Getting into cryptocurrency can be a daunting prospect for new investors, particularly given the industry’s reputation for volatility and novel technology. In this guide, we’ll walk you through seven of the most common mistakes new crypto investors make – and give you tips on how to avoid them.
Mistake #1: Thinking all crypto is Bitcoin
To begin with, don’t fall into the trap of thinking all cryptocurrency is Bitcoin. It’s an easy association to make, particularly given how much media coverage Bitcoin receives. And while there’s no denying Bitcoin is big – representing more than 50% of the crypto market by value on any given day – there are literally thousands of other coins out there.
Most importantly, those other coins (“altcoins”) often have their own value proposition, such as stablecoins (which are tied to commodities or use unique rules to stabilize their value) or Ethereum (which is developing a hyper-efficient blockchain infrastructure that is catering to institutions and governments looking for novel solutions).
At BitIRA, we can help you navigate the maze of cryptocurrencies and find the ones that suit your investment needs and personal philosophy. Along with Bitcoin, we offer Ethereum, Chainlink, Litecoin, Stellar Lumens, Solana, and several other coins, each of which comes with particular advantages.
Mistake #2: Going in unprepared
Given its high potential for returns and the way it’s upending the financial industry, there’s a lot of buzz around cryptocurrency – and to be completely frank, not all of it is reliable or applicable. Sure, you may have a friend who thinks that crypto is a godsend (worth going all in on) that generates triple digit returns over a short time, and while that may be true in some instances, it’s not what you should expect all the time. Or maybe you have another friend who sees crypto as “rat poison” and (supposedly) swears it off entirely – even as they’re investing in it on the back end.
Simply put, don’t believe everything you hear about cryptocurrency, and don’t base your own investment strategy on what others are telling you. Find and rely on reputable sources for crypto news (we post regularly at BitIRA), and refer to reliable guides to gain an understanding of where crypto is really headed. Or simply give us a call and our crypto industry experts can answer any of your questions directly.
Mistake #3: Investing with short term goals
Let’s come right out and say it: The association between crypto and volatility is well earned. As a new type of asset and a brand-new technology, cryptocurrency has faced an uphill battle in the field of regulation, particularly in the U.S. That’s led to numerous instances of the Securities and Exchange Commission taking legal action against companies (many of whom thought they were operating legally). On top of that, the industry has seen its share of unscrupulous actors looking to seize upon people’s notions of getting rich quick.
While it is possible to see impressive returns on crypto investments over a short period of time, it’s also entirely possible to see the opposite. With that in mind, however, the long-term projection for the cryptocurrency industry is strong. That’s why we offer crypto-based IRAs, as we see the asset’s greatest potential as being based in retirement funds with long-term return goals.
Mistake #4: Forgetting your crypto wallet password
One of the key features surrounding cryptocurrency is security. For investors who opt to purchase cryptocurrency directly and store it in a wallet, it’s virtually impossible for that wallet to be stolen due to the impenetrable alphanumeric key system it employs. Unfortunately, if those same investors lose their key – effectively losing their password – then they’ve lost access to all of their funds, just like that.
It’s a nightmare scenario that is famously continuing to unfold for a man who lost the passcode to a wallet containing 7,002 Bitcoins (worth hundreds of millions of dollars).
You can bypass this potential disaster entirely by utilizing a service like BitIRA. Our digital currency specialists will help you establish your IRA investment account, including choosing the custodian and rolling over any existing assets into it. Just like any other IRA account, you’ll have 24/7 access to customer service representatives who can answer your questions at any time, ensuring you’ll never be locked out.
Mistake #5: Making errors while trading
For new investors especially, it’s particularly easy to make a simple mistake – or even a typo – that can result in crypto assets being sent to the wrong address or sold for the wrong amount. It happens all the time when crypto users attempt to send or receive funds between wallets – which are represented as complex alphanumeric addresses. One digit or number out of place results in the funds irrevocably being sent to the wrong person.
In one instance, a developer inadvertently entered the wrong address and sent $36 million in Juno tokens into the ether.
You can avoid the pitfalls of making these mistakes while directly processing your crypto transactions by keeping your crypto assets in a self-directed IRA account managed by a custodian of your choosing. Whenever you’d like to make a transaction, let your custodian know, and the process will be handled for you. At BitIRA, we’re here to help you every step of the way through the world of cryptocurrency investment.
Mistake #6: Being blindsided by fees and taxes
Investing in crypto is not free, and if you do it haphazardly, it can actually be quite costly. Investors also face specific tax rules that can come back with a vengeance if they’re ignored.
When it comes to fees, every cryptocurrency exchange has its own set amount that it charges – fees that can include blockchain fees, transaction fees, and gas fees. Depending on when you’re accessing the network, these fees can vary – sometimes dramatically. If you’re going to invest directly into crypto, you’ll need to do some research on what fees you should expect (choosing the option with the lowest fees for the cryptocurrency you’d like to invest in).
Cryptocurrency investors are required to pay taxes on their crypto sales, and in some cases, on their crypto holdings. The rules are complex and evolving, leading to some investors outright ignoring them – and facing subsequent audits and penalties as a result.
By opening a cryptocurrency IRA account with BitIRA, you’ll have a clear cut idea of what taxes you’ll need to pay and when. Self-directed IRAs follow the same rules as traditional IRAs, meaning you can expect tax advantages such as deferment and no annual taxes accrued based on gains.
Mistake #7: Investing in just one coin
Sure, there are Bitcoin bros and Ethereum fans who refuse to deviate from their cryptocurrency coin of choice, but that flies in the face of the golden rule of the market: diversification. Just like with any other asset, if you go in 100% on one thing, you risk losing all of it if that thing turns out to be a failure.
Fortunately, as we discussed previously, there are multiple coins out there to choose from. Spreading around your investment between them is the safest way to ensure that your portfolio never tumbles on account of a single coin’s slip.
At BitIRA, we offer 17 coins for your consideration, all of which have been vetted by our team of crypto experts. By opening a self-directed IRA with us, you’ll be able to add any of those 17 coins to your portfolio – and to take advantage of our considerable industry knowledge to help make the decision as to which is best for you.
Are you ready to get started with a cryptocurrency IRA? Give us a call, or get started online right now.
