Separating Fact From Hype
Cryptocurrency is the modern day gold rush: everybody’s heard of it, great tidal waves of excitement surround it, and people are seemingly becoming rich out of thin air. But how much of this is true? Well, one Google search will more than likely leave you more confused than when you started. There is no end to the tsunami of media (Youtube, Facebook, Twitter, Instagram, even the local news channel) that attempts to swamp you with cryptocurrency hype. Lets make one thing clear: you will not find a get-rich-quick investment strategy in this article. But you will find clear-cut, down to earth details about whether or not you should invest.
Understanding The Psychology Of The Market
The first question you need to ask yourself is this: do you actually want to learn how to trade and invest? Or are you suffering from FOMO?
FOMO is the abbreviated term for “Fear Of Missing Out.” Basically, you see all these other people getting rich seemingly overnight and you think to yourself: I don’t want to miss out on getting rich myself. This feeling is particularly strong in the cryptocurrency market. Because of crypto’s inherent volatility, seemingly worthless coins will suddenly double or triple in value out of nowhere, in as little as a few hours. The FOMO comes when you think: if only I invested early, I could have made millions.
Almost all professional, successful crypto traders advise against listening to FOMO. Trading based on fear is never a good idea, and often turns bad – for you and your wallet.
Another excellent term is Survivorship Bias. This term loosely means focusing (incorrectly) on only those participants in an event that successfully made it past the selection process, and collectively ignoring those who didn’t. Basically: your vision may be flooded with overnight successes, but for every one successful trader, there are a thousand unsuccessful ones who lost money and gave up. You just don’t hear about them because, well, failure doesn’t make a great headline.
Understand The Risks
Just like any great endeavour in life, you need to take note of the risks posed before you jump straight in. The risks inherent in crypto are:
- Despite what popular media may portray, crypto is not easy. Day trading and investment is extremely difficult to make work successfully – there’s a reason only the professionals do it. Learning to trade crypto has a huge learning curve and this is compounded upon by the often times chaotic and volatile nature of crypto. In fact, the large amount of money made in crypto is from sheer luck, at least from a beginner’s side.
- You can and will lose money. Experts repeatedly advise that you can expect to not make a profit for your entire first 2 years trading.
- Crypto is far more volatile and dangerous than traditional shares. Remember that part about crypto tripling in value overnight? The same can happen in the opposite way – your wallet could be wiped out overnight.
- At the current time of writing, crypto scams are common in many Email networks, social media and other platforms.
- Nobody is truly certain about the longevity of cryptocurrency. The bubble could burst, or it could last well into the future.
- Some users have described day trading as possessing similar trigger-points to gambling.
How To Avoid Disaster
So, with all of those scare disclaimers out of the way, how can you safely invest in crypto without becoming another casualty yourself? The answers are (thankfully) quite simple:
- Set yourself a limit. If you’re investing with $1000 to start with, stick to it. Avoid adding more money to your wallet because you think you’re going to miss out on the next big surge or a skyrocketing coin. These are often the biggest causes of financial loss.
- Avoid trading and investing on emotions. Don’t invest in that relatively unknown coin just because you’re afraid to miss out. Don’t go all in on that next coin just because you lost money on your last trade. Make sure to keep a cool head and trade/invest solely on hard facts.
- If anyone asks for your Bitcoin or personal details, apart from a verified trading platform, ignore and delete them immediately. Never give out your bank details. A particular scam running at the time of writing are numerous fake competitions that will Email you, claiming you have won some Bitcoin as a prize. The scammers will use this as an opportunity to take your details and money. Try to also be aware of fake courses that charge ludicrous amounts of fees.
- Just like gambling, if you lose too much money then walk away. There’s no sense in throwing more money at the problem – you’ll just end up losing more.
- Make sure to complete guided tutorials of all trading websites: they are extremely difficult to learn and navigate.
- Double-check the currency you’re trading in. Abbreviations used for different coins can sometimes confuse newcomers, leading to bad trades and misunderstood finances.
So, Should You Invest?
This is the question you’ve been hanging out for. The simple answer is: there is no simple answer. You should not invest if it will put you at a significant financial disadvantage, or you are relying on profits from crypto to keep you afloat.
You should invest if you know you can afford to lose the money you put in, and you understand it’s not a get rich quick scheme. Other than that, if you understand the fact that successful crypto trading requires patience, a ton of knowledge and a lot of luck, then crypto can be a rewarding venture. Just don’t go all-in on Dogecoin because Elon Musk made a cryptic tweet again.
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