Since its birth in 2009, the price of bitcoin has gone from scratch to a few cents and even as high as US$20,000. The astonishing increase has not only made many early investors earn a lot of money, but also attracted thousands of latecomers to “follow up”.
Under the influence of slogans such as “To Da Moon” and “one coin for one villa”, many “followers” have completely lost their sanity and forgot the advice of “Investment is risky”. Driven by the FOMO (fear of missing out) psychology, they rushed into the cryptocurrency market. Once the bear market came, they were “given a good beating” in the market.
As an industry still in the early stages with many unmatured features, the cryptocurrency market is indeed full of opportunities. However, the investment risks are not smaller than other investment markets. If people blindly follow up to rush into the cryptocurrency market, they will be doomed to “pay a heavy price sooner or later.”
Here, we’d like to introduce the hidden risks and traps people should know before holding the cryptocurrency.
Risk 1: Unwilling to study the market in person
Before investing on the cryptocurrency market, the first risk we should know is that people are unwillingness to study the market in person. Of course, it is not wrong to listen to some experts for advices on trading, but as a newbie keen on huge profits, you need to study the market by yourself and know what’s the appropriate opportunity for trading.
In fact, the risk in cryptocurrency market is very high. Since the price of cryptocurrency fluctuates greatly, a small group of people may become millionaires overnight while a large number of people may lose all their funds almost instantly.
In the cryptocurrency market, if you only listen to expert advice without careful thinking, you are likely to lose a lot of money; but if you listen to expert advice and study the market by yourself, you will make very good decisions on the investment.
Risk 2: Trading decisions are controlled by emotions
Before investing on the cryptocurrency market, the second risk you should notice is that trading decisions are often controlled by your own emotions. Experts in the foreign exchange market have proven that emotional impulse will eventually ruin your whole investment.
The cryptocurrency market is so volatile that it’s inevitable to have emotional impulse. But you need to be careful not to allow your emotions to dominate or influence your investment decisions, especially when you are going to make a major decision.
Risk 3: Rush to buy altcoin which is “cheap without market verification”
It’s the third risk to buy altcoin which is “cheap without market verification”.
When many newbies start to contact with cryptocurrencies, they often feel “bitcoin too expensive” and turn to some unknown and very cheap altcoins shown in some channels such as Facebook group, Twitter and self-media. They often spend money on it without careful thinking and finally fell into a “bad” end.
Vitalik Buterin, the founder of Ethereum, once said that 90% of the blockchain projects were doomed. Many projects are very good at marketing and they know how to hype, how to describe the Token as the kind you’re eager to invest on, so that you will be hooked. Therefore, when you decide to invest on a certain token, you must make full preparations and study the relevant projects very carefully although you’re a newbie.
Risk 4: FOMO (Fear of Missing Out) Psychology
The 4th risk to be noticed is the FOMO (Fear of Missing Out) Psychology before entering the cryptocurrency market.
Since the price of cryptocurrencies such as bitcoin and ethereum soared in the bull market in 2017, many investors were very afraid that they would miss the bonus of cryptocurrency. It’s normal for people to have emotions, FOMO (Fear of Missing Out) Psychology is also hard to be avoided completely. But as a result-oriented investor, you can overcome this FOMO psychology and never allow it to control or affect your investment decisions.
Risk 5: Show Hand, All In all your capitals
The 5th risk is show hand or all in all your capitals into the cryptocurrency market. It is very dangerous to put all the eggs in one basket. In addition, never borrow money for investment on cryptocurrency.
The cryptocurrency market is not a machine to create wealth and most people are doomed to fail in the investment. The news that someone becomes a millionaire overnight should not be the reason for you to invest all your capitals or borrow money for investment. The cryptocurrency market is full of speculation and uncertainty. “Earning millions overnight” is just a survivor bias. In fact, most people are losing money, which is very similar to other investment markets.
Therefore, even if you want to enter the cryptocurrency market, you should only use a portion of your funds which you can stand without any influence on your normal life even if they have been fully lost.
Risk 6: Believe all the information you have collected
It’s the 6th risk to believe all the information you have collected when entering the cryptocurrency market
With the popularity of mobile Internet and the rise of the self-media, anyone can easily collect a variety of information through their own mobile phones. As an investor, the first challenge you face is to select which information is the most reliable and worth reading out of many media platforms. You should remember that more than half of the news reports you read every day is valueless and most of them aim to hype and attract your attention. That’s why the “click baits” are so popular nowadays.
Therefore, you need to be very careful about the source of information and never accept them without careful screening. Don’t trust all the information you are exposed to. Make detailed investigation before making any investment decisions.
Risk 7: Only focus on one Token and invest all on it
The 7th risk is to only focus on one Token and invest all on it when entering the cryptocurrency market.
In fact, you may have your own favorite portfolio, but as an investor with business mind, you shouldn’t only focus on one specific Token. If you are too persistent, you are more likely to invest all your money on it. Once the project fails, you’ll have nothing in the end.
In addition, if you are too addicted to a specific Token, you may also miss some “potential ones”, although the proportion is very small, for example, many bitcoin enthusiasts have missed the Ethereum in 2015 and 2016.
Risk 8: Start trading operations without in-depth analysis
Before making investment on cryptocurrency market, the 8th risk to be noted is to start trading operations without in-depth analysis.
As a new trader, you should spend as much time as possible to learn relevant knowledge, analyze market conditions. Never rush to start trading without in-depth analysis. Market analysis may be very dull and boring at the very beginning, but with the time goes by, you can master rich trading knowledge, develop outstanding analytical skills and truly understand the essence of the works written by many investment masters.
Risk 9: Niche trading platform
The 9th risk to be noted is the niche trading platform before entering the cryptocurrency market.
Security is the top priority when choosing a cryptocurrency trading platform. In history, there’s the famous “MT.Gox” incident, from which we should draw lessons. Even the Binance, the current leading trading platform, has also suffered from the theft of 7,000 bitcoin this year. Compared with some large trading platforms, the niche ones have weaker security measures and technical strength, so they are more vulnerable to hackers. Once being hacked, assets will be stolen. The niche platforms may not be able to make any compensations and all the losses are more likely to be borne by investors themselves.
Therefore, it is very important to choose a reliable and trustworthy well-known trading platform.
Risk 10: Dream of reaching the goal in one step
It’s the 10th risk to dream of reaching the goal in one step. Such mindset is very easy to make people dream of reaching the goal in one step with more “gambling” psychology.
In fact, whether it is to learn the relevant knowledge of cryptocurrency or to analyze the market conditions and earn investment income, it will not be smooth and easy to reach the goal in one step. Instead, it always takes a lot of time and great efforts.
Don’t imagine the cryptocurrency market as your “ATM”. It’s not a magician and it will never make you rich overnight. On the contrary, it is more likely to make you “burn money”. Due to the lack of cognition and capability, you may lose the principals and end up with nothing.