Crypto to Crypto Trades vs. Crypto to Fiat and vice versa!
A lot is happening these days. As of 16 of May 2019, the current bitcoin price is $8,054.50, or R114,260.73. And just a month ago it was $3,500 or R49,650. I am not sure how many of you have invested and bought back then, but congratulations to those of you who did. You managed to double your investment. But that’s pure luck. Admit it. In this article, I will express a few scenarios of how to trade a little more securely. Give up a few minutes to also read How to Dollar-Cost Average Buy and HODL Cryptocurrency Like A Boss.
Crypto to FIAT Trades
At the end of the day, all of us invest in crypto in order to get a return in fiat, because for now all the countries and their government are still using fiat as a currency. No one knows what will happen in the future, but for now, the banks and governments are furiously fighting against cryptocurrencies and try to keep their currency as centralized and fiat. The best way we all know how to make money is to buy crypto for an X amount of fiat and in time, to sell it for way more with a little bit of luck. That is the real deal. But it does not always happen like that. Let’s look at the King as an example, Bitcoin. At the end of 2017, it reached $20k. Many fell into a trap and furiously started to buy when the prices were that high. Many got a loan from the Banks to buy bitcoin and then sold them, returned the loan and cashed out the rest. Which, again didn’t work. Why? Because the prices dropped to rock bottom – $3,500.
That’s why we say, it is an investment. And you better invest only the money that you are willing to lose. Or, if you invest, better be with money that you won’t need sooner or later. Therefore, you can be a proud HODLer and wait the right time to sell (if it comes).
Without repeating ourselves, I will point out that we have a dedicated article about Cryptocurrency arbitrage opportunities between exchanges. I am highlighting this again to raise awareness about arbitrage because people still don’t understand it very well. Or, it’s like they refuse to understand it. Now, in a short summary, arbitrage means buying in one location and selling it for more in another location, like between exchanges. But most of the times people want to buy first, then transfer their funds and then sell for cheaper. This is a so-called safer trade for them. But, in reality, this is not how it works. Now, to be successful in the actual arbitrage you should have both FIAT and crypto in more than one exchange. When there is a difference, let’s say at cryptocurrency exchange A the bitcoin price is 10,000 and at crypto exchange B, it is 9,950, then what you actually need to do is sell at A while at the same time buying at B. Not selling, transferring and then buying. You need to keep in mind the costs of the transfers when you analyse if you are going to benefit from the arbitrage! Like I mentioned, read the article for a more detailed explanation: Cryptocurrency arbitrage opportunities between exchanges.
Crypto to Crypto Trades
Here we go, the last nail in the coffin. In my personal opinion, the best trades for the long run are crypto to crypto trades. Let me give the reason why. Let’s explore the situation where you have R100,000 and you invest them in a bitcoin. Let’s say at that time and for that price now you have 1 BTC. In time price goes up, you sell and when it goes down, you re-invest and this time you have 1.5 bitcoins. Perfect, but what if the price goes down significantly and now 1 BTC costs R30,000? Even with your 1.5 BTC, you are in a huge loss – with your actual investment.
Let’s think a bit for the scenario for crypto to crypto trading. Now, let’s get the example BTC to ETH. At the time of writing, you may buy 1 ETH with 0.03322 BTC. If you look at this trade you will quickly get what I mean. What you actually do is keep yourself into cryptocurrencies but spread your risks. Even if one of those two prices go down you’ll still have one option that may go up with the price and not end in have nothing in your hands because of the diversification. So it’s not like losing or winning, but actually 50% more in winning, as you’ll still have another option to sell for FIAT. Now, for me, this is a bit safer than working with just FIAT to Crypto, Crypto to FIAT trades.
As I like to say, at the end of the day it’s up to you and your preferences. Some will say my words are lame and insensible, others will like them and others will be like “whatever”. It’s your call and you need to do your own research in finding your niche as a trader, or HODLer.
So, do you trade and if you so, what type of trading do you prefer? Are you an arbitrage fan?