Bitcoin and other cryptocurrencies have had a rough couple of years. The cryptocurrency was in a hype cycle during the pandemic, but as the economy started showing signs of weakness, people withdrew their money, and the market came down.
However, there are still countless people invested in Bitcoin. Reports show that there were an estimated 200,000 Bitcoin transactions daily in November of 2022. That means there is still reason to consider Bitcoin an investment.
Knowing about the common Bitcoin investor errors to avoid is critical to making smart Bitcoin investment decisions. Below are seven common mistakes people make when creating a Bitcoin investment strategy.
1. Not Having a Strategy
Although you can dump money into Bitcoin at once and see success, that isn’t always the best choice. You may buy when the market is high and see a crash happen a few weeks later. Your investment will be down for a while in this situation.
It makes sense to have a strategy to make better decisions. For most people, this means buying smaller amounts in the Bitcoin investment market over time using a dollar-cost averaging strategy. This will allow you to gain exposure at several price points.
You can try a more advanced trading strategy if you want to take more risks. You can learn to read technical charts and make profitable trades daily or weekly.
Whatever you do, don’t try to time the market. Some people try to put off buying Bitcoin and wait for the perfect time to buy. This time will never come, so develop a strategy and execute it as soon as possible.
2. Not Learning About the Technology
Cryptocurrency is much more than a way to make money. It’s a technology that introduces a new way to handle financial systems and incentives.
Bitcoin acts like a store of value for many people. They use it to store money and avoid the inflation of traditional currencies.
Other cryptocurrency products have different use cases. Although you may want to focus on Bitcoin initially, it’s smart to investigate other options to see what they can do.
When you do, you can branch away from Bitcoin and diversify your cryptocurrency portfolio. While you will mostly be safe investing in Bitcoin, you can profit more by diversifying and investing in new cryptocurrency tools.
3. Picking the Wrong Crypto Trading Platform
There are many crypto trading platforms on the market. Many allow traders to buy the biggest cryptocurrencies — like Bitcoin and Ethereum. Others provide other options and have more earning features.
The problem is that some exchanges don’t care for their users. They have poor security and put their users at risk.
You need to pick a reputable trading platform to buy Bitcoin on. Start with the biggest platforms in the ecosystem and see if you’re legally allowed to buy cryptocurrency there. Ideally, you won’t need to go to other platforms unless you want to expand your holdings and purchase a cryptocurrency that doesn’t exist on your primary buying platform.
4. Forgetting Fees
One of the biggest things to remember about trading cryptocurrency is the fees. Every time you make a transaction with Bitcoin, you pay a fee to the network. That can drastically change the equation if those fees are high.
Although you don’t have the typical network fees on a trading platform, you’ll still get charged a smaller fee. If you’re rapidly buying and selling Bitcoin, this can change your trading strategy.
Be sure to calculate those fees when trading. It may mean making fewer trades if you’re rapidly buying and selling Bitcoin to take advantage of price swings.
5. Holding Everything on an Exchange
Many people who buy Bitcoin won’t be active traders. They will gradually buy over time and increase their holdings in hopes that Bitcoin’s price will increase more in the future.
Yes, you can keep your holdings on a crypto exchange to make things easier for yourself. The problem is that you don’t have total control over your holdings in this situation. If an exchange has problems, everything you have is at risk.
If you want to play things safe, move your holdings to a private wallet. You have complete control over your Bitcoin when you do this — which means you won’t need to worry about exchange hacks and other issues.
6. Failure to Consider Taxes
Taxes weren’t always hard with cryptocurrency. Many people realized their profit once they traded their cryptocurrency for cash. This made taxes much easier.
That’s no longer the case today. The government considers each trade in the tax equation. This means you owe taxes on every trade you make.
This can get complicated quickly — especially if you don’t keep good records. Learn your tax responsibilities, so you can handle taxes more easily each year.
7. Ignoring Other Earning Opportunities
There are more earning opportunities in cryptocurrencies outside of waiting for the price to go up. Take proof of stake in cryptocurrencies, for instance. You can stake your holdings on a server and earn money for validating transactions.
There are also other websites that pay Bitcoin and other cryptocurrencies for tasks — such as surveys and watching videos. Look at these sites to see if getting free cryptocurrency is worth your time.
Go to Cointiply to learn more about earning cryptocurrency.
Stay Aware of Common Bitcoin Investor Errors
Investing in cryptocurrency is a risky move. Although it has been around for a while, the markets aren’t as stable as traditional investments. This makes it important to learn about the types of cryptocurrencies available to create a safe investing strategy.
That’s also why it’s important to understand common Bitcoin investor errors. When you do, you can make smarter decisions and improve the odds of making a profit with your investment. Did you find this guide helpful and want to learn more financial tips? Head back to the blog to find more great financial information.
