Are you a crypto trader or investor? Crypto trading and investing are similar and have the same goal – the realization of profit from the expected appreciation in the value of the crypto asset that’s bought. However, technically the terms are functionally different.
In their basic form and usage, investing refers to buying a cryptocurrency with the intention of holding it for long term (usually in years) with the expectation that the price will appreciate and make you a profit.
Trading, on the other hand, is the exact opposite. Trading refers to buying a crypto-asset with the goal of flipping it frequently for profit under short time frames from a few minutes to hours or a few days to weeks and months in some cases.
The real difference between crypto trading and investing is how long you hold onto the asset and how frequently you exchange them for other crypto assets of fiat.
Despite this seemingly simple difference, many still get it really mixed up. This article is an attempt to clarify the differences between crypto trading and investing and to see which one is best for you under varying circumstances.
So without wasting any time let’s get started already.
What is Crypto Trading
Crypto trading refers to the exchange of a crypto asset for other crypto assets or directly with fiat.
Trading is the short-term buying and selling of cryptocurrencies with the aim of making quick-daily-profits and usually based on technical analysis and following short term market trends.
Following the basic principle of buying low and selling high –crypto traders try to understand and predict crypto price movements with the aim of buying an asset when the price is low and selling it for a profit when the price goes above the rate they bought it at.
Trading is the fastest way to make a really good amount of money within a relatively short time frame. However, it is also the fastest way to lose your capital as over 90% of traders are known to lose their money.
Thus trading is a high-risk game that should be treated with serious caution and you should avoid trading with any money you cannot afford to lose happily.
Crypto traders are short-term opportunists constantly looking for the right setup to take advantage of the price movement of any crypto assets regardless of the future direction of the cryptocurrency or project.
Successful crypto traders understand technical analysis and utilize this tool to study the market behavior with the aim of successfully predicting price directions.
Trading without a good knowledge and understanding of technical analysis is tantamount to gambling.
The name of the game when it comes to crypto trading is:
- Capital preservation, and
- Capital growth
If you can’t turn a profit at least you should try not to lose your capital. I know that is easier said than done but that should be the goal of every crypto trader.
Most traders will love to argue that they are able to outperform the market consistently and that the buying and holding for long term (investing) strategy doesn’t make enough sense given the opportunity for quick daily profits that comes with trading and the fact that majority of cryptocurrencies out there will either die off within the next 2 to 5 years or will simplify fail to make any meaningful progress.
However, that doesn’t mean you should dive right into trading just yet as you might get yourself swallowed up by merciless whales that will be too happy to take your money.
Before you consider trading try and answer the following questions:
- What is your risk tolerance?
- What is your financial strength?
- What type of trader are you (going to be)?
- How much capital do you have to start trading with?
- What is your trading strategy?
More so, the number one thing to remember as a trader is to always have a plan and strategy that’s tailored to your specific needs and personality and to stick to that plan.
There is no universal trading plan that fits everyone, so don’t go pick someone else’s trading plan from the internet and hope to profit from applying it to you –it may work perfectly for you or not but that’s not the best way to develop a trading plan and strategy.
What is Crypto Investing
Crypto investing is “value-based” investing and refers to taking a longer-term position in a crypto asset based on an understanding of its fundamentals and business viability.
Crypto investing is an attempt to buy a cryptocurrency we believe to be currently undervalued considering their technology and other fundamental business factors and with the aim of selling at a distant future time at a higher price than originally purchased –if at all one wishes to sell.
Most times, the goal of every crypto investor is to acquire and accumulate as many of the crypto assets as possible over a period of time – usually, occasionally buying more of the cryptocurrency and adding to their portfolio regardless of the current market price.
Smart crypto investors always buy every dip and see price crashes as an opportunity to increase their positions cheaply.
Most crypto enthusiasts believe that investing is the best way to enjoy maximum profitability in the long run, given that short term price movements are highly unpredictable even with good technical setups; plus the possibility of losing one’s capital from trading is just not thinkable for many people.
Does it mean one can’t lose money through investing –NO, not really. If you invest in a shitcoin you sure will be losing your capital but investing in great projects with excellent fundamentals will produce the best returns given sufficient time, as the technology matures and the project gains greater market traction.
The Major Differences between Crypto Trading and Investing
- Technical Analysis Vs Fundamental Analysis
In deciding what crypto assets to buy, crypto traders make use of technical analysis to observe past and current market behaviors and try to predict future price directions.
On the other hand, crypto investors perform a fundamental analysis of the project or cryptocurrency they which to purchase to understand the technology, and team the project is built on; the solution it brings to the market and the size of the market it’s aiming to serve to determine if the business is viable and sustainable to be a good long term investment.
So whereas, crypto traders rely heavily on technical analysis to enter and exit positions; crypto investors resort to fundamental analysis to pick their next best buys.
- Long term focus Vs Short Term Focus
Crypto traders are in it for the short term whereas crypto investors focus on the long term success of the project or cryptocurrency.
Usually, investors buy a crypto asset and hold it for 2 to 10 or even 50 years. There are crypto early adopters who have been holding onto their bitcoin since 2009, untouched.
Whereas traders try to make as many transactions as possible every day –buying and selling crypto assets to make as much money as possible within short time frames.
Tip: to be successful in both crypto trading and investing you must:
- Develop a strategy that works just for you.
- Be patient and focused –just like in anything else, success takes time and commitment.
- Avoid fear and greed. Remember, greed makes you lose money and fear makes you miss money.
- Be able to control your emotions and act rationally at all times.
It is practically impossible for anyone to tell you which is better or worse for you as that depends on your skills, knowledge, risk appetite, personality and how much time you have to commit.
However, the distinction between investing and trading is clear. You can play the market for quick profits or invest in the technology and projects for the long term by buying and holding.
Haven come this far, I believe you now have a fair idea of whether you would rather be a crypto trader or investor or better still both.
So which one are you –a trader or investor or both? Share with us in the comments section below.