Early days of cryptocurrency, where random people took the risk of investing as early investors. They now share their success story and many so many people followed the same part and failed. Understanding the concept of cryptocurrency for business will give you a better understanding of your ability to invest in crypto. No doubt about how cryptocurrency is dominating and will continue to. Micheal Saylor ( The co-founder and CEO of business intelligence firm Microstrategy ) Micheal Saylor, has this great belief that cryptocurrency is the next biggest investment. Microstrategy increased its bitcoin holdings in December 2021, purchasing 1,434 bitcoins for about $84 million. The company holds a total of 122,478 bitcoins. Crazy right?
Cryptocurrency continues to become a more commonly accepted asset every day. Since marking its first appearance around 2009, it has undoubtedly impacted the economic market. Cryptocurrency is popular among investors for numerous reasons, including its distinctive structure and potential for high returns.
It is a decentralized network built on blockchain technology to allow complete transparency.
With the clear massive adoption of cryptocurrency rapidly growing, the next necessary thing is to know how you can also build fortunes from this technology. There are virtually as many strategies for investing in blockchain technology as investors, but most strategies fall into either of these two categories— trading or investing. So which one is the best for you? You should be able to decide whether you invest or trade, because after I compare both with the differences you will be able to know which suits the best.
This term is well-known and first assumed meaning you know on the day one of your awareness, what most technopreneurs in the crypto zone are all doing. But is it best for you?
Crypto investing refers to buying and holding cryptocurrencies and assets with the hope that their value will appreciate in the future. It is also referred to as HODLing — a misspelling of "holding" that has become popular since — cryptocurrency investing involves buying and holding positions over a long term without worrying much about near-time price and market fluctuation.
This strategy is similar to that of stock market investing. Most recently as of late mid-June 2022, the total global market capitalization of all cryptocurrencies amounts to $894 billion, making it the world’s 20th largest economy by gross domestic product.
Cameron and Tyler Winklevoss are serial crypto investors who invested in several cryptocurrencies and blockchain-related businesses, most notably the privately-owned Gemini exchange. They are believed to be the first to reach billionaire status by investing in bitcoin, reportedly holding about 70,000 coins, according to Forbes.
The concept of crypto investment is between the scope of buying and holding cryptocurrencies in expectation of high return.
Cryptocurrency Trading, like Trading in financial securities, is about speculating on price movements of crypto via a CFD(Contract For Differences) trading account or Trading the underlying coins via an exchange. The main goal of crypto trading is to generate profits that surpass buy-and-hold investing-a passive investment strategy that means staying invested for a long time irrespective of market fluctuations.
While investors might be satisfied with 10% or 15% annual returns, traders might seek a 10% return every month. Trading returns are generated by buying at a lower price and selling at a higher price within a relatively short period. Most recently, as of mid-June 2022, the average daily trading volume of all cryptocurrencies globally rose to $66.7 billion.
Just like Javed Khan ( Trader ) Khan’s success with Bitcoin began in 2018, with the price hovering in the $3,000 range. He primarily used Bitcoin because it was easier than going to the bank. But he noticed something. The price increased whenever he kept Bitcoin in his wallet. So, rather than spending it, he decided to buy more of it. Each time Bitcoin’s price dropped, he would pile more money into it. However, he never overextended himself. In 2020, Khan cashed in his Bitcoin and bought a Bentley with the profits.
Crypto trading and investment objectives are to increase your investment value, but they pursue that goal differently. You will understand the major differences between cryptocurrency investing and trading to help you decide which strategy suits you best. Keep scrolling...
Crypto Investing (HODL) vs. Trading: The Differences
So, the main difference between crypto trading and investing is the definition of the terms themselves, but understanding the difference between them will give you the opportunity or suggest for you who's trying to make a huge profit from them.
There are thousands of cryptocurrencies available today for investment. Cryptocurrencies are digital money based on blockchain technology. Many of these can be purchased through a cryptocurrency exchange, which may have a wide range of currencies to pick from. Your choices range from the most well-known digital currencies like Ethereum and Bitcoin to comparatively obscure coins that were recently issued in an ICO (ICO). Making purchases of coins is based on two reasons, either you buy to invest or to trade. Consider these points on the differences between both to know exactly which suits you.
- Time frame
Investing Is A Long-term Strategy. Investors or Holders typically buy and hold for the long term. They are interested in the potential of the crypto value to grow in value over time. Investors stick to long-term capital, which takes a while to generate returns. The total value of someone's bitcoins changes with the market price, so an investor's cryptocurrency portfolio may not always have the same dollar value. While Trading Is a Short-term strategy. Traders are more interested in generating quick profits from buying and selling cryptocurrencies. Here are the major trading strategies in cryptocurrency markets:
1. Day trading: the daily monitoring of the market to take advantage of price movements. Day traders finalize trades within a day and barely take trades overnight. The time for each trade ranges from minutes to hours.
2. Scalping: Scalpers are the most active traders. They use the crypto market to execute multiple trades, making small profits from each transaction, which could add up substantially at the end of the day. The time frame ranges from seconds to short-lasting minutes.
3. Momentum Trading: Momentum traders trade based on recent price trends by buying low in an upward trend and selling once the momentum breaks and vice versa. These traders have a good sense of timing and can read the market. A momentum trade time frame can range from an hour to weeks to enter and exit.
4. Swing Trading: Swing traders use technical analysis to predict high volatility in the prices of the coins in a particular direction in a short period. The time frame is a little bit longer than that of momentum trading.
- Profit Diversity
Investors And Traders Have Different Profit strategies. Investors can simultaneously use both longer-term investing strategies and shorter-term trading strategies. This provides diversification in portfolios for them and additional ways to generate the best rate of return. While traders can only use short-term strategies as they want to maximize profits on every trade. In all, traders tend to profit more and lose more than investors. Because investors play greediness by taking only based on high returns. Just exactly like this early investor ( Erik Finman, high school dropout and entrepreneur In 2011) So he dropped out of high school at 15 and made a bet with his parents — if he made a million dollars by the time he was 18 he didn’t have to go back to school or go to college.
Immediately, he sold $100,000 of bitcoin and started a business from his bedroom. Inspired by his negative school experience, he built an education company, Botangle, where teachers would teach students skills over video chat. For example, an Australian wanting to learn Japanese could hire a private tutor in Tokyo. Two years later, he sold his company for 300 bitcoins.
When bitcoin crossed $2,700 he was officially a millionaire. Critically, he was 17 years old, so he won the bet with his parents. Instead of going to college, he traveled the world visiting Dubai, Hong Kong, Beijing, London, Prague, Sydney, Melbourne, Vienna, and Stockholm.
Today he’s grown his bitcoin holdings and has a net worth of 8 figures. He’s a key investor in a Silicon valley cryptocurrency startup and helped introduce the Crypto-Currency Act of 2020 as a citizen advocate.
- Trade Frequency
Another difference between investors and traders is trade frequency. Investors have lower trade frequency than traders as they tend to hold on to their assets to earn long-term benefits. The longer the investment, the lower the trade frequency.
While on the other hand, traders have high trade frequency as they often transact to make profits, leveraging market shifts. This high frequency probably makes Trading more profitable, but it is riskier and needs consistent market monitoring.
- Risk Aversion
Investors face Lower Risks as they hold assets until they mature, profiting over time with patience. While Traders encounter Higher Risks, their objective is to make profits, not minding the volatility effects. In comparison, cryptocurrency is a high-risk, high-reward investment. There are thousands of cryptocurrencies available today for investment. Cryptocurrencies are digital money based on blockchain technology. Many of these can be purchased through a cryptocurrency exchange, which may have a wide range of currencies to pick from. Your choices range from the most well-known digital currencies like Ethereum and Bitcoin to comparatively obscure coins that were recently issued in an ICO (ICO).
- Trade analysis
There are two main trade analysis types: fundamental and technical:
1. Fundamental analysis is the analysis needed to understand the market. It usually involves understanding the interaction between crypto demand and supply. Since investors are not open to market rigors, they use fundamental analysis.
2. Technical analysis: it is the analysis needed to understand crypto movements, trends, and patterns. Traders Use Technical Analysis.
- Market impact
Investors Impact the Market Less Than Traders. The nature of investors is to store assets for a longer period and earn from eventual returns. Therefore, they play a less active role in the market and make fewer impact decisions. On the other hand, traders impact the market with their daily decisions borne out of frequent transactions. Traders use up their short-term capital and seek immediate returns.
Crypto Trading vs. Investing: Which Approach Suits You The Best?
This depends on your risk profile, time availability, and your approach to wealth generation. A mix of these strategies might be the perfect pick for you. Cryptocurrency Trading is considerably more profitable, though it's riskier. It takes a lot more of your time due to the high volume of transactions and technical analysis of cryptocurrency. These require substantial ability, knowledge and the aptitude to spot the right move at the right time. Cryptocurrencies are prone to dramatic price swings that can almost destroy the value of your assets in a matter of weeks before rebounding a year later. Because of this, cryptocurrency is a terrible choice for cautious investors or anyone who might need to access their money in an emergency.
Incredibly adaptable are cryptocurrencies. With just $7 of your local cash, you can purchase cryptocurrency. Then, you are free to buy and sell your cryptocurrency holdings whenever you like, though certain currencies impose transaction costs that can make this costly. In an emergency, you can withdraw your funds from cryptocurrencies, but given the market's volatility, you should be ready to lose money.
On the other hand, cryptocurrency investing is a more passive strategy and relatively less risky than trading cryptocurrencies while still gaining reasonable profit on your investment. The large profits that some investors have experienced are an eye-opener to investing in cryptocurrencies, at least in the eyes of crypto aficionados. Due to the cryptocurrency market's volatility, your assets may appreciate quickly, and if you sell them at the proper time, you may receive a sizable profit. However, the danger involved with this approach is so great that you shouldn't invest any money you'll probably need in cryptocurrencies.
There is no shortage of people involved in the sector, ranging from investors who view cryptocurrency as the money of the future to individuals who appreciate the concept of decentralized control and processing to people who prefer the technology-driving cryptocurrency.
Like any other market, the cryptocurrency market can be stable or volatile, so tread cautiously. Ensure you understand the main differences between investing and trading crypto before deciding the strategy that suits you best.
Cryptocurrency investment is seen as dangerous because of its riskiness. Even the most well-known cryptocurrencies have far more variable prices than the prices of other types of assets, such as equities. Future legislative changes may potentially have an impact on cryptocurrency pricing, with the risk that cryptocurrencies will be rendered illegal and worthless.
Despite this, a lot of investors are drawn to cryptocurrency because of its potential rewards. If you choose to invest in cryptocurrencies, it is crucial to conduct thorough research on each digital coin before making a purchase. When purchasing cryptocurrency, pay close attention to transaction costs because they might vary greatly between different currencies. And always make a fast decision on whether to invest or trade. The market is not waiting for you.
Lastly, a smart investor tends to recognize and understand the various parts of market cycles to take advantage of the market conditions and HODL in the hope of the asset's price increase. unfavorable clever traders tend to profit from a bull or bear market(rising or receding market) from the short-term price trends. Still, investors and traders need to employ a proper risk control system or emergency plan to exit the market when the market becomes unfavorable. Like the current crypto crash, investors and traders with proper risk control plans won't be really affected.