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I'm a Financial Expert: This Is the No. 1 Mistake Americans Make When Investing in Crypto
Cryptocurrencies are one of the most exciting asset classes due to their novelty and high returns. Bitcoin has crushed the S&P 500 and Nasdaq Composite over the past decade, with altcoins having varying levels of success.
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The pro-crypto policies of the Trump Administration have only put more spotlight on cryptocurrencies, but jumping in without enough knowledge can result in substantial losses. While there are several mistakes you can avoid when investing in crypto, one mistake stands out.
This guide will uncover mistakes to avoid and what you can do to put yourself in a better position when you buy crypto.
Alena Afanaseva, CEO and founder of BeInCrypto, believes it's important for investors to treat cryptocurrency differently from stocks. Having no distinctions between the two asset classes can result in excessive losses if you take too much risk.
'The biggest mistake is to think that cryptocurrencies follow the same rules as traditional assets. When we analyze the dynamics of fiat, commodities, or stocks, we always have a two-way approach: looking at the macro environment, digging deeper into fundamentals, and adding technical analyses on top of that,' Afanaseva explained. 'In general, you know that during the easy monetary policy cycle, we are gonna see the growth of stock prices. Unfortunately, these rules do not always apply to cryptocurrencies.'
She also took some time to mention how risky cryptocurrencies are. Stocks are risky, too, but crypto is in an entirely different category.
'Fundamental analysis is very scarce [for crypto], and the future path of any new project is highly unpredictable, and the whole industry is not mature enough. So, you need to keep in mind that crypto investments are much riskier than any traditional world investment.'
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Chances are, you've heard of someone who made a fortune with bitcoin, whether it's a friend or some guy on the internet. Afanaseva shared some hard numbers that explain the risk of this approach and how much money people lose with cryptocurrency.
'Very relevant stats coming from data compiled by BeInCrypto on Dune Analytics: there are around 5,000 addresses turning a profit of over $100,000, and about 311 wallets exceeding $1 million in gains. However, more than 60% of addresses engaging with the Solana-based token launchpad have incurred substantial losses. Nearly 1,700 addresses lost more than $100,000, and 46 wallets suffered losses exceeding $1 million.'
Crypto is risky, and jumping into the asset out of fear of missing out based on past successes can set you up for a dangerous future. Afanaseva shared a good mindset that can help you avoid this common crypto mistake.
'I think the key here is to understand the risk you take, to properly assess how your loss is going to influence your budget. Try to make a reasonable decision. Don't go all-in; try to diversify — the rule of all eggs in the basket does apply here. And I would strongly recommend avoiding any leverage trading — the volatility in the cryptocurrency market is enormous, so it is very easy to get into [the] red zone.'
Knowing your financial situation and diversifying your portfolio can help you make better decisions with crypto and other investments. You'll also become a more confident investor as you learn more about these assets.
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This article originally appeared on I'm a Financial Expert: This Is the No. 1 Mistake Americans Make When Investing in Crypto
