Day trading vs. long-term cryptocurrency hodling: Benefits and drawbacks

Day trading and cryptocurrency hodling are common crypto investment strategies for getting the best return from owned assets. Day trading is a short-term and high-risk strategy where crypto investors buy and sell cryptocurrencies on the same day to profit from rapid price swings. 

Hodling is crypto slang for buying and holding cryptocurrency to profit from its long-term value appreciation. The term hodl was coined by a Bitcoin supporter in a 2013 Bitcointalk forum post and has been widely embraced by cryptocurrency enthusiasts. It also means “hold on for dear life,” or indefinitely.

Day trading involves more techniques, self-discipline and rational decision-making processes. In the case of hodling, crypto investors often put their money long-term on assets they support and think will have a bright future. Crypto trading strategies often mirror the more traditional stock and other asset trading methods, including technical and fundamental analysis. The main difference is that the rewards can be higher and quicker in cryptocurrency due to the proverbial market volatility. 

Online trading has allowed investors to trade independently without needing a broker or a financial institution to execute the transactions, allowing everyone to access trades more effortlessly than in the stock market. Furthermore, the crypto market is open 24 hours, 365 days a year, providing successful traders more volatility during shorter periods for higher returns. 

Cryptocurrency has provided institutional and retail investors with a new trading approach while ensuring all the traditional trading tools are preserved and further developed. The real question is, should users hodl or buy and sell crypto?

What is cryptocurrency day trading?

Day trading is one of the numerous trading strategies that involves entering and exiting opportunities on the same day and requires a deep understanding of the market and a lot of experience. 

Day traders will extensively use technical analysis (TA), employing common indicators like volume, price action and chart patterns to identify trade entry and exit positions. So, is day trading crypto profitable? Day trading can be very beneficial if a few factors are considered, including the type of individual investment goals and a trading style that suits the investor’s personality. Day trading is risky and requires fast decision-making and execution; therefore, it can be demanding and highly stressful. 

Day trading crypto aims to profit from small movements in market volatility; this is why it is an intense activity with more frequent trades than other trading strategies. The reward can be very attractive in a crypto market, more than day trading stocks or commodities, as it’s not uncommon to catch a crypto asset spiking by a high percentage within the same day.

However, proper risk management is essential for success in day trading, and so is the appropriate use of technical indicators. Liquidity is another critical factor in successful day trades as it’s crucial to execute quick trades, especially when exiting a position in a volatile crypto market. A more liquid trading pair will ensure a higher chance of execution. 

Fundamental analysis is not as critical as technical analysis in day trading crypto. However, watching the news and other updates might help assess any impact on the asset prices, especially in the short term. There are a few day trading strategies that investors can use. 

Scalping is a technique that aims to achieve small gains from small moves in the shortest time — often within minutes from an entry position — capitalizing on increased trading volume. Scalpers often use leverage to trade on margin or futures contracts to boost their profits.

Arbitrage is another popular strategy in the crypto market. It involves buying a digital asset on one cryptocurrency exchange platform and selling it on another where the value is higher to make a profit. For instance, a price difference of $500 might not sound very much; however, if the trader buys a large amount of the asset on one exchange and sells it within minutes on another platform, the profits can be considerable. 

What is a cryptocurrency hodling strategy?

Hodling is a relatively straightforward long-term cryptocurrency investment strategy. Investors must buy a coin or a token and hold it in a secured wallet for a long time (usually years) — until it has made a satisfying profit and can be sold. The “hodler” typically refuses to sell and remains unaffected by price swings.

Hodling can be a safer option for investors, as they are less exposed to short-term volatility and remove the risk of buying high and selling low, which can frequently happen in crypto. True hodlers tend to hold onto their coin or token, even if the market crashes or becomes highly volatile. 

How long should you hold crypto for? This depends primarily on your strategic plan and ultimately on your beliefs. In the case of Bitcoin (BTC), for example, many hodlers promise to keep the cryptocurrency forever because they believe it will become a newly established monetary system. 

Should BTC or any other cryptocurrency succeed in mass adoption and replace government-issued fiat currencies as the pillar of economies, then the exchange rates between cryptocurrencies and fiat money won’t matter anymore to crypto holders.

One of the most common strategies for hodlers is to dollar-cost average (DCA) cryptocurrencies, which involves entering small positions repeatedly over an extended period, regardless of the asset’s price, instead of large positions at once. 

DCA is little affected by volatility, and if executed systematically, it can remove almost all emotions away from investing. The only metric that should matter is planning how much of the crypto of choice to accumulate and sticking to the plan, avoiding emotions like Fear of Missing Out (FOMO) or Fear, Uncertainty and Doubt (FUD) that can jeopardize the whole strategy and facilitate losses.

Choosing the right coin or token to hodl is also an important step. Crypto investors tend to accumulate coins in the top ten by market capitalization as they provide more security and are more reliable projects than smaller-cap coins. 

The cryptocurrency space has grown to host thousands of coins and tokens, and it’s likely that most of them will no longer exist in the future. Therefore, deciding which cryptocurrency is worth your money is the most important assessment a hodler should make, along with choosing the right tool to secure your digital assets. Looking at the bigger picture and long-term chart trends will help focus on the hodling strategy and avoid regrettable mistakes, like selling too early.

Is it better to day trade cryptocurrency or hodl?

When assessing whether trading vs. hodling cryptocurrency is better, crypto investors should choose the strategy that suits them better and consider whether they possess the right skills to venture into a risky business.

Ultimately, choosing to day trade or hodl comes down to the investors’ skills, the time at their disposal, availability of funds, what level of risk they are willing to take and how they cope with stressful situations.

Benefits and drawbacks of day trading

Like every other business, learning to trade crypto requires time and effort; however, it can be gratifying for successful traders, especially those who want to be their own boss. 

Benefits of day trading

• Investors can set their own goals and work at their own pace;

• There’s no overnight risk, which is real, especially in stock and commodity trading;

• Potentially big profits and ideal conditions for leverage positions;

• The possibility to get good returns even in bear markets;

• Faster returns on investments;

• Disciplined and experienced traders can allocate little daytime and be profitable with only a few trades, early in the morning, for instance, and have the rest of the day free; and

• The learning curve can be infinite since there’s much to learn in technical and fundamental analysis for the curious and inquiring mind.

Drawbacks of day trading

• Day trading asset allocation can be too high. Investment rule number one should apply to day trading, too: never risk money you can’t afford to lose;

• Self-discipline can be tough to implement;

• Day trading can be very rewarding but can also lead to significant losses;

• Constant attention to the market. Facing a screen for long hours can be alienating and time-intensive. Stop-losses can be helpful but are not viable solutions in the long run;

• Stress is a potential component and threat of day trading due to the high risks involved in volatile crypto markets; and

• Tax compliance can be burdensome as day trading requires keeping an accurate record of all transactions. Investors must, therefore, also be their own accountants, which can be very time-consuming.

Benefits and drawbacks of crypto hodling

Crypto hodling is a long-term strategy that could provide a safer investment option, especially for inexperienced asset owners. “Sit back, relax and go back to your investment in five years’ time” is often a mantra in financial markets, and the crypto industry is no exception as this is also the hodlers’ motto.

Benefits of hodling

• Hodling removes the need to check price actions continuously; 

• By hodling, investors avoid the stress and risk of dealing with short-term cryptocurrency volatility and increase the chance of enjoying long-term value appreciation;

• Emotions like FOMO and FUD are minimized; 

• Hodling can result in massive profits, typically within the range of only a few years in crypto. For instance, if you bought Bitcoin in the spring of 2020 at ∼$5500 and sold it in the autumn of 2021 at ∼$65000, the return would have approached 1100%. It’s very unlikely to get such a high return on an investment within only a few months with any other asset; and

• Hodling allows investors to defer their tax liability. At the same time, they can keep more money invested and increase the chance to grow their capital much faster if the value of the cryptocurrency keeps rising.

Drawbacks of hodling

• Hodling through bear markets can be tough, and investors should resist the temptation to sell, especially at a loss;

• Investors must ensure they have sufficient capital at their disposal in case of forced sales or unexpected liquidity needs;

• Hodling can still be risky. Even though a few cryptocurrencies like Bitcoin and Ethereum are established investment assets, their history is still too short to ensure investors of their long-term value. Cryptocurrency regulation and future mass adoption are still too uncertain to regard digital assets as sound and reliable investments;

• Security might be a higher risk for long-term hodling. Investors should learn how to secure their assets with the self-custody and privacy tools at their disposal to avoid common cyber theft and hacks.

• There is a higher risk of losing access to private keys, which are essential to assets’ protection.

Having exposed the pros and cons of day trading and hodling, investors might also consider that both options could apply to their investment strategy. Indeed, many are both day traders and hodlers to grow their portfolios.

Should you hold or day trade during a crypto winter?

While bear markets can be daunting, many view them as opportunities to increase portfolio sizes, build a plan for future gains and spend time researching and learning more about investments.

Hodlers might want to keep hodling during a crypto winter, and day traders should keep trading and take advantage of the likely higher volatility of markets. Many learn more techniques and start using additional technical indicators through bear markets as emotions like FOMO are minimized. The focus can be put on building more wealth, enjoying life and investing in oneself.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.