Cryptocurrencies: 5 mistakes to avoid when investing in this market

Like traditional stock exchanges, the first half of 2022 was challenging for cryptocurrencies. “Bitcoin has entered its fourth bear market (bear market, ed. note)” in 13 years of existence, said Vincent Boy, an analyst at brokerage IG. And it took the entire crypto market with it. Its price has dropped over 70% since its high in November, falling below $19,000 on Thursday, June 30. A dizzying dive, which, however, is not the first. “This drop is impressive for beginners, but becomes familiar to long-term investors,” explains Vincent Boy.

Although cryptocurrencies are increasingly correlated with stock prices, especially those of large technology companies listed on the Nasdaq in the US, they are still characterized by very high volatility. This is why investing in this asset class requires you to be extra careful or you risk losing all your money. Here are five mistakes to avoid in order to make money in the cryptocurrency market.

>> Discover 21 Million, Capital’s Cryptocurrency Newsletter. Decryptions and Tips for Maximizing Your Profits in Crypto Assets

Invest the money you need quickly

To begin with, it is recommended to invest only the money that you do not need today or tomorrow. You must invest the reasonable portion of your savings that you are willing to lose without affecting your daily life or your standard of living. Cryptocurrencies are indeed risky investments, with no guarantee of capital invested. So you could potentially lose everything.

In general, according to Stanislas Barthelemy, a consultant at Blockchain Partner, a consulting firm affiliated with KPMG, it is recommended to invest “a maximum of 5% to 10%” of your portfolio in crypto assets.

However, in the medium to long term, bitcoin is showing impressive results. Since January 2015, despite the sharp decline recorded over the past six months, it has jumped more than 1100%. As with stocks, this is an investment that should preferably be considered long term in order to hopefully get a good capital gain.

Invest all your money at once

Also, do not invest all your savings at once. Otherwise, you risk suffering from market fluctuations and a possible crash. This would be the case, for example, if you invested all your savings just before a sudden drop in prices.

Therefore, in order to reduce exposure to volatility, it is recommended to invest small amounts at regular intervals, regardless of the evolution of bitcoin and other cryptocurrencies. This programmed investment strategy has been popularized in the crypto world under the term “DCA” (dollar cost averaging). To do this, you must plan to buy a fixed amount of cryptocurrency according to your means: for example, 100 euros per week or per month.


Can bitcoin still be a store of value?

This passive strategy, which is very easy to implement, is well suited for non-professional and novice investors. It simply asks you to correctly estimate in advance the proportion of savings that you can afford to invest on a regular basis over a certain period, such as two or 10 years.

Follow the trend and sell everything when the market falls

As with the stock markets, you should avoid mere imitation. And above all panic when prices fall. At these moments, on the contrary, it is necessary to show patience and not adopt herd behavior. You must take a step back from your investment, consider it for the long term. Bitcoin taught us dizzying failures, which didn’t stop it from bouncing back later.

If you sell your bitcoins or ethers when prices have started to fall, you risk losing capital or making less capital gains than if you put off – for months or even years – reselling your holdings.

Buy only when prices rise and are already high

Similarly, it is unwise to buy only when prices have already risen significantly after a sharp drop, or to massively buy cryptocurrencies in a moment of euphoria when the value of these assets is skyrocketing. You need to know how to keep your cool and, again, take a step back from your job.

Ideally, you should take advantage of a falling market to buy cryptocurrencies at lower prices and hope for higher capital appreciation later, rather than buying already highly valued assets that may still rise in price but may also face a drop in their value.

Invest your money in any cryptocurrency

Finally, it is important to diversify your crypto investments. But for this, you should not be content with investing in different cryptocurrencies without checking the project developed behind each of them. These assets are not fungible, far from it. In particular, you should be able to consult the “white paper” of each cryptocurrency on the Internet, which should be detailed and clear regarding the functioning of the blockchain of each of these assets.

In addition to bitcoin and ether, new crypto projects are born almost every day. According to CoinMarketCap, one of the reference platforms for market price evolution, there are already over 20,000 cryptocurrencies. Ideally, invest in the most promising projects, because the cryptocurrency associated with them will have a better chance of increasing in value over time. Conversely, we should avoid the wacky projects called “shitcoins” in the crypto community.

In addition, there are many scammers who want to take advantage of the hype surrounding these new assets, and scams abound. So be vigilant and be extra careful with newly created cryptocurrencies. Some of them can be artificially overpriced before they suddenly collapse until they are worth nothing or next to nothing.


Bitcoin: the main factors affecting its price