Crypto Investing Vs. Crypto Trading – Key Differences Explained
The phases ‘crypto trading’ and ‘crypto investing’ have been used interchangeably. However, the two do not mean the same thing. This article seeks to discuss the key differences between them.
What is Crypto Trading?
Simply put, crypto trading involves predicting the movements of digital asset prices, just like trading traditional financial assets such as stocks. Some of the most traded crypto assets include Bitcoin, Ethereum, and USDT.
Trading primarily entails ‘timing the market.’ That is, purchasing and selling cryptocurrencies based on what the trader considers the best entry or exit point. To execute trades successfully, a trader has to keep a closer eye on market news and conduct technical analysis.
Here are some of the crypto trading strategies that most traders use:
Arbitrage: This trading strategy involves a trader exploring the price of a particular asset across various exchanges and then taking advantage of the difference. That means the trader buys the asset quickly from an exchange where it is priced cheaply and sells it on another at a higher price.
Day Trading: A day trader constantly scans the market for intraday price variances in an effort to earn daily profits. A trade could take minutes or last for several hours.
Swing trading: A trader who employs this strategy takes advantage of the price swings of crypto assets. Trades can last for a day or even several weeks.
Position trading: This strategy is much like swing trading. However, the big difference is that it requires a trader to study long-term patterns and trends. Trades can last for months or even years.
Scalping: The strategy capitalizes on small price movements. It requires traders to open several trades within a short timeframe. Trades usually last only for a few minutes and sometimes seconds.
What are the Pros and Cons of Crypto Trading?
The primary benefit of crypto trading is the ability to generate profits by capitalizing on short-term movements of assets’ prices. In addition, some traders use their cryptocurrencies as a store of value, considering that they are designed to operate independently of centralized financial institutions.
Traders can also trade digital assets peer-to-peer (P2P), incurring lower transaction fees than when central authorities like banks are involved.
Moreover, anyone can participate in crypto trading since digital currencies are accessible universally. People with access to the internet can create a crypto wallet and immediately begin their trading journey.
On the downside, crypto trading comes with several risks. For instance, high market volatility can cause massive losses to traders who do not have proper risk management measures.
That said, it is advisable for starters to begin trading with small amounts, then inject more as they gain experience.
What’s Crypto Investing?
Crypto investing involves acquiring a digital asset and holding it over a long period of time with the hopes that the investment will increase in value in the future. That means crypto investors have no interest in short-term market fluctuations. Instead, they focus more on the fundamentals of the cryptocurrencies they wish to buy.
Here are some investing strategies that crypto investors employ:
Hodl: This simply involves purchasing and holding a crypto asset for an undefined period, hoping it will appreciate over time.
Dollar-cost averaging (DCA): The strategy involves investors buying cryptocurrencies regularly. It could be weekly, monthly, or quarterly.
Value Investing: The strategy involves investors exploring undervalued crypto assets that appear to have huge potential and buying them in anticipation that their value will increase.
Growth Investing: This strategy entails investors purchasing new assets that have the potential to grow exponentially and, in turn, increase their capital.
What are the Pros and Cons of Crypto Investing?
The main advantage of crypto investing is that investors’ capital could potentially appreciate over time, considering that historical crypto data indicates the market has experienced rapid growth in the last ten years.
However, similar to crypto trading, investing is also risky because of high market volatility. So before investing, everyone needs to familiarize themselves with the fundamentals of crypto assets and related risks.
What’s the Key Difference Between a Crypto Investor and a Trader?
A Crypto investor buys crypto assets that have sound fundamentals and expects their prices to increase over time, while a trader capitalizes on market volatility by holding their crypto for a short time to maximize profits.
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