By Abhaya Anil

Compiled by: Vernacular Blockchain

Currently, the cryptocurrency craze is at an all-time high, and opportunities are everywhere. But behind the wealth opportunities that may change your life, if you are not careful, you may also lose everything overnight. I am not saying this from a textbook, but from the mistakes I have experienced personally.

With so many new people entering the cryptocurrency market — many of whom have never even touched an investment before — these lessons are especially important. Today, we’ll discuss the five worst mistakes beginners make (and how to avoid them). If you read to the end, I’ll also share why these lessons are especially important now that Fed Chairman Jerome Powell is in control of the market.

Mistake #1: Investing Money You Can’t Afford to Lose

This statement may sound like a cliché, but it is the most common mistake and the trap that most people get caught in. You often hear: "Only invest money you can afford to lose." But for many beginners, this is just empty talk.

The cryptocurrency market moves quickly, and it won’t wait for you to adjust. Sometimes, when you wake up, your account may be cut in half. So, ask yourself: how much money are you willing to lose?

Practical exercises:

  • Take out the amount you plan to invest.
  • Cut this amount in half.
  • If that number makes you uncomfortable, you've invested too much money.
  • If you invest money you can’t afford to lose, you’re not investing, you’re gambling. In the cryptocurrency market, that can be deadly.

Before jumping into cryptocurrency investing, make sure you have your basics in place. This means having at least three months of living expenses saved up in a safe account that has nothing to do with the crypto market. It’s boring and it’s not cool, but it’s the only way to ensure you’re financially secure in the event of a market downturn.

I’ve seen many people lose their life savings on collapsed platforms like FTX, and many of them may never get that money back.

Bottom line: Before you touch crypto, make sure your emergency funds are secure.

Mistake 2: Blindly following influencers

Crypto influencers are everywhere. Whether it’s Twitter, YouTube, or TikTok, you’ll always see someone claiming they’ve discovered the next big thing, like “Top 3 Altcoins That Will Make You Rich” or “Hidden Gems That Will Skyrocket Next Week!” But what most people don’t know is that these influencers are often paid to promote these projects.

You think they are really bullish on these coins? Think again. Many people are being paid $10k to $100k to make these videos when they are not actually invested in these projects. The sad reality is that many of the projects they promote don’t even have actual products. You are basically paying for someone else’s marketing.

Solution: Follow my “3T Principles” before investing:

  • Technology: What problem does this project solve? Is there a real need? Does it solve a real problem, or is it just another copycat?
  • Token Economics (Tokenomics): How many tokens are there in total? Who controls them? How is it distributed? If the distribution is too concentrated, the project may be at risk.
  • Team: Who is behind the project? What have they done before? Are they transparent and trustworthy?

Think of Logan Paul’s CryptoZoo. No product, no real value, and questionable token economics, it was doomed to fail.

Research thoroughly and do your own homework before investing in any project. Never believe the hype of others.

Mistake 3: Buying high and selling low (FOMO)

This is one of the most painful mistakes for beginners. It’s simple in theory, but it’s easy to fall into this trap when emotions take over.

Look at the Dogecoin craze in 2021. People piled in at 70 cents because of FOMO (fear of missing out), thinking Dogecoin would go to $1. As a result, it collapsed.

Solution: When you are tempted to buy because of the fear of missing out, this is your red warning sign, pause.

Here’s why: If a coin has gone up 500%, you are no longer an early investor, you are too late. You are chasing a hyped coin and hoping to get lucky. But more often than not, you are just carried away by the hype, and when the craze fades, your investment will collapse.

Practical advice: If you feel like you are chasing a big bullish candle, step back and wait for the market to calm down. Markets are cyclical and there will always be new opportunities. But if you are chasing hype, you are likely to lose money.

Mistake 4: Investing heavily in a new currency with no product

The appeal of new coins is strong. They’re new, they’re exciting, and everyone loves the “what if this is the next big thing?” fantasy. But I’m here to tell you: most new coins are not.

New coins are like startups, 90% of them fail. You wouldn’t invest your life savings into a startup with no product, no revenue, and no track record, and the same is true for cryptocurrencies.

A viable project should have at least a minimum viable product (MVP), something that can be used today, not just an idea or a white paper.

Why it matters: Without a product, all you’re investing in is a dream. And dreams don’t pay off.

Practical advice: Don’t chase the “next big thing” unless the project already has a real product. The price may be attractive, but the product and execution are the key. Stick to those coins that have a real product or can really solve a problem.

Mistake #5: Using Leverage (a recipe for disaster)

Leverage sounds great: “Double your position and maximize your profits!” But what they don’t tell you is that leverage can also double — or even triple — your losses.

In 2022, Bitcoin fell by more than 50%. If you used a 2:1 leverage, you didn’t just lose 50%, you lost everything. Leverage magnifies losses, and nothing is more dangerous than this.

When you use leverage, a small drop in price can wipe out your account. Not only does this hurt your wallet, it can also affect your mental health. Watching your account balance go into free fall is a feeling no one wants to experience.

Practical advice: Unless you are a professional investor who clearly understands leverage and its risks, avoid using leverage altogether. Protect your capital. As long as you can stay in the market, there will always be more opportunities. The market will come back, but your capital may not.