Everytime the topic of investment comes up, the world is split into two different types of people. The first type are the ones that believe that ‘in the long term, all of us would be dead’. Therefore, there’s no point waiting for longer periods to see your wealth grow. On the other hand there are people who are willing to hold an asset for their dear life. This difference becomes even more prominent when it comes to crypto. For some believe that crypto does not have any intrinsic value while others are convinced that it is indeed the future.
So what category do you belong to? If you are on the fence, today, I’d try to help you out with this post. We would finally try to understand which of the either strategies is better.
Who is a Trader:
Traders are the individuals that mainly rely on technical analysis of an asset to take bets on its future. This is often done for a short term which may vary from a few hours to days and even weeks in some cases. Traders usually do not care about the underlying asset much and intend to figure out patterns to make their moves.
As crypto is an extremely volatile asset class, it gives a very good opportunity to the traders to leverage the crazy movements on either side to take long or short positions.
Benefits of Trading Crypto:
Before the HODL gang would try to bash me, here are a few reasons why trading crypto can actually be good
A. Increased Transparency:
If you are trading stocks, the chances of getting manipulated aren’t zero. This is despite the regulator being there to protect you. However, in the case of crypto, everything is happening on-chain. Therefore, you have a better chance of predicting the market moves.
Let me share an example. Recently, one of my friends predicted a huge crash of >6-7%. Why? Because he was able to track that BTC movement to exchange wallets was the highest in 17 weeks. This meant that a lot of people brought their holdings to exchange to probably sell them.
Similarly, one could clearly make out the backstory of Terra debacle through on chain activity. Thus, cryptos offer increased transparency to speculators.
B. Newer Technology:
No matter what happens, Blockchain and crypto is still at a nascent stage. We are very early in this game. Therefore, if you are someone who doesn’t believe that Blockchain will make it big, you can still leverage its volatility to make some money in the short term.
Who is a HODLer?
A hodler is someone who would buy and forget about the crypto. Their decision would often be based on fundamental analysis of a crypto. They are likely to evaluate future prospects of a project using various parameters such as revenue, business model, team, history of the project etc. Post the evaluation, they would take a long term punt on the projects.
Benefits of HODLing Crypto:
With that being said, let us understand what do you stand to benefit if you simply hold your coins to your dear life.
A. Noise Proof Gains:
Crypto markets are really noisy. So much so that it is really hard to follow the news. So if you plan to become a trader, it might hamper your full time job at some point. Alternatively, if you plan to simply hold the coins, you can rest in peace. There is no need to panic sell or FOMO buy. Simply do a SIP of sorts and keep on hoarding your favorite coins.
B. Exponential Returns:
Crypto coins do not have any upper circuit to conform to. They can go up and down as much as the market suggests. If you are holding a coin for a longer period, the probability of making a 4x, 8x etc. on your holdings is much higher than someone who would book profits occasionally.
Also, if you are in India, the government has started levying 1% TDS on all crypto transactions. This means if you are trading on margin, you are likely to dry up all your capital in TDS real soon. Therefore, it is still a better bet to only buy and hold.
Which Strategy is Better:
Well, to be honest, there are pros and cons attached to both the styles of investing. An ideal investor would conduct technical and fundamental analysis both before getting into a trade. That’s how it should ideally work.
However, it would still depend on your involvement. How? If you think you can give disproportionate time to reading, learning and analyzing charts, trading could be a great space for you.
On the other end, if you know how to conduct due diligence and hence get that conviction of something becoming big, simply HODL.
So which one are you?
Got questions? Want to take it to the next level? Reach out to me using your preferred platform from the links below
Until next time..
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