Any investing style in cryptocurrencies comes with its unique advantages and disadvantages. For example, some aspects of simply ‘HODLing’ (buying and holding) are much simpler than trading the price of crypto using an exchange or broker. While mining crypto allows you to own it with no intermediary, the costs to operate and maintain any mining rig are significant.
Whichever method that an investor uses, the common thread is acquiring sufficient and relevant knowledge to be successful. As with any investment vehicle, one must always invest what they can afford to lose. We could argue that there are variations to investing in this instrument, but we can broadly class the methods into three separate pillars:
- HODLing/buy and holding
- Trading online through a brokerage or exchange
- Mining (hardware or cloud mining)
Every method speaks to different types of investors. Each investor needs to know what they aim to achieve with a specific approach.
Buying and holding is the simplest of all three methods as it involves only passively checking the price of the instrument. We can simply buy at an exchange or broker. The initial work only occurs before the buying, though notwithstanding that it needs to be very well-researched and carefully planned. We should think of buying and holding like value investing in stocks. There is a lot of homework that goes behind the ultimate decisions. Buying and holding is a much more long-term investment strategy and is not suited for all kinds of people.
The time horizons for this strategy are usually several years, and they work better when the investor buys a particular instrument at its cheapest. In these cases, the instrument may be relatively obscure but displays massive future potential. The masses all look upon bitcoin’s growth in the last five years as an example of a classic buy and hold that would have worked tremendously.
Ever since its peak in 2017, enthusiasts have looked upon several cryptocurrencies and even bitcoin itself to hopefully emulate some of its unprecedented returns in the near future. Another advantage of buying and holding is that it only requires a one-time investment.
Trading online through a brokerage or exchange
Trading online through a brokerage of exchange is probably the most popular method for investing in crypto. Using this method allows for a more detailed and involved approach to understanding what’s currently driving the markets and can alert you to any possible events that may significantly affect prices. Trading online requires investors prepared to give more time to the necessary knowledge to trade the markets responsibly and profitably.
Thus, the time involved makes it more suitable for those who can spend time regularly trading. Trading online is almost like a career to some that allows anyone to dabble in many other fields of crypto where they can share their knowledge in numerous ways such as speaking, writing, marketing, education, etc.
These are some of the primary benefits of using this approach, which is one of the main reasons for its favour. Unlike long-term buying and holding, you don’t have to invest for lengthy periods, allowing you to make great returns over a shorter period. This ability to profit means you don’t tie up your investments in one instrument for very long, allowing you to create other investments simultaneously. However, this doesn’t mean you can’t also buy and hold through trading online.
Aside from the complex knowledge needed, it can also cost more money to succeed in trading. This realization is probably the other disadvantage in this regard. The imminent risk element is another glaring disadvantage with trading, reinforcing that the best education and experience is what’s needed to prosper.
Mining (hardware or cloud mining)
Mining crypto is a fascinating approach to investing here. The most apparent advantage of mining is you practically own the crypto straight from the source with no need for an exchange. The biggest attraction is you are creating the currency in your capacity with no go-between.
Over the last few years, it’s been common knowledge that mining has become increasingly difficult due to the fierce competition and the expensive costs of equipment. Unlike buying and holding or trading, the biggest detraction of mining is the exuberant upfront and maintenance costs. An increased barrier to entry and the competition makes mining slightly riskier.
Mining has been more favorable, not just for the wealthier folk, but also for those in cooler climates and who live in nations with the cheapest power. There are more factors to meet even to have a chance at worthwhile mining that you don’t face with the other two methods. The halving of many cryptocurrencies in the coming years will further add to the complexity and difficulty of mining.
Some current miners are already feeling these effects. No one truly knows the future of mining and how sustainable it can be considering the costs and the volatility of the markets. Analysts have even made logical claims that just buying crypto from an exchange is much cheaper.
One of the solutions for all these problems is cloud mining. Though this type of mining removes the bulk of expenses, its low familiarity makes it susceptible to scams since it’s still a relatively foreign concept.
As we can see, the crypto world offers its participants distinct ways to get involved. Traditional buying & holding and online trading are arguably the cheaper options depending on what one can afford to lose. Mining seems to be reserved towards wealthier computer geeks or people involved somehow in the computer field with better access to the equipment required. Looking at the upfront costs, mining is probably the more expensive of all three, but for some, it may provide better returns over time after accounting for the expenses. Either way, the investing game is all about managing risks and investing money you can afford to lose.