The cryptocurrency industry is complex despite being the latest financial state of the art. Unlike fiat money, these digital assets are not controlled by the government or any institution and are maintained by global nodes on a blockchain. Considering that crypto is a new sector, developers, validators and investors work continuously to improve it.
However, despite their efforts, they cannot change the crypto market, which is determined by volatility. This characteristic is one of the trickiest in crypto because it’s not easily predictable, and even if it can provide high returns at times, volatility is riskier to handle when the market is down.
Still, users found numerous ways (like using the binance trading bot) to take advantage of this feature, which is why both trading and investing in crypto exist. These two strategies of acquiring portfolio value and gains over time are made for different types of crypto enthusiasts because they require specific approaches. So, if you’re wondering which is best, here’s a brief introduction to crypto trading and investing.
Cryptocurrency trading: explanation, benefits and risks
Trading crypto can be defined as a short-term method for acquiring crypto by capitalizing on shifts in price and trends. Common strategies include scalping, day trading, swing trading and other similar practices, and they’re based on forecasting crypto prices.
Therefore, crypto trading is mainly based on the right time to buy or sell within a limited period that is most beneficial for your portfolio. Traders make decisions based on information from news, technical analysis and other objective indicators.
Trading might be influenced by bias more than investing because the span for good decisions is limited. Therefore, strong emotions interfere with determining the best time to open or close a position, leading to asset losses. One way to avoid them is to use a trading bot that is more efficient, fast and unbiased, during which you have more time for research.
Some of the most used trading strategies imply the following:
- In scalping, you make more trades fast to be able to get small price movements, allowing you to make a profit and avoid risks;
- In day trading, you open and close the trade on the same day so that it can last from a few minutes to hours, but it’s important to finish before nightfall to dodge rapid price movements;
- In swing trading, you have more time to trade, from one day to a few weeks. This method lets you better see important price movements;
Benefits and risks of crypto trading
Crypto trading has a few advantages for first-time investors. For example, they don’t need a lot of finances to start, allowing anyone to pile up portfolio value over time. Plus, trading is sure to bring profits rapidly, and with a good level of liquidity, traders can avoid risks.
However, trading comes with a series of uncertainties. Despite earning money fast, the risk of losing it increases as you trade, so you must be extremely careful with your entering and closing positions. At the same time, trading requires intensive research and technical analysis to be financially efficient. Learning as much as possible about trading on the market is essential because, during volatile markets, you must make the right decision to protect your assets.
Cryptocurrency investing: what it is and the contrast from trading
Cryptocurrency investing, unlike trading, relies on long-term strategies of buying and holding crypto coins until their value reaches a specific rate. Some popular approaches include “hodling,” dollar-cost averaging and value investing.
Overall, according to https://coinrule.com/ investing in crypto is more about the asset’s intrinsic value and its potential to grow or decrease in price. Hence, they must be aware of how the cryptocurrency is presented in the media, what its supply and demand is and how the investor sentiment index changes over time.
Crypto investors are prone to experience FOMO (fear of missing out) when holding an asset for longer. While it’s usually advised to keep crypto for as long as you can, market volatility fluctuations might influence investors to sell their assets if they’re underperforming. At the same time, they might not resist the urge to buy a lot of crypto due to low prices.
Investing in cryptocurrency can be done through the following strategies:
- “Hodling” comes from the simple holding term and implies that you buy and hold crypto as much as possible because its value will increase in time;
- Dollar-cost averaging means you buy small crypto portions regularly despite market fluctuations to reduce volatility impacts;
- Value investing requires research to find underrated cryptocurrencies that have potential and buy them at a lower price;
Ups and downs of crypto investing
Investing in cryptocurrency has the benefit of being less risky compared to trading because it unfolds over a longer time. The time commitment also influences the level of your portfolio to be protected against inflation. On the other hand, fiat money is considerably sensitive to inflation compared to crypto. Moreover, investing provides your portfolio with capital appreciation directly linked with the investment period, so the longer you invest, the more value your assets will have.
But when it comes to disadvantages, investing in crypto is more prone to being influenced by high volatility, especially when holding Bitcoin and similar assets that have more demand than supply. Therefore, investors must balance their portfolios by adding large-cap, middle-cap and small-cap cryptocurrencies. This includes dividing it into assets like Bitcoin, altcoins like Ethereum and other assets like smart contract blockchain networks or NFTs.
Investing and trading in cryptocurrency have similar fundamentals but are considerably different. In other words, crypto investing is for long-term investors who are committed to their portfolios over a more extended period, while trading is perfect for short-term users who want fast results in a few days or weeks. These features also show the downsides of the strategies because while stability and safety are the main benefits of investing, you risk being hit by volatility spikes. At the same time, you can acquire a lot of crypto with trading, but you’re exposed to increased risks. So, which one is better for you?
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