Reading time: ~2 m
Cryptocurrency trading is associated by many with sharp ups and downs and is considered a very risky activity. Let’s see if this is really the case.
In fact, there are coins that skyrocket and bring multiple profits to their holders. And, on the contrary, there are many cases when coins lose almost 100% of their value in value and nullify the capital invested in them.
This article will focus on common myths regarding cryptocurrencies. We will also find out whether stable investment in cryptocurrency is possible, in terms of profitability.
Myth 1. Cryptocurrencies are very volatile
Every day on social networks you can see stories that this or that coin has grown by hundreds, and sometimes thousands of percent. As well as stories that a certain coin lost 99.99% of its value. Such huge volatility is actually inherent in the cryptocurrency market. But in addition to coins that are subject to sharp ups and downs, the reasons for which may be the messages of famous people or the actions of large investors, there are more stable coins. There are so-called stablecoins, the value of which is tied to a specific currency. For example, Binance USD (BUSD) or Tether (USDT), their value is pegged to the US dollar and ranges from $0.99 to $1.01 per coin.
Tether и BUSD
Storing funds in such stablecoins can bring a certain income through staking operations (like bank deposits, only in cryptocurrency). Also, stablecoins are well suited for temporary storage of profits from investments and fixed capital. Instead of converting crypto-currency assets into fiat money through a bank, one could just as well store them in stablecoins inside a crypto-currency system. And in the event of a decline in the markets, you can easily use them to buy assets that have fallen in price.
Myth 2. Luck plays a big role
The popular opinion is that cryptocurrencies are like a lottery, and someone is just lucky to buy the right coin at the right time before its meteoric rise. But, if you look at the results of investors over the long term, it becomes clear that stable positive returns are the result of accumulated experience and education in the field of cryptocurrencies. It is important to understand many issues, simple and complex, for example, how and which crypto wallet to open, how and on which crypto exchange to register, what is NFT, what is the gas fee, which network has a cheaper transaction fee, where is it more profitable to buy/sell/exchange cryptocurrency, what is airdrop and whitelist and many others.
It is also important to understand the fundamentals underlying a particular coin – what is the fundamental valuation of a coin, what processes affect its pricing, who is behind this project, how to use futures and options contracts, and other issues.
Experienced investors, as a rule. better understand all these issues and are able to competently manage their position, hedging it if necessary.
Myth 3. Advertised coins will continue to grow
An important component of trading on the crypto market, along with analytical analysis, is faith in the coin in which the participant invests or intends to invest. It is quite easy to succumb to the general euphoria about the sharp growth of this or that coin. As a rule, when information about the grandiose growth of any coin begins to flow from all media, this signals its imminent completion. People who have invested in such publicized projects, as a result, are left without a significant part of their investments.
An example of such situations is the SHIB and DOGE coins advertised by Elon Musk.
SHIB и DOGE
Therefore, it is important to conduct your own coin analysis and stick to your original trading plan.
High-cap coins like Ethereum also sometimes rise or fall sharply. But, if you look at the long-term trend of ethereum or bitcoin, you can definitely determine that the trend is growing. And an investor who believes in the future of cryptocurrencies and blockchain technology buys more of these coins at every drawdown.
Myth 4. You can catch the whole movement and get rich
It often happens that an investor analyzes, selects a coin and invests in it. The coin begins to grow and make a profit. The investor is in no hurry to take profits and expects that the coin will continue to grow further. As a rule, such stories end with the fact that the coin falls sharply and all profits burn out and even a loss appears.
The universal advice here is this – do not chase to catch the entire movement of the coin. It is necessary to outline a profit-taking plan in advance and stick to it. For example, the plan might be to sell 25% of the portfolio each time the coin grows by 25%. Or another example is to sell the entire initially invested portfolio when the coin grows by 50%, leaving only the profitable part to work in the coin.
It is impossible to capture the entire movement. In the long term, stable results are shown by those investors who fix their profits according to a pre-planned plan.
There must also be a plan in place in case of adverse movements in the price of the coin against the investor. For example, it can be a complete sale of a coin if its price drops by 25%.
Percentages are given here as an example. Everyone must determine the specific amounts of profitability and loss on their own. Novice investors can operate with smaller numbers.
Myth 5. Take out a loan, invest in cryptocurrencies and become rich
The cost of cryptocurrencies is determined by market mechanisms and depends on the supply and demand for a particular coin. And supply and demand, in turn, is the degree of trust and faith in the coin, which can fluctuate significantly depending on the surrounding circumstances. There are sharp collapses in the crypto world, often the price does not return to its previous high values for a long time (in some coins this never happens). Therefore, it is necessary to invest in cryptocurrencies only those funds, the loss of which will not affect the life of the investor.
There are many stories of people selling their homes and cars, or even taking out loans to invest in cryptocurrencies and losing all or most of their investment. Behind every successful story of getting rich thanks to cryptocurrencies that becomes widely known, there are hundreds of sad stories of lost investments and bankruptcies.
It is necessary to take a balanced and serious approach to the issue of investing in cryptocurrencies.
The main myths about cryptocurrencies look like this.
When trading cryptocurrencies, it is difficult to get rid of emotions and hopes for the rapid growth of your capital. But in the long run, disciplined traders who have accumulated work experience and do not depend on emotional factors win.
Be responsible when investing in cryptocurrencies.
Author: Elvir, Analyst at Freedman Сlub Crypto News