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

Why Trust Techopedia Crypto

The crypto bull run, with Bitcoin price rallying to new all-time highs, spurred increased interest from crypto traders and investors.

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 examine the main peculiarities of crypto investing vs. crypto trading to enable you to make an informed decision about which strategy is best for you.

Are you a crypto investor or trader? Let’s explore the key differences between crypto trading and investing to help you define your path in the blooming crypto market.

Key Takeaways

  • Deciding between crypto trading vs. 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.
  • Some of the most popular crypto trading strategies include day trading, swing trading, position trading, and scalping.
  • Some of the most popular crypto investment strategies include ‘hodling,’ initial coin offerings, value investing, growth Investing, and dollar-cost averaging.
  • No matter what you’re going to do with crypto, hold or trade, all crypto investment strategies require certain knowledge and skills, including fundamental and technical analysis, as well as the understanding of trading psychology and risk management.

Crypto Trading: Buying and Selling for Short-Term Gains

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.

Advertisements

4 Major Crypto Trading Strategies

1. 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.

2. 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.

3. 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.

4. 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.

Popular Crypto Trading Platforms

Some of the most popular trading tools and platforms include:

eToro: An online trading platform eToro offers a crypto trading experience that lets users copy other traders’ trades. eToro offers trading in approximately 80 of the most prominent trading cryptocurrencies; however, certain assets aren’t available in some jurisdictions. There are 21 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.

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.

AI in Crypto Trading

Artificial intelligence can become an effective assistant to crypto traders. AI algorithms are capable of analyzing vast amounts of data, identifying patterns, and making decisions or predictions based on the insights they derive.

In cryptocurrency trading, AI systems can analyze market trends, help traders spot potential opportunities, and even facilitate trade execution.

Another feature of AI-assisted trading is that AI can enhance trading in a volatile market to reduce human bias and emotion, impeding rational decision-making.

Skills and Knowledge Needed for Crypto Trading and Investing

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.

Crypto Investing: Buying and Holding for Longer Term

What is Crypto Investing?

Crypto investors usually buy and hold digital assets for a longer 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 holding, 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.

5 Major Crypto Investing Strategies

1. Hodling

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

2. 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.

3. 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.

4. 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.

5. 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 for some tokens and the ease and convenience of buying and selling on platforms.

Cons cons

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

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

Crypto Trading vs. Investing: Key Differences

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

While crypto trading vs. crypto investing has various pros and cons, you can opt for both options depending on your investment goals, the spread of your investment portfolio, and your due diligence of particular crypto assets you want exposure to.

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  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.

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 in Crypto

When it comes to crypto investing vs. trading, 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 should ensure they “don’t put all their eggs in one basket,” thus exposing their portfolios to the uncertainty of the market. Whether trading vs. holding crypto for a long time, 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 longer-term appreciation. Your choice between crypto trading vs. investing in cryptocurrencies depends on your risk tolerance and investment goals.

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

Do your own research and always remember your trading and investment decisions depend on your attitude to risk, your expertise in the cryptocurrency market, the spread of your portfolio, and how comfortable you feel about losing money.

The information in this guide does not constitute investment advice and is meant for informational purposes only.

FAQs

What is the main difference between crypto trading and crypto investing?

What skills are necessary to succeed in crypto trading?

How much time do I need to dedicate to crypto trading vs. investing?

What are the most common risks associated with crypto investing?

How can I diversify my crypto portfolio effectively?

Is crypto safe to invest in?

Is buying crypto considered trading?

Is trading crypto profitable?

Advertisements

Related Reading

Related Terms

Advertisements
Linda Rosencrance
Technology journalist
Linda Rosencrance
Technology journalist

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.