If you have not read our first two parts of this article, you can catch up with them on the below shared links.
Part 1: here
Part 2: here
7. Over / Under Diversification of Portfolio
The first thing that most new traders do is invest in Bitcoin or Ethereum. That’s all right. But then they go on googling things like ‘what is the best cryptocurrency to trade in’ or ‘the next big 100x coin’. This is the beginning of their downfall. They start stuffing their portfolios with crassest coins, which lead to a terrible portfolio diversification. Diversification is of course good for hedging purposes, but a highly diversified portfolio is incredibly hard to keep track of. Under-diversification, too, is quite dangerous. Be wary of them both.
8. Buying Cheap Coins
Another major mistake of new traders is to buy the cheapest coin they can find on Bitbns or Coinmarketcap. The thought pattern behind this is: Bitcoin was once worth peanuts and now it’s worth thousands, so if I buy the cheapest coin now, it will be worth a lot later. This is gross misunderstanding.
New traders mostly overlook the market cap and circulating supply of a coin. For example, Cardano is worth $0.098585 today. Its circulating supply is 25,927,070,538 (almost 26 billion). This is more than a thousand times that of the Bitcoin circulating supply, thereby resulting in a total market cap of $2,556,018,231 — fifty times less than the current market cap of Bitcoin.
Consider those numbers. It takes around $10B to move the price of Bitcoin by $500. And it would take an astounding $13 trillion to move the price of Cardano by $500. That is, more than twenty times that of the total market cap of crypto.
Meaning, it’s highly unlikely that the value of Cardano will ever be in thousands of dollars range.
9. Ignoring Margin Trading
Margin trading is one of the most important aspects you should consider while investing in the crypto market and most new traders are not aware of this. Even those who know about this tend to ignore it.
Say you have 10 different types of coins, each priced ‘P’. Now you research analysis says that the market will drop and chances of booking a loss are high. What you can do now is, with the 10 coins you have, you can borrow another 10 coins. So now you have a total of 20 coins, each priced ‘P’, totalling 20P. With this, even if the market drops, you can sell and double your profit.
That’s margin trading. You take leverage to maximise your profits.
Read Part 4 Here
