singapore.
Here are the steps to invite your friends and family in Malaysia:
- Share your unique invite code to your friend from the Rewards Page
- Your friend signs up, deposits and buys RM100 in crypto from Luno’s Instant Buy or Sell
- You both get RM25 in free Bitcoin
The invitation process for your friends and family in Singapore is similar but with a difference in the investment and reward amount:
- Share your unique invite code to your friend from the Rewards Page
- Your friend signs up, deposits and buys SGD200 in crypto from Luno’s Instant Buy or Sell
- You both get SGD30 (~RM90) in free Bitcoin
You can read more on the terms and conditions for Luno’s referral programme at www.luno.com/en/legal/rewards-and-promotions.
This article is for educational purposes only and you should not construe any such information as investment or financial advice. Investing in cryptocurrency is high risk and may result in the loss of capital as the value can fluctuate. We recommend individuals consult with a licensed financial planner for detailed financial advice on whether cryptocurrency is a good investment option.