Cryptocurrencies are shaping the future of finance, not only as an alternative investment asset but also as an expanding system with innovative projects. It constantly challenges itself to be the better alternative. Investors have been tempted to this attraction in search of bigger profits, often unaware of the risks involved. Unfortunately, this ignorance frequently led to financial losses that were higher than expected. Approximately 55% of Bitcoin investors were in the red as of February 2022 (21 Shares, 2022). It is an apparent fact that over half of crypto investors are suffering losses and looking for ways to recover their money.
Like any investment, cryptocurrencies are exposed to the market and external risk factors. However, the volatility of the cryptocurrency market is higher than that of “old-school” financial systems. This increases the risk to some extent. Despite this, some investors disregard the potential risks. They are involved in high-risk activities like leveraged trading as they are motivated by the prospect of huge returns. As one could expect, this might result in major losses. 
Strategic decisions and responsible investment attitudes are game-changers to avoid this kind of impulsive behavior. Responsible investors carefully weigh the risks, conduct thorough research, and make informed choices to optimize their chances for financial gains. They do not rush the decision with the undeniable effect of FOMO. These strategic and well-informed decisions can set winners apart from losers, while still promising financial gains for investors in the crypto world.
Do Your Own Research Before Investing
Cryptocurrency world offers new concepts for even financial experts to learn. Understanding these concepts is the key point to understanding what we are dealing with. Unlike traditional assets, cryptocurrencies operate on decentralized blockchain technology, which supports their revolutionary potential. However, this initially complex concept has caught some investors off guard. As a result, they may be unprepared for the high-risk environment of the crypto world.
New systems, modern terms, colorful interfaces – there are a lot of new things for investors to digest. To anticipate the market and make the right investment decisions, it is essential to get to know this new system. Research cryptocurrencies, all of which serve a specific purpose, and analyze the factors that affect their value, such as utility, adoption rate and market demand. It is also useful to see the faces behind the project in order to get to know the project and their purposes.
In the world of cryptic identities, it’s nice to see a friendly face once in a while. But of course, it’s worth looking for much more than a friendly face when researching a project. You can measure the project’s seriousness and legitimacy by looking at transparent whitepapers, protocols, technology and development roadmaps. It is also useful to check out the credentials and track record of team members. A skilled and reliable team can be the answer for the likelihood of a project’s success.
While searching through pages, don’t blindly follow everything you read from so-called experts. Crypto “experts” can be found all over the internet, but their true knowledge of the market is uncertain. Cryptocurrencies are too volatile for anyone to predict prices with 100% accuracy, making the term “crypto expert” hard to believe.
To avoid being misled, analyze price fluctuations in the crypto market by studying market trends and historical data. Learning candlestick patterns and examining price charts can reveal valuable patterns and trends from a cryptocurrency’s past performance. This helps in making informed decisions and predicting potential future movements. It will enable you to execute timely and calibrated investment strategies.
Beware of Scams and Shady Projects
Crypto scams alone have caused losses of more than a billion dollars in just one year. This clearly shows that cryptocurrency investments can sometimes be fraught with risks beyond the investor’s control. Scammers capitalize on the “unknown” factor of the crypto landscape and exploit inexperienced investors. This led to widespread victimization in the past years. With more than half of cryptocurrency investors reporting average losses of $2,600, it’s no wonder that anxiety among investors is on the rise.
Scammers are really creative. They created a range of common frauds, preying on investors by mimicking legitimate players in the crypto world. They create fake applications and websites, promising quick and substantial gains. They attract especially the small investors to invest their hard earned money. The small and inexperienced investor is the most open target here. So it is advisable to have enough prior information and experience before making big investment decisions.
But, even experienced investors are not immune to scams. Crypto investors often fall into the trap of promising unrealistic profits. Among these schemes are the infamous Pump and Dump, where prices are manipulated through misleading information spread on social media. Similar to Pump and Dump, Rug Pull scheme inflates the value of a digital asset before abandoning the project and draining funds. These scams are especially common in alternative markets NFT and gaming coins. The visually appealing investment vehicles like NFT can easily target individuals through social media and draw them into their trap with the spreading word-of-mouth.
Besides, pyramid or Ponzi schemes, with their promise of high returns, exploit the vulnerability of new investors by using new investors’ funds to pay returns. One of the most notorious crypto scams was the OneCoin pyramid scheme. OneCoin defrauded people out of more than $4 billion and it was classified as one of the largest international fraud schemes ever created. The scheme deceived investors from all over the world by offering fake investments without any real blockchain system behind the platform. It caused widespread distrust in the cryptocurrency market. Some regulatory frameworks, like the EU’s MiCA, attempt to provide protection, but comprehensive legal regulation is still limited. The primary responsibility for safeguarding against scams lies on the users themselves.
Investors must stay alert to possible dangers. There is no such thing as being too cautious in the crypto world. It is important to stay skeptical, yet informed. Every step of a crypto investment requires preparation until you get used to it and gain experience. The first step is to verify the legitimacy of projects and exchanges before making any investments. Lack of experience is a disadvantage here. So, conduct thorough research on the cryptocurrency project, analyzing its goals, technology, and development roadmap. You should prioritize platforms that do not give unrealistic promises, rather adhere to regulatory guidelines and prioritize user data and fund security.
Know When to Take Profits and Cut Losses
Knowing when to leave the table is wisdom. This applies in the crypto world too. A strategy for taking profits and cutting losses is deeply needed. Implementing a disciplined plan can help increase returns while lowering the risk of profit loss due to market volatility. One effective approach could be to set specific profit targets based on market analysis and stick to them. If an investor sets a profit target of 30% for an asset, they would sell their holdings when the price reaches that level, regardless of whether the price continues to rise. It can be imagined that this decision will be difficult to make, but in many cases it is better not to be greedy with crypto.
Similarly, stop-loss orders are risk-management tools for limiting potential losses. A stop-loss order is an automatic sell order triggered when price drops to a predetermined level. This way investors are protected from significant losses in case the market moves against their position unexpectedly. This is how it works: Let’s assume you set a stop-loss order at 10% below your purchase price. If the price drops to that level your position would be automatically closed and limit your loss to just 10%.
The “sunk cost fallacy” in investment decisions is like a self-imposed cage on investors. It misleads the perception of reality and limits the ability to take the right action.This happens when investors hold onto losing positions just because they’ve already invested time or money in them, hoping for a turnaround. Being a hopeful believer without rational decision making can lead to trouble with your investments. Objectivity is the key while assessing each investment regardless of past investments and being ready to cut losses when needed.
Conclusion
The difference between winners and losers is determined by the time and effort. That’s why it’s so important to keep up without losing your determination. As the environment changes, investors’ investment approaches need to evolve accordingly. Timely recognition of what’s happening in the market and proper analysis is what separates smart investors from the losing traders. In this relatively new and still developing investment atmosphere, it’s challenging to accurately predict what to do. If you have our safety nets in place to protect us from the worst, you can take action more freely.
It can be imagined that every investment is a hope for possible gains. So it can often be problematic to be objective about the results. But the golden word for success in the crypto world is realism. Even in the abstract world of cryptocurrencies, which can sometimes seem like a dream world compared to the world of finance we are used to, it is important to make decisions with your feet on the ground. Accepting that there are losses as well as gains, and limiting losses before they cause bigger losses we can’t afford, can be our savior. So, don’t let your eyes be clouded by the prospect of profits. Keep your eyes open to new news, market trends and the consequences of market volatility. Make the right decision at the right time and you will be on the winning side.
