SearchSearchSearchAug 12, 2024
6 min read
The crypto market could be at the cusp of another long-drawn rally, supported by various factors that have fueled optimism in recent months. For instance, the emergence of spot crypto ETFs in the US and Hong Kong and the just-concluded Bitcoin-halving event in April 2024 have helped crypto market sentiments soar.
Let’s consider Bitcoin’s 1-year trajectory as an example. As the above graph points out, Bitcoin has risen by around 160% in twelve months. Similar trajectories can be observed in Ethereum (which rose by over 100% in a year) and several other altcoins.
In these times, crypto enthusiasts may start deliberating on a common issue: crypto trading vs crypto investing. Both these strategies have stark differences, and we’ll examine their details in this blog.
Crypto trading involves buying and selling crypto assets within short time intervals, with or without leverage. The practice is similar to trading traditional financial assets like stocks and bonds. Crypto traders aim to time the market by analysing technical indicators, sentiments, and overall price movements. Based on these factors, they predict and speculate prices of assets to maximise their returns.
Crypto trading can be usually differentiated into:
Leverage trading involves taking larger positions in crypto trades, even with relatively smaller amounts of capital. As a result, it can maximise profits but could lead to more losses as well. These larger positions in the market are usually taken with borrowed funds.
Spikes in market volatility can lead to sudden price swings among crypto assets. Swing traders leverage these price fluctuations for their crypto trades, which can sometimes last days or weeks.
As the name suggests, day traders in the crypto market book profits or losses every day and trade based on intraday price fluctuations of tokens.
Arbitrage traders in the crypto market buy and sell assets in different exchanges to squeeze profits from even minor price differences. Since transaction volumes in these trades are high, even minor price differences could result in large gains.
Position trading in crypto can last for days or even months as traders implement trades based on long-term or short-term asset patterns. They can take both long and short positions on assets.
Imagine making multiple trades in a second! That’s exactly what scalping is in crypto trading. It is a high-frequency form of trading with small holding times, used to profit from the smallest price movements.
These are diverse strategies or ways to trade, depending on how much time investors can spend along with their risk tolerance. Crypto trading can help gain big profits, but the tax implications should also be considered while trading.
In India, the government terms crypto assets as ‘virtual digital assets' and all gains from crypto trades are taxed at a flat rate of 30%. Section 115BBH of the Income Tax Act of India states the tax will be charged on any ‘income’ in the transfer of virtual assets.
The law does not permit setting off losses from the transfer of virtual assets. Given the nature of scalping, these laws do make it particularly challenging to do scalp trades for crypto in India - you pay a flat 30% when you get it right, and can’t compensate for it with your losses.
On the other hand, crypto transactions worth over INR 50,000 will also involve a 1% tax deducted at source (TDS), discouraging liquidity in the market.
In the next section, we will examine how crypto investing works, which will further simplify the notion of crypto trading vs crypto investing.
Contrary to trading, crypto investing works differently. Crypto investors invest in crypto assets for the long term and are generally unconcerned about short-term volatility. They aim to derive long-term profits from their crypto assets. Over the years, crypto investments have grown much more popular than before. Crypto as an investment asset is now relatively more mainstream than perhaps ten years ago.
Crypto investments are usually done considering factors like fundamentals, value, and future prospects.
Here are a few strategies for how crypto investments can be made:
Hold on for dear life (HODL) is a popular term in the world of crypto. HODLing refers to investing in crypto to hold it for an indefinite long-term, expecting a price boom according to historical returns and fundamentals of an asset. The HODL strategy has worked wonders in the case of Bitcoin, which has grown at a compounded annual rate of over 100% between 2011 and 2024!
Altcoins like SOL and MATIC have also risen exponentially (more than 10,000% each, since inception) since they started trading in the crypto market. However, it is important to note that most altcoins do not recover from their lows, making long-term holding ineffective from them. Until now, only a few coins such as Bitcoin, Ethereum, Solana, and BNB have proven to be profitable for long-term holding, irrespective of the price at which they were bought.
Value crypto investors look for assets typically trading at lower prices than their potential. These investors, after careful analysis, bet on these undervalued crypto assets to grow in the future.
Growth investing is a crypto investing strategy in which investors look for assets projected to grow exponentially. They may not bother buying these crypto assets at an expensive valuation, expecting them to grow even further.
The term ‘dollar-cost averaging’ involves investors making investments in crypto at regular intervals. In this way, the risk of volatility is minimised in the long run, and prices of crypto assets are averaged.
Crypto investors also invest in crypto assets during ICOs, which are events where a crypto project may raise funds by issuing tokens or other assets to investors.
Now that we have learnt about both terms in detail, you can consider these aspects while deciding which one to go for:
You need to analyse your own risk appetite before choosing to be a crypto trader or investor. As we highlighted, both strategies generate different levels of risk. On the other hand, taxation in crypto should also be analysed minutely to determine which strategy generates the highest returns.
The end objective in both trading and investing is high returns. But based on what goal you’re aiming to use that money for, you can make a choice. Long-term goals can usually be fulfilled with investing, and vice versa.
Expert crypto traders require highly precise knowledge and skills. But if you’re a beginner, you can invest in time-tested and popular crypto assets.
Eventually, the crypto trading vs crypto investing debate boils down to your preference. We have detailed the multiple ways you can trade and invest in crypto. Choose one after going through them!
4.2% of the world's population already owns crypto, which is a very encouraging sign for the crypto space. With ongoing worldwide deliberations on regulations and adoption, one could expect that crypto as an investment will likely become the primary preference for many, along with its many other use cases.
We hope this blog helped share insights on crypto trading vs crypto investing!
India Crypto Research will help you stay updated with the latest trends in crypto and blockchain!
The information provided in this blog is based on publicly available information and is intended solely for personal information, awareness, and educational purposes and should not be considered as financial advice or a recommendation for investment decisions. We have attempted to provide accurate and factual information, but we cannot guarantee that the data is timely, accurate, or complete. 1 Finance Private Limited or any of its representatives will not be liable or responsible for any losses or damages incurred by the Readers as a result of this blog. Readers of this blog should rely on their own investigations and take their own professional advice.
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