3 Beginner Bitcoin Investment Mistakes & How to Avoid Them
Looking to add Bitcoin to your investment portfolio? Make sure you're aware of these 3 common mistakes before you get started.
Bitcoin reached a record high, being a little shy of US$61,800 per coin on Sunday, 14 March 2021 at 20:00 GMT. If you’re curious, take a quick look at CoinMarketCap and then come back. This undoubtedly generated public interest and had people talking about how they can jump in and get a Bitcoin investment plan going.
Despite its stratospheric rise, the price has fallen below $59,000 at the time of writing, which was only 34 hours afterwards. You could easily deduce from the chart that there was a steady 4% decrease in the price, and it may still decrease with lower lows as the market cools down from last week’s non-stop rally.
If you had bought $10 worth of Bitcoin at that exact moment, you might be strongly tempted to SELL and protect your dollars (or whichever currency you used to exchange) from harm’s way. After all, the chart patterns don’t lie, right?
This may be one of the reflexes of a Bitcoin trader. However, a 4% decrease doesn’t scare the seasoned Bitcoin investor.
The seasoned Bitcoin investor has been through thick and thin, the all-time highs and the all-time lows, to see through the gradual and often unbelievable increase in the value of Bitcoin. He or she has collected small amounts of bitcoin every month, diligently, incrementally, and faithfully, from the last half a decade to the present moment.
That said, everyone’s got to start somewhere right? For those just getting into the crypto space, this article will be highlighting common Bitcoin investment mistakes and tips on how you can prevent them.
Note: Market movements and prices discussed in this article are relevant to its original publication date.
Also read: What is Bitcoin and how does it work?
Mistake #1: Timing the Bitcoin investment market
Since Bitcoin investment had gained increasing media attention, an increasing number of previously unknown social media influencers hop right onto this bandwagon to teach you “secret techniques” on how to get the most out of your investment.
Very few of them will tell you to hold Bitcoin for five years or more. Many will likely teach you to use technical indicators like the 50MA and 200MA, combining them with all sorts of other indicators, and teaching you how to wait and watch for the market 24/7.
This strategy will work if you are committed to consuming your time and mental energy to timing the market; to buy at the right time, and to sell within a day, an hour, or even within a minute of trading.
Many people who aren’t traders don’t have the time or discipline to do all this. Investors don’t time the market — in fact, they enter whenever they have the funds to buy bitcoin.
They allow time to pass before seeing their investment yield appreciable gains and trusting that the market is generally in an uptrend.
Mistake #2: Selling Bitcoins too early; preferring cash over digital gold
We can agree that right now, market adoption for Bitcoin as a tool to facilitate transactions is still rather limited. However, the long-term value of Bitcoin is apparent in the way investors treat Bitcoin like gold; it is a financial safe haven whenever people believe that their fiat currency is devaluing in times of crisis (such as in Q1 of 2020).
Currently, it is easier to use your fiat currency to buy groceries, rather than with solid gold. Unless you really need to liquefy the money that is contained in the form of gold, you really shouldn’t touch one of your best stores of value.
The same principle should apply to Bitcoin investment. When the price is skyrocketing for fundamentally good reasons, it is at this moment that you should hold on to it for as long as possible. Occasionally, we hear news that tech companies and institutional investors are more than interested in buying them.
Guess what? If you sell them at the current price, the big companies are happy to buy them at what they believe to be a discounted price. Why not wait until Bitcoin’s price is so high that big buyers will need to pay you at a much higher price?
Check the latest BTC rates: Click here to view the latest Bitcoin prices with our live tracker.
Mistake #3: Allowing negative headlines to shake your confidence in Bitcoin
As of today, there are over 8000 crypto assets — some are coins for a particular blockchain, while many others are tokens that can be used to buy particular services in the future.
You may have heard about the crypto token craze back in 2017, when companies decidedly offer crypto tokens to the excited public for fundraising. Of course, a few of them turned out to be a scam, rendering the tokens worthless.
Negative cryptocurrency news like these will not stop there. As the blockchain industry matures, shifts in power is normal. The crypto token and business that you once believed in could be overshadowed by a rival business with better technology and services.
Better blockchain, faster and cheaper transaction speed, and increasing utility are alluring offers to new investors in the cryptocurrency space.
So, why is Bitcoin so special?
Being the pioneer and most popular cryptocurrency, with the greatest expanse of computer network, Bitcoin has given big investors enough reasons to invest in it. One crucial fact about why Bitcoin is powerful against the newer additions to the crypto space is that it is simply the standard.
All blockchain technology is modeled after Bitcoin; you cannot get anymore simpler than Bitcoin. Like the humble wheel, nobody can ever reinvent it. Like the age-old gold, it is difficult to get people to switch to valuing other kinds of precious metal, even if you can argue that many other metals have better utility.
Bitcoin’s value will increase because it is the easiest cryptocurrency to understand, and it is perceived as something that is the most familiar to the general public. Simply put, if your parents are starting to take an interest in Bitcoin, it’s an obvious sign that Bitcoin is already on its way to becoming the ultimate global digital asset.
More on blockchain: Read our complete guide into blockchain technology.
Is the price of Bitcoin too good to be true?
Finally, the most obvious but least discussed phenomenon on the Internet — is the Bitcoin price rocket too good to be true? Is this the right time for a Bitcoin investment? You might be extremely wary of Bitcoin as it made a phenomenal 1900% price increase within 52 weeks of 2017, only to have the price drop to nearly the same level just a year later.
This was seriously bad news for Bitcoin.
Is there any way to know that Bitcoin won’t do the same thing again? There may be clues that Bitcoin’s price has reached a new support — that is, any price drop will not be as serious as before.
You must note that Bitcoin in 2017 was still widely known as a speculative asset. Many crypto businesses were new and still patching up dangerous logical loopholes in their smart contract and blockchain systems.
There were only a few exchanges back then, dangerously centralizing the ownership of the crypto assets. It is no surprise that well-funded groups could have triggered violent price movements in the market (known as market makers).
Bitcoin’s journey is no different than a share of stock at a start-up company. Experiments in technology and business models were common back in the day.
People became over-excited at the prospect of half-tested products and services. The excitement turns into mania as rookie traders ignore the fundamental reasons to hold the share of stock (or Bitcoin).
This time, it should be different.
Tech companies, investment companies, and buyers from Wall Street (to name a few dozen more around the world) are starting to recognize the value of Bitcoin in the future.
When large institutions are normalizing their involvement with Bitcoin, it should already be a good signal for conservative investors to step up and do the same.
Many stocks’ prices undergo a few years of consolidation before experiencing a rapid increase. Look at Apple’s stock price (AAPL) before the Dot-com Burst of 2000.
Look also at its price in 2004. Many wary investors who solely focused on the fall of Apple’s stock price in 2000 were blind to the potential of the company’s new innovation in 2004 — the first iPods.
Looking back, there was really no reason not to hold Apple’s shares. It was certainly difficult to convince anyone, that this time things would be different.
After all, hindsight is twenty-twenty. It applies to the stock market, and it certainly does to Bitcoin.
Are you a Bitcoin investor with a trader’s mindset?
Many investors enter the market with a trader’s mindset. I’m not just talking about the Bitcoin market, but also all kinds of markets — stocks, futures, and even property. As a stock investor myself, I have made this rookie mistake. Fortunately, I had gotten this one crucial thing right before I got into the Bitcoin market.
If there is only one thing that you must take away from this article is that you need to reframe your mindset into something that sounds like this:
I invest in bitcoin to protect my hard-earned income from inflation, diversify my portfolio, and get rich slowly.
It’s not too late for a beginner to invest in Bitcoin! Click here to purchase BTC today!
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated November 15, 2022