Can You Lose Money in Crypto? Cryptocurrency is digital money that functions similarly to other currencies but does not have a physical presence. New investors frequently ask, “Can you lose money in Crypto?” Yes, you certainly can! You will lose money if you invest in cryptocurrencies and the price falls. There are numerous ways to lose money while investing in cryptocurrencies, so it’s critical to be aware of these risks before jumping in.
How Can You Lose Money in Crypto
Cryptocurrencies are digital, meaning you will keep them on computers. You’re never protected from having your money stolen, since hackers can break into any computer. One of the worst locations to keep your cryptocurrency is on an exchange like Coinbase or Binance since if those exchanges get hacked, the hackers will take all of your money. Some people have lost their entire life savings as a result of hacking.
So, what are your options? Consider purchasing a hardware wallet, which stores your private keys offline and typically comes with two-factor authentication. Purchasing a wallet makes it impossible for anyone other than you to access your funds without the correct password. However, you’ll need to buy one yourself rather than rely on someone else’s hardware wallet device, which isn’t safe.
2.Not diversifying investments
One of the most important aspects of making money in crypto is diversification. You can’t put all your eggs in one basket and hope for the best, mainly if that basket only contains a few cryptocurrencies. Let’s say you invest $1,000 in Bitcoin and then learn about another promising cryptocurrency, such as Ethereum or Monero. You’re ecstatic because those coins are now worth significantly more than when you bought them.
But what if the price of both coins drops the next day? Your $1000 investment could lose up to 50% of its value. Even though this isn’t unheard of with highly volatile investments like these, it still hurts! Rather than risking everything on just two coins, it’s better to spread your money across several coins, as this will ensure that even if one of them crashes, you’ll still have some other coins with stable prices.
3.Panic selling low because of fear or greed
When you sell your cryptocurrency at a low price, it’s known as a panic selling low. There are two possible causes for this. One is due to apprehension. You’re afraid the price may fall any further, so you sell it now to at least get something back rather than losing everything.
Another explanation could get greed. If you believe the price will rise soon, you should sell it now while the price is still low so that you may profit more when the price rises. This could result in your losing money in crypto because if you wait until the price rises again, your lost money could have turned into a profit if you had waited a little longer before selling it.
4.Ignoring tax implications
You could end yourself with a hefty capital gains tax bill if you neglect the tax implications of buying and selling cryptocurrencies. If you sell bitcoin for a higher price than you paid for it, you’ll have to pay capital gains on the difference between what you paid ($100) and how much you got ($150). You will owe this tax if there is an actual income-based tax rate to apply to long-term capital gains. The IRS treats any purchase of virtual money as an investment property (like stocks or gold) rather than a regular consumer purchase.
5.Not researching the project before you buy their coin
One of the most common mistakes that novice traders make is not researching the project before buying their coin. Even if you feel like the project’s fundamentals are strong, you should always do some research first to make sure they are still sound. This will help you avoid buying a crypto whose price is decreasing but may rebound in the future.
If you are unsure what to do, it may be a good idea to start by contacting the company directly. They will likely be able to provide you with any information that they have. You can also research publicly available information suach as use cases.