Trading and investing in cryptocurrency is similar to that of traditional finance. These are two different ways of earning a profit in the financial market. Investing in cryptocurrency means buying crypto-assets and holding them for the long term to get a safe profit.
Trading in cryptocurrency means short-term strategies for buying and selling assets for maximum daily returns.
The Difference Between Trading and Investing
Now that you have a basic understanding of investing and trading. Trading and investing in the cryptocurrency market have some major differences that are given below.
1. Risk Profile
The risk profile is the amount of risk that someone is comfortable taking. Cryptocurrencies are extremely volatile and have a lot of risks involved.
Investors in cryptocurrency are extremely comfortable with leaving their investing for a long time and not a thing about it. With time, an asset’s volatility becomes more stable and offers good profit returns.
Trading in cryptocurrency is extremely risky because of the high volatility, and crypto traders are risk-takers. If you have a deeper understanding of trading, the high volatility of cryptocurrency prices can also provide short-term investment opportunities to offer high profits.
2. Trade Frequency
Crypto investors usually look forward to holding on to purchase a cryptocurrency for a longer period and sell when the prices are more stable and stronger, resulting in very low trade frequency.
On the other hand, traders have higher trade frequency as they make daily or weekly trades. Traders make quick but small profits in the evolving market by making frequent trades. These small profits usually add up to large sums of profits over a longer period.
3. Analysis Type
Crypto traders and investors use different analysis types to make choices when to buy or sell a crypto asset. Crypto investors usually are in the market for long-term investments. This includes looking at different factors of a certain cryptocurrency like hash rate, adoption rates, market trend, etc.
Crypto traders are in it for short-term trades and are more concerned about their profits. This is why they use technical analysis to choose trades. This method includes predicting the price of the cryptocurrency by using data available about the cryptocurrency.
4. Profit Attitude
Profit attitude is how crypto investors and traders are looking forward to making money. This mindset usually includes four main ways to make or generate a profit.
1. Price Prediction
The most common way of earning a profit is by predicting the price of a cryptocurrency to go up. For example, buying a cryptocurrency at $30k and then selling at $50k to profit.
2. Dividend Program
Some cryptocurrencies offer dividends to the coin holders from the generated revenue. This option is a safe way of earning profit as you will be guaranteed profits.
Another way of making a profit is because some projects sometimes distribute free coins to the general public to promote the project.
4. Hard Forks
In this method, coin holders split and share their coins. In this method, the investor who holds the original coin is entitled to free coins.
Traders are in the game for the short-term trades, and they are more concerned about making the most profit in the smallest amount of time, so they use price appreciation and airdrops. As the investors are there to invest for the long term, they earn profits from the long term and price appreciation.