What is the difference between crypto trading and investing?

Cryptocurrency is volatile. In other words, it's prone to rapid price changes. This is always a risk, to a greater or lesser degree. In 2017, American journalist Derek Rose withdrew all the money from his retirement account to invest in cryptocurrency. Within a year, he initially made over $7 million in profit, then lost it all. Other, less risky investors regularly make and maintain profits. Choosing a strategy is an important factor.

There are as many cryptocurrency investment strategies as there are investors, but they all fall into one of two categories: trading and investing. Let's explore the essence of both strategies and which is best suited to your goals.

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Trade – buy low, sell high?

Tradeinvolves buying and selling assets. In financial markets, this could include stocks, bonds, cryptocurrencies, and much more.

The term "trading" is used in cases where we are talking about short-term trading, when buying and selling are done in a short period of time.

Trading strategies

• Day trading– when the purchase and sale of assets takes place within one day.
• Swing trading– holding assets for a longer period of time in anticipation of a price trend shifting in one direction or another. Markets go through uptrends and downtrends, and swing traders look for signals of an impending shift. This is the basis for choosing the right time to trade.
• Positional tradingThis strategy is a bit closer to investing. It's similar to swing trading, but involves a more in-depth analysis of long-term prospects. A position trader can hold a position for several months before selling it.
• ScalpingScalping is one of the most dynamic trading strategies. Scalpers trade small price fluctuations for small profits. They make money by executing small trades.

Trading is a risky business in general, not just in blockchain technology. Traders, from the English word "trade," often lose money. According to some reports, over 90% of retail traders lose money, whether investing in Bitcoin or traditional stocks or forex.

But there are also successful traders who make big profits.

Why is trading difficult? 

Trading can be compared to swimming in a shark tank. One trader's mistake is another's gain. Therefore, it's definitely not for the faint of heart.

Traders focus on price movements. These movements are cyclical, providing a certain level of predictability. However, asset prices are influenced by many factors that can alter expected forecasts.

It's important for traders to follow global news. For example, after reading in the media that China is introducing new regulatory measures against Bitcoin, a trader might try to quickly sell assets, expecting other traders to also start selling and drive prices down. They might then try to buy assets at a low price before their less savvy colleagues realize that China isn't capable of destroying Bitcoin after all. In other words, trading is about analyzing events and predicting possible consequences.

Trading is focused on short-term buys and sells. Therefore, traders don't care much whether the cryptocurrency they're trading is successful or not—profits can be made regardless of whether the asset is thriving or barely afloat. What matters is the price change at any given moment. Traders can profit in both a bullish (rising) market and a bearish (declining) market, while long-term investors typically wait out bearish periods.

As we've already mentioned, trading, especially cryptocurrency, isn't for the faint of heart. It requires nerves of steel and meticulous market analysis. Therefore, to be a successful professional trader, you need to dedicate most of your time to it.

But this certainly doesn't mean anyone can't make a little money trading cryptocurrency in their free time. Attention to detail and analytical skills are key, as one mistake can wipe out months of successful trading. Let's remember the example of Derek Rose.

Investing – Slow and steady wins the race?

Many people enjoy trading precisely because it's similar to gambling. It's dynamic, energetic, and adrenaline-fueled. But investing, with proper preparation, is much less risky.

Investing- is an investment of money with the aim of making a profit.

You can invest in business development by investing resources in:

• quality product or service;
• qualified employees;
• height brand popularity;
• brand's business card –website, with a recognizabledomainand high-qualityhosting.

It is possible to purchase real estate for the purpose of subsequent sale.

You can invest in financial assets and sell them later at a higher price.

The expectation of profit or ROI is the basis of the idea of ​​investing. 

When investing, profits are planned for a longer term—years and even decades. To find attractive investment projects, investors typically use fundamental factors. We'll discuss these factors in one of our next articles.

Investing involves learning the basics. For traditional stocks, this means:

• study of company income;
• its position in the market;
• the value of assets and other factors that will give an idea of ​​the reliability of the company.

Assessing the fundamentals of crypto assets is more difficult because a cryptocurrency's value is based on the belief of a sufficient number of people in its value. Cryptocurrency has no centralized governing body, accounting records, or profit data for analysis.

Cryptocurrency investors evaluate the following factors:

• The underlying technology of a network, protocol, or application.
• Cryptoeconomic models – token issuance, rewards, security incentives.
• The reputation of the developers involved in the project.
• Integration with third-party software.
• Businesses using the network or application.
• Number of users.
• The presence or absence of government support.
• Other nuances, such as decentralization, privacy, etc.

Cryptocurrency investments, like traditional ones, are a choice of reliable investments that will grow in the long term.

Examples of investment strategies

When investing, it's best to stick to a specific strategy. This is especially true for cryptocurrencies, given their volatile nature. Of course, no strategy is perfect, but some work quite well. Here are three examples:

• Hodl or HODL– the longest-term strategy. It's an acronym for "Hold on for Dear Life." It was coined when a Bitcointalk forum user accidentally wrote "HODL" instead of "HOLD." The idea is to buy assets and hold them forever. The underlying belief is that cryptocurrency prices will continue to rise in the long term.
• Dollar cost averagingThis strategy has proven effective over the long term. It involves investing in a chosen digital asset in small amounts at regular intervals. Sometimes the purchase will be more expensive, sometimes cheaper. The average cost is calculated. This strategy effectively reduces the impact of market volatility on investments.
• Portfolio of the best cryptocurrencies by market capitalizationThis strategy is similar to a stock market strategy. The most well-known such portfolio is the S&P 500, a stock index comprising 500 US public companies with the largest market capitalizations. Portfolio rebalancing is performed monthly or quarterly. When rebalancing is completed, assets that have appreciated in value are sold at higher prices, while underperforming assets are purchased at lower prices. Over the long term, this leads to an increase in the value of the entire portfolio.

There are other strategies used for investing in digital markets, but these three are the simplest and most effective.

What to choose, trading or investing?

Both traders and investors work with the same goal—making a profit. But they use different methods.

Investors are focused on long-term profits—years and even decades. And their target return on investment is higher.

Traders, in turn, exploit market volatility. They make more frequent trades and accept lower returns on a case-by-case basis, compensating for their gains with the number of trades.

Which is better is a matter of personal preference. You can start by studying the markets and learning by doing. Try both strategies and determine which one suits you best, taking into account your personality, methods, and goals.