Since the creation of Bitcoin back in 2009, the cryptocurrency market has grown exponentially. In the beginning, one Bitcoin was worth less than $1 and now one Bitcoin is worth around $7,500. At its peak, it was worth over $19,000, making a $100 investment during the early years be worth $1.9 million. With gains like these, it is hard not to want to put all your money in crypto and just become the next crypto millionaire. However, among all the success stories available online, there are also a lot of stories of people who lost a lot of money. So this article is for those of you who still have not invested in crypto but are interested in doing so and do not want to commit some basic mistakes.

1. Not doing your own Research

The first step before investing in any cryptocurrencies or ICOs (Initial Coin Offerings), the crowdfunding phase of a cryptocurrency, is to do your own in-depth research about the projects that interest you. Nowadays if you go on YouTube, you can easily find dozens of channels reviewing coins and talking about how great these new coins are. It is very easy to just watch a video from someone that looks and sounds trustworthy and just follow his/her advice. The reality is that a lot of these ICOs have bounty programs, much like your common rewards program, and they serve the purpose of finding bugs in their codes as well as for marketing purposes. So, a lot of coins/tokens offer you an amount X of their coin/token if you post a positive video on YouTube or write a positive review here on Medium, Facebook and also other social media platforms. Below is an example of how these programs work, in this case we are looking at DAV Network, and here is the link to the page with all the bounties.

Taken from bitcointalk.org

Getting back to the point, it is evident why a lot of people have incentives to only talk about the positives of a project. I myself have considered writing reviews about different projects to earn some coins, but a lot of them ask you to write a positive review, and I personally am not comfortable only writing positives when all coins, I repeat, ALL coins have negatives as well. So do your own research and be mindful of these videos/posts talking about cryptocurrencies.

2. Only looking at coin/token price

A lot of you reading this article probably think this is a stupid point to mention, but trust me, I have met a lot of people who have asked me if they should buy Ripple because its price is below $1 (at the time of writing this article) and Bitcoin’s is $7,500, so they could make a lot of money. If you don’t understand why this is absurd, then you have come to the right place. The reason why this is absurd is because Ripple and Bitcoin have different supplies. Bitcoin has a circulating supply of a little over 17 million BTC while Ripple has a circulating supply of over 39 billion XRP, yes billion, not million. One common metric used in finance is to look at the Market Capitalization of a Security/Asset. This Market Cap is calculated by multiplying the circulating supply by the current price. You can also think of it as being how much money you would get if you could sell all of BTC, for example, for the current price. The screenshot below was taken from coinmarketcap.com, a website with information about most coins in circulation at the moment.

As you can see, the coins were ranked by Market Capitalization. And it is clear by looking at the price column that the argument presented above sounds absurd. For Ripple to have the same Market Capitalization as Bitcoin, it would have to reach a price of approximately $3.30, very far from the $7,500 Bitcoin price. I am not saying you should only look at Market Cap, but it is a good starting point to analyze if a coin has potential to grow, specially if you compare the Market Cap of its competitors.

3. Investing more than you can lose

This is the most straightforward point I will make in this article. Simply put, only invest money you are willing to lose. I had an Economics professor at university that would ask us “If you purchase a stock for $10, and its price goes down to $9, how much have you lost?” and everyone would reply “$1”, then he would smile and say “No, zero, you did not lose anything, you already bought the stock, you already spent these $10. The only thing that changed is how you think about it”. Then he would go on to say that obviously if you sell at $9, then you lost a dollar, but the point is, once you buy a cryptocurrency, it is better to think of it as not going to get that money back, than to think, I’ll invest now and take $1 million later. Specially in the crypto market, things can get very scary at times if you are not mentally prepared. For example, down below is the chart for Litecoin (LTC) from April 2013 to April 2017.

As you can clearly see, the price for one Litecoin exploded in November 2013, from below $2 reaching almost $50 per coin. A lot of people bought Litecoin above the $40 price. As time passed the price of Litecoin decreased to a low of $1.20 in January 2015. Now imagine this was your case, you bought $400 worth of LTC at $40, meaning you bought 10 LTC, in January 2015, your $400 had turned into $12.00, yes twelve dollars. And as you can see the price stayed well below $10 until the beginning of 2017. Now let’s take a look at the price chart after January 2017.

Here you can see that in December 2017 the price reached its height of approximately $360, now your $400 dollar investment would have turned into $3,600, a growth of 900% in 4 years. These graphs are being used here to show you how the crypto market is volatile. I am not saying that if you bought Bitcoin at $19,000, (or any other coins in this case), that it would go back to that price. The price might reach $1 million or it might go down to $0. My point is, if you think that at the moment you made your purchase, you already spent all that money and you are not getting it back, then you will never stress out about the value of your crypto and how much it may possibly go down. Thus, you should only invest what you are willing to lose.

4. Fear of Missing Out (FOMO)

In the world of cryptocurrencies, Fear of Missing Out or mostly commonly known as FOMO, is the action of buying a coin/token when it is increasing a lot in value and fearing that you might miss out on this opportunity, so you buy it at a high price. We can connect this point to the example given in the point n.3, when you bought Litecoin at $40 in 2013, because you were afraid the price would keep going up, but then the price only went down from there. If you like a coin/token and its price has increased a lot recently, first do your own research, then analyze its Market Cap and compare this number to competitors’ numbers, and then, only then, if your analysis says there is still room for growth you only invest what you are willing to lose. So no Fear of Missing Out, there are over 1,600 coins/tokens for you to possibly invest in.

I hope this article might have given you some directions as to what you should pay attention to before getting into cryptocurrencies. And by all means, do not just read this article and start investing, you should always seek more information and learn more.

**Disclaimer: I am NOT a financial advisor and this should NOT be taken financial advice. You should ALWAYS do your own research before investing.