Crypto Day Trading Vs Holding for the Longterm: Benefits and Drawbacks

Photo by D'Vaughn Bell on Pexels.

Most cryptocurrency investors fall into two camps: day traders and long-term holders. Crypto day trading is a short-term strategy that focuses on buying and selling crypto assets to profit from daily price swings.

Cryptocurrency holding (or HODling) involves buying coins and holding them for a very long time without worrying about the short term. Hodlers typically profit from the asset’s long-term value appreciation.

You'll probably find a mix of the two approaches works best for your investing goals. So, it’s important to understand the benefits and drawbacks of each strategy.

What is Cryptocurrency Day Trading?

Day trading is an active form of investing as it allows investors to capture value from shorter-term changes in cryptocurrency prices. It involves entering and exiting opportunities on the same day to earn on short-term price changes.

Day traders do this at super-fast speeds, buying an asset and selling again within just a few minutes with the help of a crypto trading bot. It is an intense activity with more frequent trades than other trading strategies.

Traders also look at the market dynamics but heavily emphasize technical analysis. They analyze indicators like volume, price action and chart patterns to identify trade entry and exit positions.

Crypto day trading can be very profitable due to market volatility. However, it is also risky, as beating the market consistently is almost impossible. Always consider your investment goals and risk appetite before entering into day trading.

Liquidity is another critical factor in successful day trading. A more liquid trading pair will ensure a higher chance of execution. In addition, keep updated on recent news and developments as they can impact asset prices, especially in the short term.

What is Cryptocurrency Holding Strategy?

Cryptocurrency holding or crypto hodling is a buy-and-hold strategy with a long-term goal in mind. The hodler typically buys and secures the crypto assets in a wallet for a long time. They will not sell until they feel they can turn a substantial profit.

Long term crypto holders do not experience the emotional swings that afflict most day traders - even if the market crashes or becomes highly volatile. Therefore, these investors are less exposed to the short-term volatility of cryptocurrencies.

So, how long should you hodl cryptocurrency? That depends on your investing goals. Many Bitcoiners promise to hodl BTC forever because they believe it will soon become the de facto monetary system.

As for investing, use the dollar-cost average (DCA) strategy to buy and hold cryptocurrency incrementally over an extended period of time to reduce the impact of short-term volatility.

Benefits and Drawbacks of Crypto Day Trading

Benefits of Crypto Day Trading

• You can make quick profits by capitalizing on short-term price movements
• Investors can set their own goals and work at their own pace
• High liquidity (for major cryptocurrencies) enables easy entry and exit for day traders
• Cryptocurrency markets operate 24/7, providing flexibility to trade anytime
• It is ideal for big profits, especially for leverage positions

Disadvantages of Crypto Day Trading

• High volatility poses a significant risk for day traders
• Day trading induces emotional stress and fatigue due to the need for constant market monitoring and quick decision-making
• Frequent trading results in transaction costs (fees and spreads) that can cut your profits
• Subject to higher tax rates on short-term capital gains

Benefits and Drawbacks of Crypto Hodling

Benefits of Crypto Hodling

• There’s potential for massive gains if you can hold for a few months or years. For example, if you bought BTC in early 2023 at ∼$22000 and sold it in early 2024 at ∼$42000, you would make a 90.91% return.
• Reduced emotional stress since you do not have to worry about short-term market fluctuations or constant monitoring
• You enjoy tax advantages due to favorable long term capital gains tax rates
• Emotions like FOMO and FUD are minimized

Disadvantages of Crypto Hodling

• Holding crypto through bear markets can be tough, and investors may be tempted to sell at a loss
• Hodling may limit access to funds, making it challenging to respond to unforeseen events such as forced sales or unexpected liquidity needs
• Even with a long-term perspective, cryptocurrency markets can be highly volatile. This may lead to significant price swings that may impact the value of your investment

Crypto Day Trading Vs Holding

It is important to assess whether crypto day trading vs hodling cryptocurrency is better. Obviously, active day trading has many fans because of the potential for high returns.

It is essentially a play on the short-term volatility (or price movement) of crypto on any given day. But it requires skills, time and funds to pull off. You also need to consider what level of risk you are willing to take and how you cope with stressful situations.

Many people don't have trading skills or much risk appetite. That's why buy and hold is most often their best choice. But even passive investors must keep tabs on their portfolios. Choose the right coin to hodl (typically the top ten by market capitalization as they are more secure and reliable).

The reality is most crypto investors fall somewhere in the middle. I have purchased coins with plans to keep them for months but, based on changes in the market, sold earlier. And in other cases, some coins have been in my wallet for more than a year, and I don't have any plans to sell.

In crypto winter, I would hodl and try to resist the urge to sell even if prices are plunging. However, if you’re a day trader, keep trading and capitalize on the likely higher volatility of markets.

How you invest your money is ultimately up to you

You get to decide how to best invest in cryptocurrency. If you're interested in crypto day trading, you can do so using Refonte Infini Scientific Trading Bots. These tools allow you to automate your trading strategies and execute trades at super-fast speeds for maximum profits. The platform is very easy to use, and there are flexible plans for different user preferences.

Sign up now to create a demo account.