The 4 Biggest Mistakes You Can Make When Buying Cardano (ADA)
If you're buying Cardano, here's how to reduce the risks.
Cardano (ADA) is a well-known cryptocurrency that some believe could eventually surpass Ethereum (ETH) and Bitcoin (BTC). It's a programmable blockchain, which means it can serve as a platform for other applications and digital currencies.
Cardano aims to solve the scalability and sustainability problems faced by older cryptocurrencies. It's also focused on using blockchain technology to solve real-world problems, especially in developing countries.
If you're considering buying Cardano, here are some mistakes to avoid.
1. Not doing your research
According to CoinMarketCap, there are over 10,000 cryptocurrencies on the market right now. Before you buy any of them, it's important to understand what they do, what problems they want to solve, and who's behind the projects.
We know that many of the coins available today will fail. Cryptocurrency is a new industry, and the technology is still developing. Research is crucial as it helps you avoid scams and badly managed businesses. If you're investing for the long term, research can give you the confidence to hold through the dips.
You can also understand the specific risks associated with the currency you're interested in. For example, Cardano has a lot going for it, including a strong team and a detailed technical proposal. But it has developed more slowly than similar currencies, so you need to be comfortable with its slow-and-steady approach.
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2. Buying for the wrong reasons
With any investment, it's important to be clear about why you're buying. Are you investing to pad out your retirement savings? Or to balance your investment portfolio by adding some cryptocurrencies? Or are you buying because everybody's talking about crypto and you're scared of missing out?
If it's the latter, take a step back before you hit that buy button. Fear of missing out -- also known as FOMO -- can drive panic buying. Rather than investing in a stock or cryptocurrency based on its fundamentals, people gamble on the price going up because everybody else is doing it.
Similarly, you'll probably be disappointed if you buy in the hope of short-term gains. You might get lucky, but unless you're a professional trader, you're likely to see better results if you invest for the long term. Don't buy Cardano because you think its price might go up in the next month; buy it if you think it will perform well over the next five to 10 years.
3. Overstretching your budget
As you learn more about Cardano and blockchain technology, it's easy to get excited and want to go all in. The trouble is that we simply don't know what will happen in this industry -- cryptocurrencies are volatile and risky investments. Even if you're buying a coin like Cardano with solid fundamentals, you could still lose your hard-earned cash.
For example, we don't know if the U.S. government will impose strict regulations as the Chinese government has. We don't know if the technology will deliver on its promise -- and if it does, we can't be sure which currencies will come out on top.
In the short term, you don't want to be stuck unable to pay your rent because the price of Cardano fell. And in the longer term, what if you don't have the cash you need to retire because you diverted your savings into a cryptocurrency that failed? Be realistic about how much you invest and only spend money you can afford to lose.
4. Not using a reputable exchange
There have been several high-profile exchange hacks in the past decade. And unlike money in your bank account, funds in your cryptocurrency account will be very difficult to recover if your account is hacked.
This is why it's important to find an exchange with strong anti-hacking protections. The most secure cryptocurrency exchanges also have insurance to cover client funds against theft.
In the past, some exchanges have turned out to be a front for scammers. These fake exchanges take people's money and then disappear. That's another reason to stick with well-known cryptocurrency exchanges and to consider moving your crypto assets to an external wallet that you control.
It's all about reducing risk
After all these warnings, you might be wondering if it's ever a good idea to buy Cardano or any cryptocurrency. Cryptocurrency absolutely can fit into a balanced and well-researched portfolio, as long as you're aware of the risks.
But ultimately, that's a decision only you can make. You're the only one who knows your priorities and financial situation.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Bitcoin, Ethereum, and Cardano.
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