Are you a crypto trader or investor? Crypto trading and investing are similar and have the same goal – realizing profit from the expected appreciation in the value of the bought crypto asset. However, technically, the terms are functionally different.
In their basic form and usage, investing refers to buying a cryptocurrency to hold it for the long term (usually for 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 to flip it frequently for profit under short time frames, from a few minutes to hours or a few days to weeks and months.
The fundamental difference between crypto trading and investing is how long you hold onto the assets and how frequently you exchange them for other crypto assets of fiat.
Despite this seemingly simple difference, many still get it mixed up. This article attempts to clarify the differences between crypto trading and investing and see which 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 exchanging a crypto asset for other crypto assets or directly with fiat.
Trading is the short-term buying and selling of cryptocurrencies to make quick daily profits 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 to buy an asset when to make quick-daily-profits, the price goes above the rate they bought it at.
Short-term is the fastest way to make a perfect 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 severe 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 proper 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 use this tool to study market behavior to predict price directions successfully.
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 profit, you should avoid losing 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 can 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 come with trading and the fact that the 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 to 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 always to have a plan and strategy tailored to your specific needs and personality and 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” and refers to taking a longer-term position in a crypto asset based on understanding its fundamentals and business viability.
Crypto investing is an attempt to buy a cryptocurrency we believe is undervalued, considering its technology and other fundamental business factors. It aims to sell in the distant future at a higher price than purchased initially –if at all one wishes to sell.
Most times, the goal of every crypto investor is to acquire and accumulate as many crypto assets as possible over some time – usually, occasionally buying more of the cryptocurrency and adding to their portfolio regardless of the current market price.
Savvy 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 will be losing your capital. However, investing in great projects with excellent fundamentals will produce the best returns given sufficient time as the technology matures and the project gains more excellent market traction.
The Major Differences Between Crypto Trading and Investing
- Technical Analysis Vs. Fundamental Analysis
In deciding what crypto assets to buy, crypto traders use 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 want 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 an excellent 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 project’s or cryptocurrency’s long-term success.
Usually, investors buy a crypto asset and hold it for 2 to 10 or even 50 years. Some crypto early adopters have been holding onto their Bitcoin since 2009 untouched.
Whereas traders try to make as many transactions as possible daily –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 –success takes time and commitment, just like anything else.
- 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 straightforward. You can play the market for quick profits or invest in the technology and projects for the long term by buying and holding.
Having 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 in,vestor, or both? Share with us in the comments section below.