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10 costly crypto investing mistakes and how to avoid them

6 min read

Dreams of 100x returns can tempt many to try their luck in the cryptocurrency market. But what if instead of just relying on your luck, you took it into your own hands to become a better crypto investor?

Here are some common  crypto investing mistakes investors tend to make along the way. This article won’t guarantee you 100x returns, but it will certainly help you navigate the highly volatile market and avoid mistakes others have made in the past.

10 Common Crypto Investing Mistakes to Avoid

1. Don’t do own research

Let’s start with a common phrase used by cryptocurrency enthusiasts: Do your own research (DYOR).

The cryptocurrency sector is known for its scams, hacks, and misinformation (see: The Web of Misinformation). As an investor, it is your job to verify the credibility of crypto tokens and projects before investing in them.

Investors also need to be aware that celebrities and influencers are being used on social media to promote crypto tokens. Shilling is a common practice where people tout tokens they already have invested in on social media, newsletters, and other platforms to convince the public to buy those cryptocurrencies and drive up the price.

The probability of a bad investment due to unverified information on the Internet is high. Therefore, DYOR is a mandatory step in responsible crypto investing.

2. Participate in rug pulls

Staying on the DYOR topic, investors who are new to the crypto market need to understand that setting up a crypto project is easy given the no-code tools and solutions available today. Anyone can set up a website with a well-written project plan and create a smart contract to mint a new form of cryptocurrency.

Which brings us to rug pulls. Rug pulls are a common crypto scam where the developers abandon the project and run off with the investors’ funds. Now, if you own a token of an abandoned project, the token price will likely drop to zero, leaving you with irrecoverable losses.

How to avoid a rug pull?

  • Check the project’s website and social media channels;
  • Check if the founding team has a good reputation in the industry;
  • Check the age of crypto tokens – avoid tokens created in the last 24 hours;
  • Use tools like DEX Screener to check if trading on the token can be disrupted and if the token has low market liquidity;
  • Watch out for newly minted tokens, which have surged in the last 24 hours as scammers use FOMO to lure potential investors.

3. Giving in to emotional decision making

When making investment decisions, you should always pay attention to your emotions. The two strongest emotions in investing are fear and greed. This applies to all risky markets, including cryptocurrencies and stocks.

Emotional investing is one of the main reasons so many investors buy highs and sell lows. Greed can drive an investor to buy the hottest cryptocurrency, the cryptocurrency that has been on everyone’s lips after last week’s surge.

The hope of profits and the fear of missing out (FOMO) can drive the investor to buy the cryptocurrency without doing any due diligence.

Market participants need a solid investment strategy and discipline to reduce the risks of emotional investing. These strategies can be as simple as diversification, dollar cost averaging, and using stop losses.

4. Neglect of diversification

Crypto portfolio diversification is a simple and effective way to protect your investment. This strategy follows the age-old wisdom of not putting everything on one card.

The crypto market is very volatile and the sector itself is still evolving. Concentrating all of your investments in one token exposes your portfolio to market uncertainty.

What if the project you invested in gets hacked, loses market share to a competitor over time, or becomes obsolete with the advent of a new technology? Investors need to be aware that the future is unpredictable and they need to consider worst case scenarios when making investments.

5. Ignoring common risk management tools

Risk management tools like stop-loss and buy-limit orders are the result of decades of experience in the risky asset market. Cryptocurrency traders should practice using these tools to protect themselves from market volatility, book profits and limit losses.

A stop-loss order will automatically sell your tokens if they fall below a certain price. Similarly, buy limit orders ensure that you do not pay more than a certain price for a token.

Both instruments help investors to find their way in volatile markets. These tools are very easy to use and can be seamlessly integrated into your crypto trading strategy.

6. Misuse of Leverage

Leveraging investments is a double-edged sword. Sophisticated investors can make additional gains from their available capital by using leveraged derivatives such as options and futures. These investors are aware of the risk and rewards of trading debt and typically employ risk management strategies to minimize losses (see also: Introduction to Stock Market Psychology).

However, if an investor engages in leveraged financial derivative instruments without being aware of the potential for unlimited losses and without proper risk management strategies, they can ruin their financial wellbeing.

7. Fumbling with crypto wallet operations

Crypto wallets are the gateway to the world of cryptocurrencies. They act as your personal vault for which you are solely responsible. As a crypto investor, you need to protect the private keys and recovery phrases that provide access to your wallet. You can even use hardware wallets (cold wallets) to ensure the highest level of security for your wallet.

A common mistake crypto investors make is entering the wallet address incorrectly. When sending tokens to yourself or a friend, it’s important that you send them to the correct wallet address. Even a small typo can result in your money being lost forever.

8. Untrusted Wallets and DeFi

Let’s stay on the topic of crypto wallets. Crypto investors are encouraged to move their tokens from accounts managed by centralized companies to their own non-custodial wallets.

The phrase “Not your keys, not your cryptocurrency” resonated in 2022 as thousands of crypto investors lost their funds after prominent centralized crypto exchanges and lending platforms went bankrupt. FTX, BlockFi, Voyager, Celsius, and Gemini Earn customers are still struggling to get their crypto tokens back.

Yield-seeking investors can turn to popular decentralized finance (Defi) protocols like Aave and Uniswap to earn interest on their crypto deposits.

Again, we must refer to the advice of DYOR before using DeFi applications.

9. Not keeping track of fees and taxes

Investors tend to ignore the transaction costs and platform fees involved in buying and selling cryptocurrencies. It is important to keep an eye on these costs as they directly affect your profit/loss from crypto investing/trading.

Additionally, crypto investors need to be aware of newly created crypto tax laws that they must comply with depending on their geographic location. A number of countries, including the US and India, have introduced capital gains taxes of over 30% on cryptocurrencies. Some governments have also introduced an additional withholding tax (TDS) on crypto trading.

10. Over-Reliance on Technical Analysis

This is a touchy subject. Day traders and short-term investors use technical analysis to determine buying and selling prices of an asset. While technical analysis strategies have been refined over decades of market experience in the stock market, they may not always work in the crypto markets. Cryptocurrencies are different and have unique market forces that affect their performance.

While technical analysis is still recommended, crypto investors need to know a cryptocurrency’s tokenomics to anticipate the end of lock-up periods, whale activity, and issuance schedules, all of which can undermine your investment strategy built using traditional technical analysis techniques.

Crypto Investing Mistakes – The bottom line

The message is clear. Do your homework, don’t trust the internet and don’t give in to the FOMO. When you have money at stake, it can be difficult to remain disciplined during a sell-off or rally. However, implementing simple risk management strategies and emotional awareness can make a big difference.

Remember to diversify your portfolio and prioritize security with crypto wallets. Never invest more money than you can afford to lose.


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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.