Crypto Trading vs Crypto Investing: Which One’s Better For You?

Crypto trading: how does it work?

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

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.

Swing trading

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.

Day trading

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 trading

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

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.

Scalping

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.

• Crypto trading can be beneficial in various ways, as it enables traders to make huge profits quickly. Moreover, peer-to-peer crypto trading can entail much lower fees than other forms of trading without the oversight of central institutions.
• On the other hand, crypto trading can get risky because of the volatile nature of the market. The lack of regulations could also make your trades or holdings susceptible to online attacks or scams.

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.

What is 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:

HODL

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 Investing

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

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.

Dollar-cost averaging (DCA)

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.

Initial coin offerings (ICOs)

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.

• Crypto as an investment can prove to be a highly rewarding exercise for investors over a long period. Fundamentally robust crypto tokens yield high returns and largely reduce the risk of volatility.
• Meanwhile, investors need patience to witness big returns in the crypto market, which can often experience periods of stagnancy and low returns. Investors can also suffer huge losses if they invest in dubious or pump-and-dump tokens.

Crypto trading vs crypto investing: which one should you choose?

Now that we have learnt about both terms in detail, you can consider these aspects while deciding which one to go for:

Risk appetite

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.

Goals 

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.

Knowledge and skills

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.

Personal preference

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!

The potential of the crypto market in the future

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!

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