Investing in cryptocurrencies can be fascinating, but many new investors fall into common pitfalls while trading and investing. Join us as we walk you through the top 7 mistakes in crypto transactions and how to avoid them.
If you’ve previously invested in crypto transactions, you’re familiar with the concept. However, you should learn about the lesser-known facets of the crypto market.
Understanding the virtual asset you’re investing in is essential for any hazardous cryptocurrency investment.
Cryptocurrency is a decentralized digital currency based on blockchain technology.
Blockchain technology validates cryptocurrency transactions via a distributed ledger, which all computers must verify on a decentralized network.
Decentralization indicates no central point from which to access a database. Instead, the entire network is distributed globally, resulting in a decentralized network of systems.
Crypto’s decentralized structure makes it far more anonymous and secure.
Crypto transactions are typically speedier and less expensive because no intermediaries (intermediaries) are involved.
This strategy is in direct contrast to the banking industry, which relies on intermediaries to ease financial transactions.
Bitcoin is the first and most well-known Cryptocurrency, but it is far from the only one. In 2021, over 10,000 different cryptocurrencies were exchanged across many markets.
This can make getting started with cryptocurrency transactions scary, but there are several opportunities for even the most unskilled crypto trader or investor.
Overview of Crypto Trading
You can trade cryptocurrencies like stocks, commodities, and foreign exchange (FX). Traders try to make money by guessing how the prices of digital goods that change quickly will change.
When you want to buy or sell cryptocurrencies, use a cryptocurrency market. Traders buy when the price is low and sell when it is high.
The first stock market trades happened in the 1600s. The first Cryptocurrency, Bitcoin, was traded in 2009 and is still the most well-known Cryptocurrency.
Many new cryptocurrencies with different features have been created and sold since then.
Crypto investors should have a backup plan and consider what to do with their cryptocurrency winnings because cryptocurrencies like Bitcoin are rising quickly.
Savvy investors know they shouldn’t hold on to cryptocurrencies too long because a significant price drop could wipe out their winnings.
So, it’s always wise to have a clear idea of what to do after making many coins. Spending money on a car or another luxury item can be exciting, which may be somewhat reasonable.
It is essential to know that these things (cars, expensive bags, clothes, etc.) lose value over time.
Instead of investing all your cryptocurrency gains in things that will lose value over time, try putting them into other businesses and investments.
If you have a lot of crypto wins, you can transfer them for an even more significant return in the future if you are smart and plan.
A key part of making crypto deals go smoothly is knowing when to enter and leave markets to make the most money and the most minor loss.
Because the market is unpredictable, a trader’s choices can significantly affect how much money they make (or lose).
As Bitcoin increases in value, altcoins also increase, making owners very rich. It’s important to know when to take gains, though.
Some buyers lose money because they are greedy and expect the price to increase ten times.
Don’t be like them. Instead, devise a plan for making profits from crypto transactions and look for intelligent ways to spend your money when the bull run ends.
As things stand, a bull market will almost certainly be followed by a bear market at some point.
Without further ado, let us see the top 7 mistakes in crypto transactions and how to avoid them.
The Top 7 Mistakes in Crypto Transactions and How To Avoid Them
It is not unheard of to say you made some mistakes in crypto transactions.
Here are some common errors in crypto transactions and how to avoid them.
- Sending cryptocurrencies to the wrong address
- Forgetting transaction fees or making them too low
- Ignoring tax implications
- Failing to do proper research
- Ignoring risk management
- Neglecting security measures
- Focusing solely on short-term profits
Sending Cryptocurrencies to the Wrong Address
Simple transmitting errors daily cause significant amounts of Cryptocurrency to be lost. This error frequently occurs when you don’t pay attention while inputting the receiver’s wallet address.
The difficulty is that while Cryptocurrency is useful for various purposes, refunds are not one of its strengths.
In contrast to a bank, there is no immediately available support line from which to seek assistance. You can thank Cryptocurrency’s broad censorship resistance for that.
However, one thing is sure: transferring coins to the wrong address can be disastrous for any investor’s portfolio. What should you do to avoid this mistake? Just be extremely cautious when dealing with crypto transactions.
Take as much time as necessary when entering the information. And don’t forget to double- or even triple-check before clicking the ‘ send’ button!
Blockchain transactions are irreversible, but don’t give up hope if you make this standard error. Some resources show you how to retrieve
Cryptocurrency was delivered to the erroneous address. Do they work?
There is no assurance. But take heart: Tether, a famous stablecoin, could recover and repay a million Tether to traders who deposited their assets to the incorrect platform in 2020.
Forgetting Transaction Fees or Making Them Too Low
Have you sent someone crypto, and they have yet to receive it, even after days? The transaction just remains pending. What do you believe is causing it?
One of the reasons for delaying crypto transactions is a forgotten or insufficient transaction fee. The number of transactions on cryptocurrency networks has expanded dramatically in recent years.
And it is jamming up the network. This is why miners prefer transactions with greater fees. Cryptocurrency transactions are transmitted in batches or blocks.
Each block’s capacity is limited. Your transaction fee will determine whether or not it is included.
So, does a “stuck transaction” indicate a permanent loss of funds? No. They will be confirmed gradually as transaction volumes fall. But, of course, not everyone can wait and deal with the discomfort of a stopped transaction, right?
What can you do to prevent this standard error? Don’t forget to include a transaction fee the next time you transfer Cryptocurrency. And when setting the cost, make sure it is high enough.
Most wallets will let you make the decision anyway. Speaking of manually selecting the fee, choose a transaction priority and set it to high priority, which results in a larger fee but faster transaction confirmations.
Crypto allows anyone to be their bank. That comes with numerous benefits. However, it also means that users, particularly newcomers, may meet challenging situations.
A stuck transaction is an excellent illustration. Avoid the trouble by adding a fee for each transaction and setting it high enough to be prioritized.
Ignoring Tax Implications
Did you know that the US Internal Revenue Service taxes all cryptocurrency transactions? It requires that all transactions, sales, and purchases be reported, no matter how minor.
The problem is that many cryptocurrency users ignore this obligation. Why? This is mainly due to the misperception that Cryptocurrency is anonymous and untraceable.
Here’s the thing: the IRS can track cryptocurrency transactions. Since Bitcoin’s birth, over 21,000 other cryptocurrencies have followed. So, unexpectedly, the IRS has already built sophisticated tracking technologies. Underestimate their abilities at your risk.
What happens if you fail to disclose your transactions? As expected, this error can have catastrophic implications. The IRS will eventually come up with you.
When this occurs, fines will be imposed. Worse, you could face criminal prosecution for it.
Of course, the ideal course of action is to disclose all of your cryptocurrency transactions accurately. It is also a good idea to keep accurate records of all transactions. How? Use specialized tax software for this.
These tools can also help you calculate the cost basis for any cryptocurrency asset. Speaking of cost basis, guessing or averaging is another tax mistake to avoid. It results in erroneous reporting, which carries fines.
Other things you should not do include ignoring or misreporting airdrops, free tokens, or money. It’s also a major mistake not to file if you know you can’t pay.
It would just result in increased penalties and interest charges. It is preferable to submit everything and work with the IRS to develop a payment plan than not to file at all!
Awareness of your tax duties as a cryptocurrency user does not mean you will not seek ways to decrease your tax liability.
For example, if you sold crypto assets for less than you purchased for them, you can deduct capital losses on your tax return. This saves you money, which you can use to make new cryptocurrency investments.
Failing To Do Proper Research
The main mantra for cryptocurrency traders and investors is DYOR or do your research. Every investor should thoroughly research a cryptocurrency project before investing in it.
Review the whitepaper, roadmap, token economy, team, use cases, and community supporting the project. You must research a project to ensure it is authentic and not a fraud.
Remember that communities are the primary driving force behind Web3 projects since blockchain enables democratization and transparency: The community is the primary indicator of a project’s health state.
This is a positive indicator if community members are active, supportive, and trusting of the team. If they criticize the team and lose faith in the idea, it’s usually best to avoid investing.
When conducting research, remember that information sources may be biased and paid. Thus, your best buddy should be someone with your expertise and critical thinking abilities.
Ignoring Risk Management
Risk management is key in cryptocurrency trading since it allows you to limit your losses while capitalizing on possibilities. Essentially, it is a lifebuoy to help you escape substantial capital losses.
A frequent technique for implementing solid risk management is spending only a tiny amount of your capital on each trade, lowering your crypto portfolio’s total volatility and risk.
Typically, the recommended amount to invest in a single trade is between 1-3% of your overall trading capital, so a succession of failed trades does not significantly impact your performance.
Diversification is another commonly used risk management method. Spreading your assets across multiple cryptocurrencies mitigates the impact of a single underperforming asset.
As proved by the Luna crash, Cryptocurrency is unpredictable and hazardous, with its value wiped out in days.
Investing in cryptocurrency baskets and using automated techniques with established parameters might help you adopt solid risk management and avoid potential losses.
Neglecting Security Measures
Security should be your main priority regarding cryptocurrencies, but many traders, particularly novices, misunderstand how important it is to secure their crypto assets securely.
As a result, scammers are constantly ready to exploit security flaws to gain access to your cryptocurrency wallet and steal your assets.
Remember to continually employ the greatest security measures to ensure peace of mind:
- Activate 2FA (Two-Factor Authentication).
- Use safe and unique passwords (containing special characters and digits).
- Update your cryptocurrency wallet regularly.
- Install an effective anti-virus on your computer.
- Only trade using trusted trading apps.
Also, suppose you’re hoarding significant quantities of cryptocurrencies for the long term.
In that case, it’s best to use a hardware wallet for added security so that your seed phrase (random sequence of words used to access your crypto wallet) is always saved offline in a secure location.
Last point: never click on questionable websites or utilize dangerous trading platforms.
Focusing Solely on Short-term Profits
The first error that new investors make is trying to generate a large profit in a short period.
Focusing primarily on short-term gains frequently leads to a myopic perspective of trading, in which decisions are made based on quick price swings rather than a thorough understanding of the market, and this strategy has numerous drawbacks, as previously noted.
A better, safer way is to take advantage of compounding’s long-term potential, as even little daily gains can result in exponential growth over time.
If your transactions earn a daily profit of 0.1%, the compounding impact results in an incredible +44% gain over a year.
This is more than four times the annual average gain in the S&P500 (a rate of return that most investors would consider excellent).
Even the most experienced and expert traders will struggle to attain this level of success, but this example demonstrates how tiny wins can lead to exponential growth over time.
Do not be greedy and instead adopt a long-term attitude and mindset.
With that, we will see some tools that help make your crypto transactions more profitable.
Crypto Trading Tools
Some tools that help you maximize your crypto transactions are;
- Cryptowat.ch
- Binance
- Koinly
- TradeDash
- DefiLlama
- LunarCrush
Cryptowat.ch
Cryptowat.ch is a widely used cryptocurrency charting and trading site. It offers real-time market data, powerful charting tools, and configurable trading interfaces.
Cryptowat.ch provides a variety of technical analysis indicators and overlays to help traders identify price trends and patterns.
The technology also facilitates trading across various exchanges, allowing users to complete trades smoothly.
Thanks to its user-friendly layout and robust charting features, Cryptowat.ch is an invaluable tool for cryptocurrency traders.
Binance
Binance, the world’s largest cryptocurrency exchange, handles more than 70% of all crypto spot trading volume.
The platform offers various services, including spot trading, cryptocurrency loans, an NFT marketplace, a self-custodial crypto wallet, and other features.
Also, Binance meets the needs of advanced traders by granting access to its API, which allows users to perform complicated trades and smoothly connect to automated trading platforms or crypto arbitrage scanners.
Binance’s complete portfolio of services and features makes it a one-stop shop for individuals and institutions looking to invest in Cryptocurrency.
With its user-friendly design and solid security features, Binance has established itself as a trustworthy and reliable platform for cryptocurrency lovers and experts.
Koinly
Koinly is a crypto tax application that makes it easier to calculate and report taxes on crypto assets. It supports over 6,000 coins and works with leading exchanges and wallets to automatically import transaction data.
Koinly performs precise tax computations, including capital gains, income, and gift reports, and creates tax returns in various formats for convenient filing.
Thanks to its simple interface and comprehensive tax features, Koinly is an invaluable tool for crypto investors and traders.
TradeDash
Tradedash is a robust cryptocurrency trading platform that includes a number of complex features for experienced traders. It offers a complete trading interface, including real-time market data, extensive charting tools, and customized trading techniques.
Tradedash also provides sophisticated order types, such as stop-loss and take-profit orders, to help traders manage risk appropriately.
Tradedash’s easy UI and comprehensive trading capabilities make it an excellent alternative for traders wishing to take their crypto trading to the next level.
DefiLlama
DefiLlama is a popular site that provides users with a thorough grasp of the decentralized finance (DeFi) sector.
It tracks various DeFi initiatives and provides thorough insights into each protocol’s Total Value Locked (TVL), price, trade volume, and other vital indicators.
Plus, it enables users to obtain real-time data on the most popular DeFi protocols, monitor their performance, analyze the composition of various DeFi portfolios, and estimate their risk exposure.
With its easy-to-use design and extensive analytical capabilities, DefiLlama is an invaluable resource for investors and traders navigating the dynamic DeFi ecosystem.
LunarCrush
Lunarcrush is a valuable social media analytics tool for cryptocurrency enthusiasts and investors.
It provides real-time data and analysis for numerous cryptocurrencies, such as market capitalization, trade volume, price changes, and social media sentiment.
Its powerful social listening features enable users to monitor and analyze conversations and mentions of specific cryptocurrencies on platforms such as Twitter, Reddit, and Telegram.
This provides vital information into community sentiment. Also, Lunarcrush offers personalized notifications, interactive tools, and charts such as the HODL Waves chart, which offers insights into long-term investor behavior and sentiment.
Conclusion
Cryptocurrency is becoming more mainstream. However, users, particularly beginners, continue to make mistakes with their crypto transactions.
You cannot ignore errors jeopardizing security, such as losing private keys or seed phrases and storing Cryptocurrency on untrustworthy online wallets.
This tells us one thing: Cryptocurrency has a long way to go. But it’s moving quickly!
