Have you been watching the crypto space and reading forums for some time? Did a new, rare, cryptocurrency catch your eye? Perhaps you’ve done your research and a number of online sources are telling you that prices for new “gems” on a certain fringe exchange are doing exceptionally well.
Hold your horses. Before you jump right in, here’s an important question to think about:
Is this a coin with liquidity? If the answer is no, stay away. Here’s why.
Stay away from phoney exchanges
At the moment, there are more than 2000 crypto coins in the market. You can bet that a good fraction of these coins are shit coins or just scams and many of them are listed on fringe exchanges.
While it’s true that not ALL coins on fringe exchanges are scams, there’s probably a good reason why these “gems” are not listed on credible exchanges. Keeping away from coins with low liquidity often means being cautious and staying away from fraudulent exchanges. Want to know if an exchange is credible? A simple rule of thumb is to check if Ripple and Ethereum are listed on the platform.
Coins with low liquidity don’t have enough buyers
Always make sure you invest in coins with enough buyers. Besides researching on how revolutionary and credible a coin is, you’ll also need to make sure there are enough buyers for the particular coin so you have the option to cash out when you need to, without making any losses. Here’s an example:
Let’s say you bought $4000 worth of ABC Coin at the price of $4/ coin. That gives you 1000 units of ABC Coin. After a few days, the price of the coin went up to $6 a coin. You get excited because that means, on paper, you made a profit.
And then you decide to cash out but then find out that there are only enough orders to sell 500 coins at the price of $6/ coin. Below that, there are only 100 bids going at $5/ coin and all the other bids are at $4/ coin. You think to yourself, “what the heck” and you sell all your coins and make a profit of $1100. While that’s still a profit, it’s important to realise that it’s still behind the expected $2000 profit.
Trade and invest with the right mindset
While there’s technically nothing wrong with earning a profit that’s less than what you expected, it gives you an unhealthy mindset when you’re investing in cryptocurrency. Settling for less than expected profits can mislead you into thinking that you’re higher up in your portfolio than you actually are. As a result, it could lead you to make bad decisions based on false decisions. You don’t want to be trading and investing with this frame of mind.
Bonus tip: Don’t always trust what the influencers say
This goes for all things internet but especially so for cryptocurrency, seeing that there are lots of scams going on out there. Influencers often have vested interests and get a commission on referral links. Don’t trust what one or two influencers say about a certain coin. Instead, DYOR and read up extensively before you buy in.
In general, investing in cryptocurrency is riskier than most investments. Knowing how to mitigate your risks by making smart decisions is important. While it’s good to be on the lookout for new coins with great potential, it’s also important to wait and see. Don’t just jump into coins with low liquidity — it may not do your portfolio any good.