BlogAug, 2021

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Crypto Trading vs. Crypto Investing – How are they different?

Investing in cryptocurrencies and trading them are two very different and distinct things. Each one necessitates a certain mentality and set of strategies.

Think in terms of these two popular money leaders!

Warren Buffet is a well-known long-term investor who employs a value investing strategy. Investing in underpriced investments or equities trading at a discount to their intrinsic value is referred to as value investing.

On the other hand, George Soros is a famed trader noted for his contrarian (against the grain) trading technique. He once 'broke the Bank of England' by shorting (betting against) the sterling pound and profiting almost $1 billion from that single move!

Let's discuss the distinction between investing and trading in cryptocurrencies in this article in a bit of depth.

What is Crypto Trading? 

Crypto trading involves speculating on cryptocurrency price movements via a CFD trading account or buying and selling the underlying coins via an exchange. Exchanging one cryptocurrency for another, buying and selling coins, and converting fiat money into cryptocurrency are examples of this trading form.

Foreign exchange (FX) is a similar concept, where fiat currencies worldwide are traded 24 hours a day.

In recent years, the number of cryptocurrencies has skyrocketed, with estimates putting the total number at around 1,500. Many of these coins can only be obtained through a primary cryptocurrency like Bitcoin or Ethereum. As a result, if you want to participate in initial coin offers (ICOs) or use the services of a blockchain company, you'll almost certainly need to trade.

One advantage of crypto trading is that you may participate without having to mine coins yourself, which requires time, energy, technical expertise, and a lot of computational power.

Now, what is Crypto Investing? 

While investing in crypto, you are using fundamentals and long-term trends to build a long-term position in digital assets and attempting to establish a position at a lower price than the price at which you will eventually sell if you intend to sell at all. There's a lot of room for buying at the wrong time.

Investors have a longer-term vision. They think in terms of years and often hold stocks through the market's fluctuation. 

Investors analyze a company's potential for long-term growth or value. Investing is about buying stocks for long-term gains; one must be patient and willing to put in the time. 

Cryptocurrency investors are less risk-averse than traders because they are more at ease leaving their investments alone and less unconcerned about daily price fluctuation.

Suppose you want direct exposure to the demand for digital money. In that case, cryptocurrency is an excellent investment, while stocks of firms with cryptocurrency exposure are a safer but perhaps less rewarding alternative.

Many cryptocurrencies, such as Bitcoin and Ethereum, are founded with ambitious goals that can be accomplished over long periods. While the success of any cryptocurrency initiative is not guaranteed, if it meets its objectives, early investors may be well rewarded in the long run. The reasoning behind this is that blockchain technology is still in its infancy. It could take years (or even decades) to disrupt established institutions and acquire widespread use. It should be noted that, in comparison to stock markets, the cryptocurrency market cycles are shorter.

To be regarded as a long-term success, any cryptocurrency initiative must first achieve widespread adoption – which it is clearly years away from.

The Difference 

Traders and investors face distinct tax consequences because one aims to produce income while the other seeks to generate a long-term capital gain. Anyone can combine trading and investing, but the two should not be confused. The current cryptocurrency markets are traders' markets. Therefore people looking to invest should build positions gradually over time to prevent price volatility.

If you're not sure whether you want to be an investor or a trader, try both. Short-term bets that go wrong can always be turned into long-term investments. Keep in mind that trading is far more difficult from a technical standpoint, whereas investing in cryptocurrency might be emotionally challenging.

Bottom Line

Traders and investors both strive to make money by buying and selling cryptocurrencies, but their techniques and long-term objectives are different. The variation in strategy has several significant consequences, including differences in tax liability. It's critical to comprehend these distinctions to fully realize the tax implications and avoid any problems.

Both investing and trading involve patience and emotional control, and both can be difficult to master. However, mastering either can be profitable.

Whether it's trading or investing, you can do both by registering with ATAIX today to set up an account and get started.