Crypto Trading vs. Crypto Investing: Which One is Right for You?

KEY TAKEAWAYS

Deciding between crypto trading and investing depends on your risk tolerance, financial objectives, and investment approach. If you're comfortable with taking risks and holding assets for a short period, then crypto trading could be your preferred choice. On the other hand, if you're aiming for long-term growth, crypto investing might be the more appropriate option.

The shared goal of cryptocurrency traders and investors is to boost the value of their investments. However, there are different strategies involved in trading versus investing in cryptocurrencies.

In this article, we’ll examine the main differences between crypto investing vs. crypto trading to enable you to make an informed decision about which strategy is best for you.

Crypto Trading

What is Crypto Trading?

Crypto traders buy and sell digital currencies directly with other traders or via crypto exchanges. Traders buy low and sell high, aiming to profit from short-term changes in market and price trends.

Similar to trading in traditional financial assets, crypto trading involves speculating on the changes in price and predicting the future of cryptocurrencies, such as Bitcoin (BTC) and Ether (ETH).

Crypto traders use short-term strategies for trading crypto, including day trading, swing trading, and scalping, to take advantage of fluctuations in market and price trends.

Day trading

With this short-term trading strategy, crypto traders make trades over the course of a day. They aim to sell their cryptos before the end of the day, making quick, albeit small, profits.

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Swing trading

This strategy involves taking advantage of cryptocurrencies’ rapid price swings. Typically, swing trades last from one day to a couple of weeks.

These traders mainly use technical analysis to identify trading opportunities within this short time period.

Position Trading

With position trading similar to swing trading, crypto traders thoroughly study long-term patterns and trends. They hold long or short positions for extended periods, i.e., days, weeks, or even years, anticipating that the value of the assets will increase over time.

Scalping

This short-term trading strategy entails making several trades within a short time frame – within minutes or sometimes even seconds – to take advantage of small price movements. The goal of the scalping trading strategy is to generate sizeable returns by the end of the trading day.

Crypto Trading Platforms

Some of the most popular trading tools and platforms include:

eToro: A popular online trading platform, eToro offers a crypto trading experience on a powerful yet user-friendly platform. It lets users copy other traders’ trades. eToro offers trading in approximately 80 cryptocurrencies; however, certain assets aren’t available in some jurisdictions. There are 23 cryptos available for trading in the U.S., including BTC.

Coinbase: Traders can use this popular crypto exchange to buy, sell, and trade cryptocurrencies. Coinbase offers a user-friendly interface, a broad range of cryptos to trade, and high liquidity.

Binance: Another popular cryptocurrency exchange, it offers a range of trading options, including margin trading, futures trading, and spot trading. Traders can use Binance’s own crypto, Binance Coin (BNB), for trading fees and other services.

Kraken: This cryptocurrency exchange, known for its low fees and high-security standards, provides various trading options, including futures trading and margin trading.

Webull: A commission-free trading platform, Webull offers a user-friendly interface and a variety of trading tools, as well as educational resources for traders.

READ MORE: The 10 Best Cryptocurrency Exchanges

Skills and Knowledge Needed for Crypto Trading

To trade cryptocurrencies successfully, you need to have certain skills and knowledge, including:

Market fundamentals: For informed market decisions, a solid grasp of blockchain technology is crucial. It’s important to familiarize yourself with major cryptocurrencies like ETH, BTC, XPR. Understanding their market presence and use cases offers insights essential for effective decision-making.

Research and analysis: Understanding the basics of cryptocurrencies, including their technologies and adoption, is key. Conducting fundamental analysis helps identify promising long-term projects. Staying updated with market news is also vital, as it greatly affects crypto prices and trading decisions.

Technical analysis: Learn to read candlestick charts for insights into market trends and price movements. Master identifying patterns like double tops, triangles, and head and shoulders for price reversal or continuation signals. Enhance your trading decisions with technical indicators like moving averages, Bollinger Bands, and the relative strength index.

Risk management: Determine the right position size for each trade, considering your account balance and risk tolerance. Avoid risking too much on a single trade to prevent significant losses. Set stop-loss levels to limit potential losses tailored to market conditions and your risk capacity.

Trading psychology: For rational trading, it’s vital to manage your emotions. Recognize, understand, and control your feelings to avoid impulsive decisions driven by greed or fear. Focus on long-term success rather than quick profits, understanding that becoming a successful trader requires time, patience, and consistent practice.

Pros and Cons of Crypto Trading

There are advantages and disadvantages to crypto trading. Some of these include:

Pros pros

  • Potential for fast gains through market trends.
  • Cryptography ensures anonymity, protects against fraud.
  • Blockchain records make crypto transactions traceable.
  • Free from government control, reduces corruption risk.
  • Anyone with the internet can trade cryptos easily.
  • Crypto transactions are cheaper than traditional bank transactions.
  • Diversifying across unique cryptos can reduce risks and boost profit potential.

Cons cons

  • High market volatility, inherent risks involved.
  • No central government oversight in crypto.
  • Industry plagued with frauds like rug pulls and fake airdrops.
  • Cryptos are sometimes used for illegal activities.
  • Some find cryptos difficult to understand.

READ MORE: 10 Most Common Cryptocurrency Scams in 2023

Crypto Investing

What is Crypto Investing?

Crypto investors buy and hold digital assets for the long term, typically months or years, expecting their investments to grow significantly over time.  The goal is to generate long-term profits.

As such, investors are not really concerned with short-term market fluctuations in price, and they focus more on the fundamentals of the crypto assets they buy.

Cryptocurrency investors employ strategies like hodling, value investing, and growth investing. It’s crucial for investors to recognize risks in crypto investments, such as market volatility, cybersecurity threats, liquidity issues, regulatory changes, and operational risks.

To manage these risks in their portfolios, investors can use tactics like dollar-cost averaging, diversifying their investments, and implementing stop-loss orders.

Hodling

Holding (a crypto meme meaning “hold on for dear life!”) involves buying and holding crypto assets indefinitely, expecting that the prices of the cryptocurrencies will eventually increase.

Initial Coin Offering (ICO)

An ICO is a fundraising method that crypto startups use to raise funds. This strategy allows investors to buy new cryptocurrencies or digital assets at very low prices in exchange for established cryptos, such as Ethereum or Bitcoin.

Although this can be profitable, investors should be aware of the risks of investing in ICOs before using this strategy to diversify their crypto portfolios.

Value Investing

This approach entails identifying cryptos with huge potential and solid fundamentals that are undervalued. Crypto investors buy low as they count on the fact that the assets will likely increase in value.

Growth Investing

With this strategy, investors invest in cryptos whose value is projected to increase rapidly in the future. Typically, crypto investors willing to take on more risk in exchange for potentially higher returns use this approach.

Dollar-Cost Averaging (DCA)

Investors who use dollar-cost averaging purchase crypto in small fixed amounts over time rather than invest everything all at once. The aim of DCA is to help crypto investors reduce the negative effect of market volatility on their portfolios.

Crypto investors who invest at regular intervals automatically purchase less crypto when prices are high and more crypto when prices are low. This can lower crypto investors’ average costs significantly.

Pros and Cons of Crypto Investing

As with crypto trading, crypto investing has pros and cons. Some of these include:

Pros pros

  • Cryptos can offer substantial profits, with values rising notably.
  • Crypto investments are accessible to many due to low entry costs and the ease and convenience of buying and selling on platforms.

Cons cons

  • Cryptocurrencies derive their uncertain value mainly from market demand and speculation, increasing their vulnerability to manipulation and hype.
  • Many crypto projects fail to materialize or succeed.

If you investing in your conviction in a team or use-case, be certain your criteria have been chosen wisely, and remember that sometimes the best intentions do not translate into value or profitability.

Key Differences Between Crypto Trading and Investing

In general, investors purchase cryptocurrencies because they anticipate that the prices will rise over time. On the other hand, traders hold their cryptocurrencies for short periods of time with an eye toward profiting from the market’s volatility.

  Trading  Investing
Time frame

 

Short term Long term
Risk and potential rewards Higher risk; quick profits, but traders need to constantly monitor the market and manage risk Lower risk; potential long-term growth
Required knowledge and skills

 

Analytical skills, technical skills, risk management skills, emotional control Research, risk management, technical analysis, security, emotional intelligence
Time commitment and stress associated with active trading/investment Day trading involves some active time each day.

Some traders may be overwhelmed by the fast-paced, high-stakes environment of active trading, and they may suffer from anxiety and depression.

Investing involves some active time throughout the month.

Because of the volatility of the market, active cryptocurrency investing can be stressful, particularly for new investors.

This stress can lead to increased anxiety, fatigue, and disruption in sleep patterns.

Risks associated with market volatility and regulatory changes

Crypto prices can fluctuate quickly and unpredictably, causing investors to suffer significant losses.

In addition, the crypto regulatory environment is still evolving, potentially contributing to market volatility and creating uncertainty.

Common Pitfalls to Avoid When Trading and Investing

When it comes to crypto trading or investing, there are some common pitfalls traders and investors should avoid.

For one thing, they need to steer clear of making decisions based on emotions, such as greed or fear of missing out (FOMO). Emotions can cause traders and investors to make irrational and impulsive decisions, which can cause them to suffer significant losses.

Lack of diversification is another pitfall crypto traders and investors must avoid. They must ensure they “don’t put all their eggs in one basket,” thus exposing their portfolios to the uncertainty of the market. Rather, traders and investors need to place their capital in a wide range of cryptos.

Finally, crypto traders and investors must not borrow more money than they can afford to pay back or more than their accounts can cover. This common mistake is often made by crypto traders and investors who cannot keep emotions out of their decision-making.

The Bottom Line

When deciding between crypto trading and crypto investing, it’s essential to understand their differences.

Crypto trading involves short-term strategies to profit from market volatility, while crypto investing focuses on long-term appreciation. Your choice between trading or investing in cryptos depends on your risk tolerance and investment goals.

Short-term risk-takers may prefer trading, while those seeking long-term growth might choose to invest.

FAQs

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Linda Rosencrance

Linda Rosencrance is a freelance writer and editor based in the Boston area, with expertise ranging from AI and machine learning to cybersecurity and DevOps. She has been covering IT topics since 1999 as an investigative reporter working for several newspapers in the Boston metro area. Before joining Techopedia in 2022, her articles have appeared in TechTarget, MSDynamicsworld.com, TechBeacon, IoT World Today, Computerworld, CIO magazine, and many other publications. She also writes white papers, case studies, ebooks, and blog posts for many corporate clients, interviewing key players, including CIOs, CISOs, and other C-suite execs.