The cryptocurrency market is having a rough time of late, with huge swings in both directions reminding investors of the instability of this digital asset. These impacts are felt intensely by individual investors, those that are working alone and putting their money on the line to invest in this market.
Considering that cryptocurrency uptake is on the rise, with now over 16% of Americans having at least one form of digital asset, there are now more individual investors than ever. If you’re an individual investor, then you’re exposed to a range of disadvantages that those using a community platform or investing in a larger group are not prone to.
In this article, we’ll be exploring the different pitfalls that individual investors fall down, as well as pointing the way to a stronger investment strategy. If you’re investing alone, this advice will help you stabilize your portfolio and create a more conscious investing strategy going forward.
What Common Pitfalls Are There for Individual Investors?
As an individual investor, you’re likely to run into problems that don’t typically occur to larger asset management platforms. Most commonly, you’ll experience:
- Lack of knowledge leads to a lack of options
- Scam Wicks
- Financial Expectations and Goals are not set
- Impulsive
Let’s break these down further.
Lack of Knowledge
As an individual investor, especially in a space as complicated as cryptocurrency, it’s difficult to establish a deep knowledge of the industry. With new crypto projects launching every day with various promises and ideas, it’s hard to pick the great projects out from the ones that won’t last more than a few months.
As an individual investor, your lack of knowledge might inhibit your financial returns. You could either jump on a trend that you’ve seen online without doing any research, leading to a loss, or miss out on a great opportunity because you simply don’t know about it.
While there are large discussion locations for cryptocurrency, like Reddit, you’ll still have to actively monitor them to make sure you stay up to date with current ideas. As an individual investor, this can be a very difficult element of navigating cryptocurrency alone, with your own lack of knowledge becoming your downfall.
Scam Wicks
A Scam Wick is a ploy that happens when other traders intentionally trade an asset at a price that is completely different from what the real price actually is. Their intention with this is to trigger stop losses of those that aren’t watching their stock. Once these are triggered, there will be a flood of market buys, pushing that stock even higher than before.
As it’s public information when people set a stop loss, a whale investor that has lots of capital will be able to figure out what is the number they need to reach to trigger this scam wick stop-loss effect. When this occurs, a trading chart will have an extremely long wick and a short body, which is where the title of this scam comes from.
When you’re investing alone, you never have the funds needed to protect yourself from a scam wick. As your information will be public, you could be included in the range of people that fall prey to a scam wick effect. The only way to protect yourself from a scam wick is through grouping assets with many people, which is impossible as an individual trader.
Financial Expectations and Goals are Not Set
When individual investors take to the market, they often do so without setting out a plan of risk and reward. Typically, a more careful investor will have an amount of risk in mind that they’re willing to take. This risk figure could be based on their age, for example, with those that are older having less time to recover from huge losses and therefore being more averse to risk.
Individual investors most likely are not planning out calculations of risk and reward, more likely just trading a stock or cryptocurrency because they want to at that moment. While, of course, one can get lucky and have this strategy work out for them, it can also easily go the other way.
As risk calculations are often difficult to make, they are rarely conducted by individual investors, leaving them in the dark about how likely they are to reach certain returns and how risky they are being with their accrued assets.
Impulsive
If the cryptocurrency market can be classed as anything, it’s volatile. Open a financial application that tracks cryptocurrencies, and you won’t be surprised to see an asset swing by up to 20% in one day, especially in times of regulatory uncertainty. Due to the uncertain nature of these stocks, many individual inventors that don’t have experience seeing sharp ups and downs can easily fall prey to impulsive behavior.
As an individual investor, you are the only one that has control of your stocks. When you open a trading application, and you see your cryptocurrencies down by huge margins, panic might set in and cause you to sell off. Nothing is worse than opening the same application and seeing those cryptos back up by 20% the next day.
Bitcoin and Ethereum Gain Over 10% as the Broader Crypto Market Rallies From Thursday Lows >
Impulsive actions taken by individuals can completely ruin their portfolios, with radical buying and selling habits leading to mistakes on their part. Without a support system that’s either helping them to manage their funds or giving them advice, individual investors are often left in a difficult situation.
As you can see, there are many problems with being an individual investor. That’s not to say there aren’t any positives. However, when it comes to the increasingly volatile cryptocurrency market, it’s best to err on the side of caution.
How Can I Protect Myself As An Individual Investor?
There are several central ways that you can protect yourself when trading cryptocurrency as an individual. We’ll be focusing on the three most effective methods:
- Diversify your investments
- Use the crypto community
- Use community investing platforms
Let’s break these down further.
Diversify Your Investments
Diversifying your investments is solid advice that can be applied to absolutely any form of investing. When trading stocks, it’s never a good idea to go all-in on one or two industries. When trading cryptocurrencies, it’s the same ballgame.
Cryptocurrency is already a strong form of dedication for the average investor, providing them with an alternative set of assets. Yet, even for a cryptocurrency investor that wants to diversify their investments within the crypto space, there is a range of options. It’s a good idea to know that within the broad term ‘Crypto’, there are actually subclasses:
- Payment Coins – Payment coins are the foundation of why cryptocurrencies were made. Their goal is to transfer value between two distinct systems. The most well-known example of a payment going is Bitcoin, which is the cryptocurrency with the largest market cap.
- Stablecoins – With stable in the title, these coins give you exactly that – stability. A stablecoin will attempt to follow a fiat currency in a 1:1 ratio. An example of these would be BUSD, which stays close to the value of the USD.
- Security Tokens – Blockchain technology has developed over recent years, with the security innovations it is bringing also developing. A security token could be a company’s token, a platform’s token, or a bond issued by a certain crypto project.
- Utility Tokens – These are how actions are performed on a certain platform, giving them a direct ‘utility’. Ethereum is a well-known utility token, often being used as a transaction fee whenever you mint an NFT or interact with a decentralized application.
- Governance Tokens – This represents voting power on a particular project. Uniswap, SushiSwap, and Pancake swap all offer governance tokens, with a coin representing the ability to vote to change or create aspects of the dApp.
- Crypto Products – From NFTs to investments in particular dApps, all of these fall under the additional crypto product category.
Across these different cryptocurrency asset classes, there are also a range of different risks. Of course, higher-risk coins will often offer a higher reward, but this is also a bold way of running your portfolio. Try to ensure that you have a balance between medium, low, and high cryptocurrency investments in your portfolio.
If you want more information on this topic, Binance actually has an educational module on this area that you can study.
Make the Most of the Crypto Community
As cryptocurrency continues to gain social awareness, more and more people are turning to social media in order to discuss their projects. Sites like Reddit have become social hubs for discussing cryptocurrencies, with many users having a wealth of knowledge about the market.
If you’re considering making an investment, it’s always a good idea to discuss that investment with others. Perhaps they’ll have additional information that will make you consider the investment, or they’ll be able to give you some advice that can help you in the long run.
Use Community Investing Platforms
One of the most effective ways of overcoming issues that you’re likely to face as an individual investor is turning to one of the community DeFi asset management platforms. Taking an innovative approach that helps individual investors, HyperDex allows users to access community pools of investing.
These pools, known as investing cubes, offer detailed breakdowns of the different investment strategies that are involved. The three cubes, individually based on staking, statistical trading, and prediction markets, all offer a different predicted return and the associated risk rate.
Instead of having to perform difficult mathematical calculations by themselves, an individual investor will be able to use these cubes to find a comprehensive investment strategy that aligns with their goals.
Additionally, as many users all pool their funds together in these cubes, HyperDex protects its users against the possibilities of Scam Wicks, completely overcoming one of the largest problems that individual investors fall prey to.
This comprehensive investing solution is an innovative way that individual investors can access the benefits of the community without sacrificing their independence.
Final Thoughts
Although investing in the cryptocurrency market as an individual is harder than when done in a community, it can definitely be done. That said, there are now a plethora of options for those looking to gain more stability and safety when investing in this market.
For those looking to create stability, we recommend diversifying your crypto investments. But, for those looking for a more comprehensive solution for overcoming the barriers present in individual investing, we recommend either using a community investing platform like HyperDex or closely following community discussions on social media. No matter which option you choose, there is strength in numbers.
