Are you thinking about trading or investing in cryptocurrencies? Both are important perspectives, but it is difficult to choose as the desire to move assets around is there, at least in many cases.
This is because the market moves up and down like a top, with coins that earn insane percentages in a very short time.
One of the biggest pitfalls it is easy to fall into is f FOMO, literally fear of missing out.
This refers to the excitement you get when you see an asset you don’t own go wild, which immediately makes you want to buy it.
This leads to selling and buying in the throes of emotion, moving capital left and right hoping to ride the wave and achieve success in no time.
A behavior that leads the investor to assume the characteristics of the trader, who also deals with buying and selling at a fast pace, but the similarities end there.
In this article the goal is to understand why an investor should never behave like a trader, staying true to their philosophy and trying not to get caught up in an understandable but absolutely deleterious enthusiasm.
What does it mean to invest in cryptocurrencies?
Investing in cryptocurrencies literally means buying crypto and wait for a future moment in which their value will be increased to resell them, thus generating profit.
It doesn’t mean entering today throwing 100 Euros on Bitcoin and then returning in a few days hoping to have increased the capital, this is not investing.
A good investment consists of a well-planned strategy of accumulating the asset itself, with the consequence that there could be tens or hundreds of purchases.
The time frame on which it is based is then really very large, so much so that it could take years before it’s time to go and sell something.
Obviously how many years it all depends on patience, on wisdom and yes, even on the coronary arteries of those who decide to invest in cryptocurrencies, since they are certainly not assets that make you sleep peacefully.
Those who bought Bitcoins back in 2008 and kept them until today (maybe because they forgot they had them too), have certainly generated insane income.
This means having gone through very violent crashes in the market, endless periods of sluggishness and a series of events that would have made even the will to waver.
Investing in short it’s all a matter of knowing how to wait patiently for the right moment, trusting your ideas as captains of ships braving the storm.
What it means to trade cryptocurrencies
Trading cryptocurrencies instead is a completely different thing, which has nothing to do with the investment of which it shares only the actual act of purchase and sale.
This is where you buy a crypto, expect it to go up and resell, which means it could happen at the same time as this sentence has just been written.
Trading is fast, is based on exchanges dictated by a short or very short-term market sentiment, so much so that it becomes a real job for those who practice it.
Traders are professionals, people who use their capital to speculate on volatile assets, buying and selling dozens of them every day.
There is a practice called scalping which is based on minutes, not even hours, to intercept the micro movements and generate profit from them.
Even the very foundations from which a trade develops are completely different, so much so that they don’t even have a single point of contact but only opposites.
What are the basics for investing in cryptocurrencies
The main basis that should push someone to invest in cryptocurrencies is the intrinsic value of the project, given by a development team and plans for the future granite.
Taking as an example Bitcoin, it is easy to understand why both the asset that attracts the most investments in the crypto world, in fact it is considered digital gold.
The fact that the system on which it is based is very solid, the general adoption, the maximum number of coins that will be produced, the security. All fixed points for those looking for solidity in perspective.
On the other hand, when there are coins that are all about marketing, botched teams, little foresight and no innovative ideas, then it is time to run away.
This implies a deep study and an equally deep knowledge of the asset in question, otherwise it would be like buying unspecified assets in a poke.
In itself quite difficult to obtain, not all people in the world have the time or desire to understand what a blockchain is, but there are not many other ways to go.
The beauty is that, once you enter this world and understand the main concepts, then you can easily apply them in series to the other protagonists, greatly facilitating the second phase.
What are the basics for trading cryptocurrencies?
Here things, as mentioned, are really completely different from those of investing, as no matter the fundamentals when the price rises in the short term.
In fact, since they interest more than other sudden movements of value, this implies that even the worst garbage could become a gold mine.
Taking as an example Shiba Inu, a truly cryptocurrency without any fundamental value but driven by crazy marketing, you understand the point very well.
Shiba passed from being worthless to seeing the price rise by thousands of percentage points, all for chatter, rumors and word of mouth.
A shrewd trader would surely have smelled the great chance and would have jumped in as soon as possible, only to abandon the boat at the right moment.
An investor might have made it just as useful, but without the sale placed in the right spot, the figure would have quickly deflated.
This is clearly a limiting example, since of rises like Shiba unfortunately there are not many a year (or fortunately), but it does understand the general line.
More there are positive voices wandering about an asset, the better for the trader, never mind if in a few months the value will be completely vanished.
Why is it important to separate trading and investing in cryptocurrencies?
The talk here is quite simple and complex at the same time, since things can get very tangled up to the point of failing.
If you decided to invest because you see some value, then this will be always there even if the price collapses or remains stable, in the long term it will make up for it.
Start trading assets following the green candles of others, leads to nothing but economic defeat, this is because you jump on trains already next to the station.
If you have a Bitcoin why you see potential and, given the decline, you decide to exchange it for a currency that is rising (for example), you could end up seizing the moment of trend reversal and remain with nothing in hand.
All assets that go up, sooner or later, go down. This is not a prediction from a soothsayer but a simple constant of the market, dictated by the fact that those who have made a profit, sooner or later, will sell.
Does it really make sense to go and try your luck hoping to be only at the beginning of the bullish movement and not at the end? Or perhaps it is better to follow your own path in a straight line, waiting for your turn?
One reason why traders are professional traders and not guys who improvise overnight, it is a truth which must be accepted.
Sure, you need to allocate a small amount to us. from one’s own assets to attempt speculative trades, but this too must be done on the basis of a well-studied plan from a macroscopic perspective.
Read also: How to Build a Long Term Cryptocurrency Portfolio
So better to trade or invest in cryptocurrencies?
If hope is to receive a clear and univocal answer, as for everything in this world, unfortunately it is impossible since everything is purely situational.
Investing is suitable for people who do not know how to trade or do not have the time, but still have the knowledge to move effectively in this world.
The trade is for those who have the capital and courage to invest fully in this sector, aware that they will have to be good enough to survive in a tank full of sharks.
The purely revenue-related perspective, a trading done well is probably more profitable of the investment, as it is able to ride more bullish movements instead of a handful.
Nonetheless, it also remains much more ephemeral, since it is also dictated by the nerves of the subject who will have to be able to fight against one’s own anxieties as well as the market trend.
The investment will render less but something that is done to obtain a passive income, which implies being able to do other things in life without having to take care of assets.
In the end, the only real point of contact between these two worlds is so distant, and it lies in the fact that there is no possibility moving in the industry without knowing what you are doing.
Scams, thieves and worthless projects are always lurking there ready to take the belongings of the unfortunate, who would find themselves without a penny in a short time.
This also applies to those who, rightly, turn to financial advisors, who have always been the portals on the world of finance for those with limited knowledge.
