“To be a crypto investor or a crypto trader?” If this question has been weighing on your mind, I’m here to help you decide. Cryptocurrency investment and trading are entirely different, even though some people mistake them for each other.
Whether you plan to make a career out of cryptocurrency or casually do it by the side, it’s crucial to understand what you’re venturing into. And that’s what this post is all about — a comprehensive breakdown of crypto investment and trading so you can make an informed decision.
We’ll take them one after the other, starting with cryptocurrency investment. Let’s dive in:
Understanding Cryptocurrency Investment.
What is Cryptocurrency Investment?
Investing in cryptocurrency means buying crypto assets and holding onto them for a long time so that it appreciates tremendously. It is also called hodling in crypto jargon. Hodling is a long-term investment that majorly targets undervalued cryptocurrencies to maximise the return on investment.
Rapid and short-term price fluctuations do not move crypto investors as they set their minds on accumulating more profits by playing the long game.
Long-Term Perspective and HODLing Strategy
The hodling strategy is not new in the investment space as stock investors have always fallen back to this method for a long time. This strategy is mainly applied during bear markets, allowing investors to buy assets cheaply and wait out its increase, giving them significant profits.
The hodling approach is only advised for people with no plans for their investment capital anytime in the foreseeable future —so, if you’re looking to get in and get out quickly with cash, this may not be your cup of tea.
The strategy that many new investors use is the Dollar Cost-Averaging Strategy (DCA). The DCA strategy involves investing a set amount of money at a scheduled time (weekly, monthly, bimonthly, etc.) over your investment window. This way, you’re consistently buying crypto at an average price.
Investors who choose the hodling strategy don’t do it alone —they draw strength and perseverance from other hodlers. You’ll often find them supporting one another in online communities and forums because the temptation to cave in and sell too fast can be high.
Although the hodling strategy is community-focused, you must do your research and some underlying analysis before you choose the cryptocurrencies to invest in. Next, we’re going to discuss the factors that affect your investment decisions.
Factors Influencing Investment Decisions.
1. Fundamental Analysis
The first step before investing in a coin is fundamental analysis. This analyses the intrinsic value of the crypto. Fundamental analysis can tell you whether a coin is undervalued or overvalued. When it is undervalued, it presents an opportunity to buy, but when it is overvalued, you may want to sell.
Fundamental analysis evaluates factors such as the technology driving the coin, demand and supply, community, and innovation/evolution prospects. This would give you insight into the market and put you in the best profitability position because you’ll make informed decisions.
2. Market Trends and Sentiment
Hodlers must pay attention to the market’s direction and acquire coins accordingly. It would most likely be a loss to hold coins that become obsolete in the near future.
It’s also important to analyse public opinion, as this will tell you what the market demands and would go for. For example, the environmental impact of mining a coin may be a deciding factor for a crypto’s popularity. So, coins that use Proof of Work instead of Proof of Stake or other non-energy-consuming consensus mechanisms may not have high demand soon.
Another area to consider is sectors that are taking off and would have more solutions and innovations. For instance, the financial services sector is going through a revolution and decentralised finance (DeFi) solutions are increasingly becoming popular. That is to say, some utility tokens for DeFi solutions may have your attention.
3. Risk Management
Investment is inherently risky, but when investing in a volatile market like crypto, you have to be extra cautious. As a crypto hodler, you must make moves that will preserve your capital and maximise your chances of success.
With risk management, you’re putting down measures to help you properly manage the downsides of crypto investments. You also know how to cut your losses and highlight your winners quickly.
Pros of Cryptocurrency Investment
- Potential for Long-Term Growth and Passive Income
Crypto investment give you the leverage of longevity. You will be enjoying the benefits for an extended period, providing a steady income while you’re less active. It’s a case of your money working for you.
- Lower Time and Effort Requirements
With crypto investment, once you’ve done your research and implemented risk management measures, you’ve done the bulk of the work. Now, you can kick back and enjoy without exerting yourself too much.
Cons of Cryptocurrency Investment
- Risks and Volatility
Crypto is risky and volatile — everyone knows this. So, having a crypto investment for a long time puts you at an even higher risk. You’re more exposed to these risks, but when you monitor the market closely, you may be able to avert them by taking timely actions.
- Limited Short-Term Profit Opportunities
Don’t expect to reap the rewards of your crypto investments very quickly. Locking your investment capital in assets for a long time means you’re saying goodbye to any quick income from that investment.
Exploring Cryptocurrency Trading.
What is Crypto Trading?
Cryptocurrency trading is the extreme opposite of crypto investment. It means that you find a low entry point into the market and exit at a high end quickly. Unlike crypto investment, you welcome and take advantage of the volatility and rapid price fluctuations to profit most.
With crypto trading, it’s all about timing. Crypto traders ride the wave of a coin for its profitability; they don’t care about the long-term usability or prospects. They’re there for a good time, not a long time.
Also, the state of the market doesn’t matter. Whether bearish or bullish season, crypto traders can still make a profit.
Short-Term Perspective and Active Trading Strategies
Cryptocurrency trading appeals to people who like to move quickly and don’t mind taking risky steps. Crypto trading requires that you acquire some technical knowledge to be successful. You must be conversant with blockchain technologies and even master some trading tools.
In crypto trading, you use technical analysis to make decisions instead of the fundamental analysis used in crypto investment. You’ll use technical analysis to follow the trend —here, you’re only interested in the profit percentage, not the real-world usability.
You must be willing to drop coins often, so getting attached to one is a bad idea. As a trader, you follow the money. Sometimes even count your losses, and move on from a downward trend. Your focus is gains, capital preservation, and capital growth.
The trading strategies traders employ are:
- Day trading
- Swing trading
- Position trading
Pros of Crypto Trading
- Potential for Quick Profits and Higher ROI
Due to the fast price movement and equally fast-paced trends, crypto trading is a profit-intensive venture. The quick return on investment is one of its attractive features.
- Flexibility and Adaptability to Market Conditions
Whether it is bear or bull season, you can still make profits. Crypto trading leverages rapid price fluctuations to make as much profit as possible. So, you don’t have to worry about good market conditions before trading.
Cons of Crypto Trading
- Time and Effort Intensive
A downside of crypto trading is that you cannot relax. It’s not a great side job or passive income opportunity. You’ll have to keep your eyes peeled on the chart for an extended period of time. It may give quick gains, but you must still put in the work.
- Increased Risks and Emotional Stress
If you’re not strong-willed, stay away from crypto trading. The market is highly volatile and is not known for giving traders peace of mind. Crypto trading requires you to be absorbed in the trends, so you’ll constantly check on your trades to see if the market is heading where you predicted. It is also time-sensitive, so you’ll find yourself on alert for the right time to enter and exit the market.
Factors to Consider Before Choosing Crypto Investment or Trading.
- Risk Tolerance and Investment Goals
You must know your goals from the start. What do you want out of the market? Your answer and risk appetite will determine which path you’ll choose. This is something to determine on your own, so public opinion has no place here.
- Knowledge and Experience in Financial Markets
How knowledgeable you are about the market also influences your choice. Crypto trading needs more expansive crypto literacy and demo trading pratices than crypto investment. Not to say that you cannot learn, but you need to have substantial knowledge and not enter these fields blindly.
- Time Availability for Monitoring and Decision-making
Crypto investment suits busy individuals who cannot constantly monitor their assets. However, a crypto trader needs to be able to make decisions on the spot, therefore, has to be immersed in the trading process.
There you have it, folks —everything you need to know about crypto investment and trading. You’re now informed on the key differences between crypto investment and trading. Before you make your decision, evaluate your preferences, goals, risk tolerance and your knowledge of the crypto market.
Lastly, I want to encourage you to take responsible decisions in the crypto market to increase your chances of success. One of those decisions is to trade your crypto for crypto or cash on the best platform —Breet.
Breet is a leading crypto exchange in Nigeria and Ghana where crypto trading is smooth, secure, fast and at the best exchange rate. To maximize your profit, it’s important to be able to seamlessly exchange your crypto for cash, and Breet is your best bet any day. Try Breet for a zero-stress crypto exchange today!