From FOMO to Leverage: An Analysis of 5 Investment Traps to Help You Avoid Pitfalls!

Author: Abhaya Anil

Translated by: Baihua Blockchain

Currently, the cryptocurrency craze is at an all-time high, and opportunities are everywhere. However, behind the potentially life-changing wealth opportunities, if you're not careful, you could lose everything overnight. I'm not saying this from a textbook perspective, but from the mistakes I've personally experienced.

As a large number of newcomers flood into the cryptocurrency market—many of whom have never even dabbled in investing—these lessons become particularly important. Today, we will discuss the five most serious mistakes beginners often make (and how to avoid them). If you read to the end, I will also share why these lessons are especially crucial under the current market control of Federal Reserve Chairman Jerome Powell.

Mistake 1: Investing Money You Can't Afford to Lose

This phrase sounds like a cliché, but it is the most common mistake and the trap that gets most people into trouble. You often hear, "Only invest what you can afford to lose." But for many beginners, this is just empty talk.

The cryptocurrency market changes rapidly; it won't wait for you to adjust. Sometimes, you might wake up to find your account has been halved. So, ask yourself: how much are you willing to lose?

Practical Exercise:

Take the amount you plan to invest.

• Halve that amount.
• If that number makes you uncomfortable, you are investing too much.

If you are investing money you can't afford to lose, you are not investing; you are gambling. In the cryptocurrency market, this can be fatal.

Before entering cryptocurrency investments, ensure your basic safety net is in place. This means saving at least three months' worth of living expenses in a secure account unrelated to the crypto market. It may be boring and not glamorous, but it is the only way to ensure your financial safety during market downturns.

I have seen many people lose their life savings on collapsed platforms like FTX, and many of them may never recover that money.

Bottom Line: Before touching cryptocurrency, make sure your emergency funds are secure.

Mistake 2: Blindly Following Influencers

Cryptocurrency influencers are everywhere. Whether on Twitter, YouTube, or TikTok, you will always see someone claiming they have found the next big hit, like "The Three Altcoins That Will Make You Rich" or "Hidden Gems Set to Skyrocket Next Week!" But what most people don't realize is that these influencers are often paid to promote these projects.

Do you think they genuinely believe in these coins? Think again. Many are paid between $10,000 to $100,000 to create these videos, and they often have not invested in these projects at all. The sad reality is that many of the projects they promote don't even have a real product. You are essentially paying for someone else's marketing.

Solution: Follow my "3T Principle" before investing:

Technology: What problem does this project solve? Is there real demand? Is it solving a real issue, or is it just another imitator?

• Tokenomics: How many tokens are there in total? Who controls them? How are they 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 tokenomics, destined to fail.

Before investing in any project, do thorough research and do your homework. Never trust someone else's hype.

Mistake 3: Buying High and Selling Low (FOMO Emotion)

This is one of the most painful mistakes for beginners. It is theoretically easy to understand, but when emotions take over, it is easy to fall into the trap.

Look at the Dogecoin craze in 2021. People rushed in at 70 cents due to FOMO (fear of missing out), thinking Dogecoin would reach $1. In the end, it crashed.

Solution: When you feel the urge to buy out of fear of missing out, that is your red flag; pause for a moment.

Here's why: If a coin has already risen 500%, you are no longer an early investor; you are late. You are chasing a coin that has been pumped up, hoping for luck. But more often than not, you are just caught up in the hype, and when the excitement fades, your investment will crash along with it.

Practical Advice: If you feel like you are chasing a big green candle, take a 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: Making Big Investments in New Coins Without Products

The allure of new coins is strong. They are fresh, exciting, and everyone loves to fantasize, "What if this is the next big hit?" But I have to tell you: most new coins are not.

New coins are like startups; 90% will fail. You wouldn't invest your life savings in a startup with no product, no revenue, and no track record, and the same goes for cryptocurrency.

A reliable project should at least have 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, you are investing in just a dream. And dreams do not yield returns.

Practical Advice: Unless the project already has a real product, do not chase the "next big hit." The price may be tempting, but product and execution are key. Stick to investing in coins that have real products or can genuinely solve problems.

Mistake 5: Using Leverage (A Recipe for Disaster)

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

In 2022, Bitcoin dropped over 50%. If you used 2:1 leverage, you didn't just lose 50%; you were wiped out. Leverage amplifies losses, and nothing is more dangerous than that.

When you use leverage, even a small price drop can lead to a zeroed-out account. This not only hurts your wallet but also affects your mental health. Watching your account balance plummet like a free fall is a feeling no one wants to experience.

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

Article link: https://www.hellobtc.com/kp/du/04/5759.html

Source: https://s.c1ns.cn/akYk0

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