What kind of cryptocurrency tips does a beginner need to truly get started? What mistakes should be avoided when you are buying, selling, and trading crypto or NFTs? Some of the best advice for crypto applies to any investment opportunity.
Don’t buy into high pressure or excessive hype, do your research, and never indulge in emotional investing are three basic types of advice you’ll find on any crypto blog worth the time to read.
If you are looking for a list of detailed technical advice about how smart contracts work and what it means to sell and trade on the blockchain, you’re going to need more than a single article to become a technically informed investor or trader. But if you’re looking for general guidelines about safely trading crypto, keep reading.
This article should not be construed as financial advice. It is a primer on what to realistically expect when you start investing in crypto, but only you can make the final decision about what to do with your money. Investing in crypto represents a high potential for loss.
You may be taxed on crypto gains depending on the nature of your crypto transactions and you’ll want to be current on all applicable tax laws regarding cryptocurrency requirements on your federal income tax filings.
The most obvious advice on any crypto blog goes something like this; “Research any investment opportunity and check its online reputation”. Another very obvious bit of advice? “Don’t give in to high-pressure sales tactics, artificial scarcity, or other hurry-up-and-buy approaches.
But what about more detailed advice? For example, do you know why it’s important to do online research into a crypto exchange, NFT project, or investment? It’s not just about avoiding scams and ripoffs; it’s also about the basic competence of the team trying to get you to invest. Does the crypto project you’re interested in have concrete, specific plans for NFT launches or an initial coin offering?
Or does the project offer more hype than facts? It’s one thing for the Axie Infinity whitepaper to state, “We’re here to create an ecosystem of amazing Axie gaming experiences with community and player-owned economies as foundational pillars.”
But if a project doesn’t go on to list specific ways about how that is going to be accomplished, you might be buying into a project that is more promises than reality. You’ll want to search for specific information about release dates, costs, gas fees, and other hard facts.
Don’t Think About Earning Money
In the earliest days, counting the money you haven’t collected from a crypto investment is a bad idea. What should your mindset be when you are getting started in crypto? To learn the ecosystem as completely as you can.
That means knowing your gas fees, knowing the floor of your crypto holdings, and things like a long-term average performance of the crypto over time. It also means identifying trends in your chosen currency.
If the value of the currency you’re interested in is subject to volatility due to celebrity social media posts, that’s a factor to consider. Another one is celebrity endorsements. As in, not trusting them. Does your favorite celeb know ANYTHING about crypto or investing in it? Or are they just parroting the hype?
Beginner investors are at a huge disadvantage and your most effective strategy as a newcomer is to think long term about what you want to do rather than thinking about getting rich quick.
The motivation to earn a profit early rides dangerously close to the line of emotional investing, which is a major no-no for professionals and amateurs alike. Instead of thinking about profit, your earliest priority should be the opposite–to avoid LOSING money where you can.
Do not be fooled. All new investors lose money. This is how you learn the game. But it’s crucial to avoid the wrong mindset early on. Thinking in terms of profit-taking isn’t as helpful to you as being more concerned about avoiding a loss while you’re still learning the ropes.
Know The Players
A crypto project called FlyFish Club offers NFTs for exclusive membership to an upscale restaurant. If you are new to NFTs and know nothing about crypto projects like this, the notion of buying a pricey NFT for a club that does not (at press time) yet have a home open to the public (it’s a restaurant and not a metaverse) might sound like a scam you wish to avoid.
But for those who do their research and learn who the main player is behind the project might be more inclined to trust; VCR Group is a collection of entrepreneurs and professionals including Gary Vaynerchuk and chef Josh Capon, just to name a few.
These people are far less likely to set up a scam project and disappear with the money; these are people with a vested interest in things going exactly as advertised. Not knowing these players makes a big difference in whether you’re inclined to take a risk.
Know The Fees
Learning who the players are is the first step. The next is another obvious piece of advice–know your transaction fees. But newcomers to crypto might not know that these fees may be on a sliding scale depending on demand, popularity, and other factors.
And what exactly does it mean to know your fees? Transactions on the blockchain require an expenditure of energy and the financial offset of those costs is called a gas fee. These gas fees vary depending on peak use times and other factors.
That’s fairly common knowledge even among newcomers–gas fees are one of the first things you’ll learn if you haven’t already.
But what is not so obvious is that depending on the nature of your transaction those fees could be higher than you expect. A complex smart contract transaction costs more than a simple one. Why would you need a complex smart contract to execute a sale or trade of crypto? Any number of reasons including the desire to simultaneously borrow, buy, and sell using a flash loan.
The more time it takes to program a smart contract the higher fee it may demand. You might not have a need to know that fact as a new, entry-level investor but at some point you will want to learn about such options.
Cryptocurrency Mistakes to Avoid
The most basic tip about what not to do in the world of crypto is also the BEST advice for any opportunity. Don’t put all your money into one type of investment.
Diversified investments that cover a large number of different types of stocks, bonds, CDs, etc. are safer than those that risk all funds in one type of financial instrument. Putting a substantial amount of money into a highly risky investment is not recommended by traditional finance houses, and that advice is sound for cryptocurrency, too.
That goes for both your overall investments (stocks, crypto, etc.) as well as for investments within the cryptocurrency realm. Diversify your crypto holdings in terms of risk. High risk investments should be offset with more stable, less-volatile choices. Don’t bet the house on every round–invest methodically and carefully.
But even with a diverse portfolio, you still need to plan ahead for best-case and worst-case scenarios. For example, if you buy into Ethereum at a certain price, do you have a plan to sell ETH if the price changes too much in one direction or the other? An exit strategy is one of the most important things you can have when investing, crypto or not.
You want to establish a line in the sand for crypto pricing–if you buy in at a price of $300 per coin for a given cryptocurrency, and the price begins to drop suddenly, how far does the price go before you cut your losses and sell? Or do you buy and hold for a more long-term strategy? It’s ok to be undecided here as long as you are NOT INVESTING at the time. Plan your exit strategy first.
The Bottom Line
Getting started in any new investment opportunity represents a learning curve. In the traditional investing world people are burned all the time because they do not understand what a margin call is, or what the rules of engagement are for activities like day trading or commodities trading.
In the crypto world it’s no different; people complain about being “burned” by higher gas fees than they expected or from exchange “maker” or “taker” fees that may also apply. Know your investments!
The assumptions you make about any financial opportunity going in can be your financial undoing if you’re wrong. It pays to read a lot of information and compare many opportunities so you can see what begins to look shady and what begins to look reliable within the space. Sometimes the only way to learn is to fail. The key is to fail without investing too much, too early.
Joe Wallace has covered real estate and financial topics, including crypto and NFTs since 1995. His work has appeared on Veteran.com, The Pentagon Channel, ABC and many print and online publications. Joe is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.