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Top 5 Mistakes Cryptocurrency Investors Make

1) Being fooled into “guaranteed” daily returns.

Bitconnect, USI TECH, and Laser Online all promise daily returns to new and prospective investors. How this typically works is through a referral program where the people make a percentage on the money people invest. This is very similar to a pyramid scheme. The main characteristic of a pyramid scheme is that participants make money by recruiting more members. By nature, these types of models will eventually collapse! Please advise extreme caution when investing into any type of model that uses this payout scenario. You can usually find this information by doing a little research on the website of the cryptocurrency in prospect. This graphic here is taken from Bitconnect’s affiliate program.

2) “Shilling” in cryptocurrency

The definition of a shill is:

– noun: accomplice of a hawker, gambler, or swindler who acts as an enthusiastic customer to entice or encourage others.

As the cryptocurrency market grows in market cap and popularity, we are seeing new investors enter the market at an unprecedented rate. The graph below shows the rate at which new wallets are being created. As a new investor in the market, it is common to fall victim to quote on quote “shillers”. New investors may enter the market and will see promoted content or the “shill” culture of cryptocurrencies and quickly enter positions in ICO’s or existing cryptocurrencies based on false information presented on messaging boards, forums, or even worse-promoted content on legitimate cryptocurrency websites.

3) Pump and Dump

With the lack of regulation policing cryptocurrency at the moment, new investors will fall prey to “Pump and Dump” schemes and groups. The anonymity of the internet and difficulty in attaching real world identities to blockchain addresses, allow organized groups of anonymous investors to “Pump” a specific cryptocurrency to extremely high prices. Essentially, they purchase in at a very early price and spread false rumors, convincing others to purchase into the same cryptocurrency while it is running up in price. Other investors will see this massive run, and start contributing to this “pump and dump” without even realizing it. Shortly after this run up in price, the organizers of the “pump and dump” group will “dump”, their position and sell off their portion. This will plummet the price leaving only the organizers of the group to profit!

4) Buying the Rumor

Rumors and partnerships are always flying around in the cryptocurrency space. A New investors will commonly buy into a rumor or speculation in hopes for a major announcement. Often though rumors rarely pan out. For example, just recently, this picture of a rumor supporting a cryptocurrency called NEO, helped boost the price 70% on November 17th 2017.

Additionally, the main developer of Monero (XMR) trolled the entire community for this exact reason. He tweeted out that there will be a Major announcement.

 

The BIG announcement ended up being that there was no official announcement and that people should stop buying into these unwarranted rumors.

 
5) Lack of diversification / Going all in

With the lack of regulations and massive volatility in the cryptocurrency markets many people enter the cryptocurrency market uninformed, uneducated and looking to get in and get out quick. Truth be told, cryptocurrency markets are still vastly driven by technological understanding, just as much as they are driven by financial analytics. Cryptocurrency investing is risky, many wide-eyed, eager investors are entering the market without the slightest notion of what blockchain technology. Yet, many newcomers are entering the market and investing 100% of their portfolios into the market . It is always good to diversify your portfolio with traditional and digital assets.

Udemy course:

“A good investor is an educated investor” – Sam Capizzi aka Cryptosomniac

The number one way to become a smart investor is to become an educated investor! Learn everything you need to learn about cryptocurrency by taking this step by step course, designed to walk you through the process of becoming an expert in the cryptocurrency arena.