Just think of it: the average stock market return is approximately 10-15% per year. The same amount can be earned literally in one day on cryptocurrencies...
This idea often attracts newcomers to the digital asset market. But, having entered it, they have to choose what is more profitable – to trade crypto or invest in it?
Today we will try to answer this question, considering each option in detail, and tell you how to minimize the risks when working with digital gold.
Money Doesn't Sleep, or Crypto Trading Features
Cryptocurrency trading involves short-term speculation, that is, making many transactions within a short period of time. Traders usually choose exchanges, where they can quickly buy or sell an asset, as well as take advantage of advanced features. For example, leverage, which allows borrowing money from a trading platform.
Trading is in some ways very similar to the roulette game, but if in one case a participant places a bet on a certain number, in the other case he bets on the rise or fall of a digital asset on the exchange.
Despite the similarities, there are key distinctions between trading and casinos. In roulette, everything is up to chance, but you cannot rely on it in trading. Cryptocurrencies are extremely volatile, so you should trade based on their technical analysis. It is worth reading specialized trading literature, listening to lectures from experts, and even better – taking courses organized by professionals. This will help you to understand the market and learn different trading strategies.
There are several main crypto trading advantages:
- Tangible profit in a short time
High volatility allows you to get hundreds of percent in just a day.
As an example, let's take the recent situation with the Starbase token as an example: its value increased by 4500% in an hour after Tesla and SpaceX CEO Elon Musk posted a photo of the Starbase village on Twitter. Those who first read the tweet were able to speculate on the asset's value before its further movement and benefit from it.
- Algorithmic trading opportunity
Algorithmic trading allows using special software that automatically sells and buys assets at favorable prices. Today, trading bots are becoming more and more popular due to the strong fluctuations in cryptocurrency rates.
- Low entry threshold
Unlike investing, a trader can multiply his profit, even having $10. Some promising tokens on the market are not worth even a dollar, which means that using scalping you can make X2 of the value in a day.
However, a bad apple spoils the whole barrel. Trading in cryptocurrencies has a significant disadvantage:
- Increased risk
You need to understand that the crypto market is very different from a standard exchange: there is no clear regulation, and the volatility is so high that a beginner can lose everything he has in just a couple of unsuccessful transactions. It’s difficult to predict quotes due to many factors because even rumors can have an impact on them.
Moreover, trading is suitable only for cool heads, reasonably prudent men and people with a gambler's character. Too emotional market participants can go into depression after losing trades.
Should you invest in cryptocurrency?
Investing is one of the most understandable ways to make money on cryptocurrency. It involves long-term transactions and is more suitable for newcomers to the digital asset market.
However, investing has less potential than trading. The cost of tokens and altcoins can jump by tens of percent every day, and the investor is missing the opportunity to profit on these fluctuations. That is why just buying crypto and cooling heels is not enough.
What do you need to make an investment as efficient as possible?
- Diversify. Portfolio. Always. Making portfolios from different cryptocurrencies is the number one rule for those who don’t want to be dead broke.
For example, you can allocate 20% of your investment to Bitcoin. And the remaining 80% can be distributed among prospective assets – DeFi tokens, NFTs and gaming cryptocurrencies.
The DeFi segment is run by UNI, the token of the non-custodial exchange Uniswap. After a sharp decline, the asset naturally accumulates position and increases its value: in May 2021, there was a case when in just two days UNI gained 60%.
It is also worth paying attention to IQN game token, which follows its course towards stable growth throughout the year. In 2021, its price increased by almost 180%, while every three months IQN, with minor adjustments, is increasing 25–30%. By the way, you can get your first IQN assets for free on the IQeon PvP gaming platform.
- Manage your risks. The investor must clearly understand what part of the deposit he is ready to lose if the asset goes down. If the total amount of the portfolio is reduced by 20-30%, then it won’t hit the wallet hard, but it will be very difficult to win back 50%.
- Study assets and the market. Without following the news of the DeFi world, as well as the cryptocurrency issuer itself, one can only hope for luck, which the digital asset industry doesn’t tolerate.
Investing vs. trading – what to choose when the cryptocurrency rate is unstable?
It may sound trite, but there is no winning option. You should choose the style of working with cryptocurrencies that best suits your goals and capabilities. If you have experience in conducting transactions, as well as free time to monitor quotes, then you can try intraday trading. However, with a tight schedule and lack of special knowledge, you’d better come to investing.
It is worth noting that with a sufficient amount of expertise, nothing prevents you from trading and investing at the same time. It is a common thing in the crypto world.
It is clear that any strategy in the cryptocurrency market must be thought out and adequately assessed in terms of risks. Traders should forget about emotions, understand their strengths and weaknesses and invest in cryptocurrency exactly as much as they don’t mind losing.
We advise investors to be prepared for ups and downs: although cryptocurrencies are very volatile, a rare fall in assets will not lead to a catastrophe – coins tend to recover their positions in a short time.
Diversify your portfolio, keep thinking sanely, and don't try to chase a high price. It’s vital for investors to remain patient and be able to admit their mistakes. As a Canadian expert on leadership and motivation said, "Good judgment comes from experience; experience comes from bad judgment".
