Investing is where you invest your money into cryptocurrency for the long-term (a few years, sometimes decades). That means that you buy in a cryptocurrency now – let’s say you buy 100,000 SUB coins today at roughly $0.30, which means you make an investment of $30,000. After you bought these coins and safely stored them in a secure place, you won’t touch them for a few years, hoping that the price of a coin goes up to let’s say $5, which would turn your $30k investment into $150k. Therefore, you’ve made a profit of $120k over a few years by doing nothing except buying the coins at this point in time.
What are the positives of investing?
- You don’t stress about the fluctuations in value – you’ve put your money in and you know you will keep your money invested for a few years, so you don’t care what happens to the price in a week or in a month; what you care about and hope for is that the value of your investment will go up 10-15 times in a few years’ time.
- You place your investment in a project that has a long-term potential and you would know this by doing your own research and establishing the reasons why you think this particular cryptocurrency will do well in the future. Therefore, you believe in the project, you believe that there is a problem that can actually be solved by your chosen cryptocurrency and you won’t stress about your fluctuations in price or about the times when your coin takes a hit. If you don’t know how to research a coin, you can have a look at my article here.
- You can choose several projects, at least 3 is a healthy number. So if you have £10,000 to invest, you can invest it in 3 different projects that you believe have a great long-term potential. It is safer to spread your investment over at least 3 solid projects because, at the end of the day, you don’t want to put all your eggs in one basket – nothing is certain in finance, we’re talking probabilities so you never know for sure if the only project you choose to invest might one day collapse.
What are the negatives of investing?
- Bitcoin is the king – it is unlikely that any of these projects will outrun Bitcoin in your chosen time frame. What this means is that if you choose to invest in Cardano for a long-term hold of 5 years, it is unlikely that on 24th Nov 2022 the price of Cardano will be bigger than the price of Bitcoin. This is because Bitcoin is the main investment in the cryptocurrency market, representing between 45%-55% of the whole cryptocurrency market. This is unlikely to change because BTC is probably the safest investment for everyone entering the market of cryptocurrencies.
- You need to be patient – you won’t get any returns in a day, month maybe even a year. You might see the value of your coin plummet, you might see it double within a couple of weeks since you invested in it, but you need to make a decision when you decide to invest – am I going to invest for the long-term or do I want to take my money out as soon as I make a decent profit? If you decide to invest, then you need to be very patient and wait for a long time before you actually make any moves, regardless of how your coin is doing in the meantime.
Trading is a quick way of taking advantage of the market – the classic Wolf of Wall Street stereotype. You will have to time the market, predict the price trends, get in at the right time and very importantly, get out at the right time too. If in the case of investing you are looking at a several times profit, for trading you are normally looking for profits as low as 5-10% on every trade. This is because if you compound the profit on all the trades that you make in a day (provided they are all successful), you can double your money within a day, which is quite unlikely to happen with investing.
What are the positives of trading?
- Trading happens over a very short period of time; you can make great profits within 30 minutes. However, the downside of that is that you can also lose large amounts of money in the same timespan.
- This can be regarded as a negative too, depending on how you look at it. You will have to learn technical analysis and other fundamentals of day trading in order to spot trends and predict prices, which are not necessary if you are a long-term investor. You can read my tutorials on technical analysis here.
- You will be part of the hype around a new coin and you can take advantage of that by buying in before one particular coin is hyped and selling when fear of missing out settles in and people start to buy a coin just because its price has gone up and they think that this uptrend will keep going forever.
- Again, this could be regarded as a negative too, but you don’t care about what the coin is or what the project or the team behind the coin is looking to achieve. All you are looking for is to make profits with respect to BTC / ETH / fiat, so there is no emotional attachment in day trading.
What are the negatives of trading?
- Statistically speaking, most day traders lose money. This includes day traders who have been doing this for years. This is important to keep in mind because it speaks a lot about how likely you are to be successful if you are just starting to learn how to trade now.
- Day trading takes up a lot of time and is very stressful. If you decide to day trade, you have to prepare mentally that this is going to be a very stressful time. You will have to stay updated all the time, always read the charts, always be on the lookout for the latest news and always check how your portfolio is doing. This can be agonising as after a while, you realise it takes up pretty much your whole time and even when you are doing something else, you are still thinking about the potential opportunities you might miss out on.
What is the best strategy?
Personally, I think the best strategy is doing a little bit of both. I do not have the time, the will or the skill to do day trade as a full-time job and I would not enjoy all the stress that comes with it. I am still day trading every now and then, but most of my strategy is based on medium to long-term investment.