Crypto investments vs crypto trading

A novice investor in the crypto market faces the question - what strategy to choose to increase capital. Traditionally, analysts distinguish two main strategies - crypto investment and crypto trading. Let's try to figure out what each of them is.

What is crypto investing?

First, it is worth understanding how the Cryptocurrency works and what factors affect its rate. Any cryptocurrency is a digital representation of value or contractual rights, the operation of which is governed by the principles of cryptography.

Cryptocurrency is always based on blockchain. At the same time, no Central Bank is needed to mine Cryptocurrency - the coins are created by the users themselves as a result of mining (when one needs to solve a complex mathematical problem) or staking (in this case, the user provides a part of his crypto assets for a while to verify transactions and receives a reward). This means that the coin’s rate does not depend on the decisions of the regulators and is determined exclusively by the features of the coin itself or the state of the crypto market as a whole.

Those who bought Bitcoin ten years ago became fabulously wealthy. However, before crypto investing one needs to carefully analyse the state of the crypto market in order to understand with what probability the assets will grow in price. For example, at the end of 2017, the cost of Bitcoin was $19,000, but then fell. At the same time, against the background of the quantitative easing policy in the United States and the weakening of the dollar, BTC exceeded $60,000, but then collapsed to below $20,000. According to many analysts, in the long term, the cryptocurrency is likely to show growth.

In recent years, the movement of cryptocurrencies largely repeats the events in the US stock market. Thus, the growth of the main indices in the United States at the end of October 2022 led to a sharp surge in the cryptocurrency market, as a result, the Bitcoin rate finally consolidated above $20,000. Altcoins, that is, other cryptocurrencies, in addition to Bitcoin, demonstrated similar dynamics. However, Ripple, on the contrary, continued to fall. This was due to the internal difficulties of the coin, including the departure of key employees, and the unclear prospects for a lawsuit with the US Securities Commission.

BTC price dynamics

What is crypto trading?

Crypto trading is an investment in the cryptocurrencies with a speculative purpose. This method of earning is called a long position. Moreover, a trader can put money on a fall in the rate, or open a short position. In this case, he borrows the asset from the site, then resells it when the value has decreased, and keeps the difference for himself.

Going short and going long

Crypto trading allows to increase profits many times over if one uses trading with leverage. In this case, the profit is multiplied by the coefficient. However, the losses in case of failure also increase in a similar way. Therefore, experienced investors do not advise beginners to use leverage or open short positions. It is much easier to start crypto trading with long positions.

The crypto market is extremely volatile. Any coin has a period of growth and a period of decline. For example, at the beginning of the year 2020, Bitcoin was worth $7,200, and by the end of 2020 it was about $19,000. However, in November 2021, BTC already broke through $65,000 and then reached its all-time high of $68,789.63.

Thus, those who bought coin at the peak of its value lost almost two-thirds of their investment, but those who bought it at the beginning of 2020 and sold it in November 2021 received almost a tenfold profit.

Until now it is the first cryptocurrency that has the maximum infrastructure, it can be exchanged for fiat money on any platform. However, crypto trading is not limited to Bitcoin. In second place is Ethereum, which at certain time intervals can show higher growth than Bitcoin. And also do not forget about the numerous Altcoins.

Crypto trading can be divided into different types depending on the investment period. A trader can trade on a weekly chart, a daily time frame, or even on super-short time frames of a few seconds. One of the most popular types of crypto trading is intraday trading, when transactions are made within one day. Crypto trading on the shortest possible intervals is called scalping. Often, such a strategy is implemented using an automatic algorithm, when the computer determines which cryptocurrencies to buy and which to sell using orders placed at certain levels.

Crypto investing and crypto trading

Pros and cons in comparison

Each of the strategies has its own advantages and disadvantages. Let's start with crypto investments - the main disadvantage of this strategy is the huge volatility of the crypto market, as well as its dependence on external factors.

For a long time, it was believed that cryptocurrencies took on the role of digital gold, that is, in the event of a fall in the main markets, they show growth, but 2022 made its own adjustments. As it turned out, the rate of cryptocurrencies still depends on the policy of central banks and largely repeats the movement of the stock market. This means that although the US Federal Reserve does not issue Bitcoin, it can raise rates in the US economy, which will lead to a correction in the stock market and an increase in the value of the US dollar. In response to this, the cryptocurrency market will also turn to fall.

Conversely, pumping money into the economy through bond buybacks leads to the flow of capital into the cryptocurrency market and an increase in the value of assets. Thus, crypto investors should follow the main financial and macroeconomic news in order to choose the right time to enter the market and subsequently sell the assets. Moreover, experienced investors can buy additional coins at the time of drawdown, and thus they reduce possible risks due to the fact that they purchase the same assets at different prices.

Unlike crypto investment, crypto trading allows an investor to make a profit even during a period of market decline and correction. Any slight jump in the course or even its fall can be turned into a profit by a crypto trader.

However, for this, a crypto trader must have the skills of fundamental and especially technical analysis, be able to read the charts, identify the main figures and make a forecast where the cryptocurrency will go in the future. However, this strategy has significant drawbacks. Firstly, operational trading requires the maximum involvement of the investor - in fact, one needs to monitor the situation on the market constantly throughout the day. Secondly, crypto trading can bring serious losses to the investor due to the sharp volatility of the exchange rate, and if leverage is used, the investor can completely lose all the assets. In any case, the analysts advise against using the last money for trading in the crypto market.