Crypto mistakes explained with memes
There’s nothing wrong with making mistakes. The real issue is repeating them continuously. To aid newcomers in easily identifying common pitfalls, we present a unique approach: understanding these mistakes through memes.
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The first year in crypto can be the toughest. Dealing with risks, adhering to a strategy, grasping the psychology, continuous learning, and ensuring security – these are just a few aspects beginners need to focus on. These elements are crucial, just as much as the trading itself. A negative experience, such as losing a deposit, could completely demotivate a newbie, potentially deterring them from ever re-entering the crypto market.
High Leverage
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A prevalent error among crypto beginners is the use of excessively high leverage (a ratio above 2x is generally deemed risky).
Leverage is a mechanism that amplifies the size of a trade in futures or margin markets, as well as in options. It offers the possibility to substantially increase profits from trades but also equally escalates the risk of losing the margin collateral.
For instance, initiating a long position with $1000 without leverage places the liquidation price 100% below the entry point. However, with 10x leverage, it’s only 10% below. With 100x leverage, just a 1% adverse move can trigger a forced liquidation. Given the volatility of the crypto market, daily fluctuations of 1–3% are quite common.
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Here are three universal tips to help you reassess this mistake:
- Favor spot trading instead of margin trading.
- Only invest an amount that you can afford to lose.
- Consistently use stop-loss orders.
Leverage, when used judiciously, can improve trading efficiency by freeing up capital. Rather than locking 100% of your trading funds on an exchange, leverage allows you to use a fraction. For example, a 1% risk trade would only require 0.1% of your deposit with 10x leverage.
FOMO (Fear of missing out)
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Fear of Missing Out (FOMO) is an emotional state characterized by the anxiety of missing out on something potentially beneficial or exciting. It often leads to hurried, irrational actions.
In the cryptocurrency market, FOMO typically results in:
- Purchasing assets at their peak prices. It's sometimes wiser to stay out of the market, particularly when a price surge is ending.
- Investing in high-risk ventures. FOMO is a significant factor behind various meme coins and low-liquidity projects. Developers artificially inflate the asset's demand and then offload their tokens onto new investors.
- Engaging with potentially risky dApps. In the wake of substantial airdrops like Arbitrum, Aptos, or TIA, scammers often appear, imitating dApps to steal users’ wallet data.
To prevent FOMO, beginners should establish and stick to a trading strategy, monitor their gains and losses, and sift through the excessive social media noise. This approach helps identify optimal entry and exit points in trades and reduces the influence of external pressure.
Investing All Funds in Crypto
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In theory, investing more should yield higher returns. However, in practice, this isn't always true.
Newcomers often misjudge the market's potential, allocating all their funds to trading and crypto projects. They neglect to set aside a safety net for unexpected circumstances like job loss or illness and overlook basic necessities like clothing, leisure, and health.
Before making any investment, it's essential to have funds set aside to cover needs during market slumps, losing streaks, and periods without regular airdrops. This approach prevents the need to sell assets at a loss, ensures peace of mind for the future, and reduces overall stress.
Seed Phrase Exposure
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A seed phrase is a sequence of 12 or 24 random words that is used to regain access to your crypto wallet. It is relevant for both hot wallets (like web or mobile apps) and cold, hardware wallets.
Scammers often employ social engineering tactics to deceive users into revealing their seed phrases. Intriguingly, the theft of assets might not occur immediately but could be delayed until the wallet accumulates a larger amount of cryptocurrency.
To safeguard your seed phrase, it's advised to store it in a secure location. Steer clear of digital storage like messenger “Favorites” or phone notes, which are accessible via the internet. Opt for handwritten notes hidden in a secure spot, or better yet, commit the phrase to memory.
Remember, no legitimate party should ever request your seed phrase. Encountering such a demand is a red flag, and you should immediately cease all communication with the requester.
Neglecting Security Measures
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Before diving into crypto, it’s crucial to learn the security protocols for interacting with dApps, centralized exchanges, and NFTs. This knowledge is key to protecting your assets and understanding each sector's specifics.
Security guidelines include:
- For DApps. Only engage with reputable applications. Avoid following links from “airdrop guides,” and independently verify the app's website (through Google, Coinmarketcap, CoinGecko). Consider using extensions like Revoke.cash.
- For NFTs. Don’t buy NFTs based solely on their images. Always verify the token's address in a blockchain explorer. Use established marketplaces like Blur or OpenSea.
- For CEXs. Register with a unique email and phone number. Create a strong password with a mix of uppercase letters, numbers, and symbols. Choose a reliable exchange.
The best defense is being well-informed. Continually educate yourself, stay updated with current trends, and remain vigilant.
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