Investing refers to buying an asset with the aim of gaining profit through an increase in its value over the medium or long term.
Crypto investors try to build wealth through gradual appreciation over a long time horizon rather than short-term gains. They can reduce their risk through diversification, i.e. possessing a mix of investments. For example, rather than 'HODLING' a bitcoin only, they can also invest in Dogecoin, Ethereum, Ripple, Cardano, etc.
In the crypto market, investors would usually undertake a fundamental analysis, which would refer to taking a deep dive into all the information available about a crypto project to analyze its prospect. It’s about doing your research to understand the background and talent of the development team.
As such, when investors believe that particular crypto has a great intrinsic value, they would patiently hold onto the coin regardless of the market sentiment, believing that a markup phase in the crypto market cycle is coming sooner or later.
Trading is a short-term approach that leverages the short-term volatility of crypto asset price for profit. While investing has a time frame of months and years, trading ranges from minutes to days.
Trading in crypto can be very profitable due to the high market volatility – of course when it's done with the right timing.
Unlike crypto investors, crypto traders need to be continuously updated with day-to-day market sentiment and also be aware of sudden spikes and slumps. They're likely to seek speculative opinions and be quickly informed on news so they can gauge how these will impact the spot price of a token.
Further, experienced traders would depend upon technical analysis indicators (e.g. MACD, Relative Strength Index) & cryptocurrency social media indicators (e.g. the fear and greed index, Crypto FOMO indicators, etc) to help them predict changes in price patterns.
Crypto trading is a thrilling quick way to make money as the crypto market is highly volatile. However, with a great return comes great risk — you can also experience sudden BIG LOSS. If you prefer to chill out and avoid exposure to volatility, you can stay with the option of long-term crypto investing.
Oh wait, there’s actually another thing to consider: the difference between the two in terms of tax. Are crypto traders & investors treated equally by the tax standard?
Generally, how crypto investing and trading are taxed would follow a similar concept: when there’s a gain in the disposal of a cryptocurrency asset, it’d be subjected to a form of tax — usually Capital Gain Tax (CGT) or Income Tax — depending on a particular country’s tax regulation.
When CGT is the rule, capital loss resulting from a crypto asset disposal can offset the capital gains in current or future years.
It’s always best to always have check on your country’s cryptocurrency tax regulations. If we take ATO (Australian Tax Office) crypto tax regulation as an example, crypto investing can get may get a CGT concessional discount of up to 50% depending upon the investor's legal status (individual, partnership, or trust) and up to 10% for Self-Managed Super Funds, if the investment is held for more than 12 months.
Furthermore, some “crypto tax-free” countries that appear to be not taxing crypto transactions, actually do impose a tax on experienced ‘day traders’ but not on investing beginners.
Chainometry provides crypto tax solution and a handy analytical tool for all — whether you’re a crypto investor with few transactions or a day trader with thousands.
We generate the most accurate and reliable accounting reports with various cost-basis methods to choose from based on your country’s preference – of course, at the best price.