When it comes to cryptocurrency, it’s important to distinguish between holding assets for long-term investment versus active trading.
Investment vs. Trading in Cryptocurrency
When it comes to cryptocurrency, it’s important to distinguish between holding assets for long-term investment versus active trading. Holding (or HODLing – Hold On for Dear Life) involves purchasing cryptocurrency and holding it for an extended period, often in anticipation of long-term growth. This approach is typically less time-consuming and can be less volatile if you’re investing in major cryptocurrencies like Bitcoin or Ethereum.
Trading, on the other hand, involves actively buying and selling cryptocurrencies in the short term to profit from price fluctuations. Traders use strategies such as day trading or swing trading to capitalise on volatility and market trends. While trading can lead to higher returns, it also carries greater risk due to the inherent volatility of the market.
Forms of Crypto Income (to name a few)
Cryptocurrency provides various opportunities to generate income:
- Staking: Locking up cryptocurrency in a blockchain network to earn rewards for supporting transaction validation and network security.
- Mining: Using computational power to validate transactions on proof-of-work blockchains like Bitcoin, earning block rewards in return.
- Trading: Profiting from buying and selling cryptocurrencies by leveraging market fluctuations.
- Yield Farming: Providing liquidity to decentralised trading pairs and earning interest or token rewards.
- Airdrops: Receiving free tokens during promotional campaigns or network upgrades to incentivise participation.
Exchanges, Off-Market Trading, and Cold Storage
Cryptocurrency exchanges, such as Binance, CoinSpot, and Swyftx, allow users to buy, sell, and trade cryptocurrencies easily. While convenient, these platforms can expose funds to hacking risks if left stored online.
Off-market or over-the-counter (OTC) trading enables large, private transactions directly between buyers and sellers, often used by institutional investors to avoid impacting market prices.
Cold storage solutions, like hardware wallets, keep cryptocurrencies offline, significantly reducing cyber theft risks. For long-term investors, cold storage is the safest method to secure digital assets.
