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The 4 Biggest Mistakes You Can Make When Buying Ethereum

The Motley Fool logo The Motley Fool 5/16/2021 Lyle Daly
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Like many cryptocurrencies, Ethereum has been growing in value since last year. But in the last few weeks, its price has gone through the roof. It recently set a new all-time high by trading at over $3,500.

Ethereum has consistently ranked as the second-largest cryptocurrency after Bitcoin. With the recent price increases, you may have decided that now is the time to buy Ethereum. Before you do, learn about a few common mistakes that some new buyers make.

1. Not buying through a reputable crypto exchange

There are more ways than ever to buy Ethereum. Cryptocurrency exchanges, such as Coinbase, are the traditional option. There are also apps and online stock brokers where you can get Ethereum and other cryptocurrencies.

Not every option is a good one, though. Fake cryptocurrency exchanges pop up with the sole purpose of stealing people's money. And even legitimate ways to buy crypto may have excessive fees or restrictions. PayPal and Venmo are notable examples: Although you can buy some cryptocurrencies through these apps, fees are high, and you'll be unable to move your crypto out of the app after you buy it.

If you're new to buying crypto, the simplest way to stay safe is by sticking to the best cryptocurrency exchanges. In particular, look for an exchange that offers insurance and keeps most of its crypto in cold storage, meaning it's offline.

2. Not researching Ethereum first

Before you commit your hard-earned money to Ethereum, take some time to learn about it. This is a smart rule of thumb for any investment. You don't need to be an expert in Ethereum, but it helps to know how it works and what makes it unique.

Knowledge of Ethereum is especially important because of how volatile it is. Odds are that there will continue to be significant price movements in the future. When you understand Ethereum and you believe in its value, you're less likely to be influenced by the trends or the current price.

3. Trying to time the market

Considering Ethereum is near an all-time high, it's tempting to wait until the price drops before you buy. You may find yourself thinking that you'll wait until it drops below a certain amount, and then make your investment.

The problem is that no one can accurately time the market. There's no guarantee that Ethereum will drop to your target price. Maybe it keeps increasing, which could leave you regretting that you didn't buy right now. Or, imagine that the price does drop significantly. That would give you the opportunity to buy low -- unless you start second guessing your decision because you're worried the price will decrease even more.

If you're going to buy Ethereum, look at it as a long-term investment. Buy because you believe the price will rise in the years to come, not in the hope of getting rich in a matter of weeks.

4. Putting all your money into it

Most cryptocurrencies are volatile, higher-risk assets, and that includes Ethereum. The returns have been fantastic so far, but that can change quickly. After Ethereum peaked at over $1,200 in 2018, the price sank to under $100. It took over three years before Ethereum broke the $1,200 mark again.

To minimize your risk, make sure you diversify your investments. A good guideline is to reserve 5% to 10% of your portfolio for crypto. You could use that entirely for Ethereum, or you could include multiple cryptocurrencies. For the rest of your portfolio, stick to investments with less volatility and a longer track record of success, such as mutual funds.

This is an exciting time in the history of Ethereum. The price is rocketing upwards, and Ethereum's blockchain technology is being used more and more. Ethereum could turn out to be a sound investment -- as long as you avoid costly mistakes.


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Lyle Daly owns Bitcoin and Ethereum. The Motley Fool owns shares of and recommends Bitcoin.

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.The Motley Fool owns shares of and recommends Bitcoin and PayPal Holdings. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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