Rationale for short-term vs. long-term crypto trading
Although cryptocurrencies were initially designed to replace the functions and institutions of traditional finance (TradFi), they also provide an ability to generate profit.
Looking at coverage by media outlets and online chatter, the most prevalent discussions about crypto often involve digital asset valuations and how they change over time. This is because the inherent volatility in the still-nascent crypto market—as compared with more established markets—is seen as offering an opportunity to make money.
Asset volatility has always drawn interest from traders. Volatility implies an inefficient market, which means prices may not reflect the true value of assets. Inefficiencies can be leveraged to “buy low and sell high,” so it is no surprise that short-term traders have jumped into crypto markets. These traders may focus on buying and selling cryptocurrencies based on same-day price variations (day traders) or other relatively short-term periods over days or weeks (swing traders), with the goal of capturing low valuations and subsequently cashing in on high ones.
Meanwhile, those who make long-term trades are often called investors (rather than traders), as they buy and hold assets for months to years before selling. In crypto parlance, they may also be called HODLers. Long-term crypto trading is rooted in the belief that certain digital assets have fundamental value because of their economic features and utility, and that their value will increase over time.
Of note,
Day trading crypto: a short-term investment strategy
With the advent of consumer-friendly trading platforms and lower (or even no-cost) transaction fees, day trading has become more popular in recent years.
This involves buying an asset or other financial instrument, and selling it seconds, minutes, or hours later—all on the same day. Day trading is typically used for assets with more volatility, because these can experience large changes in price over short periods of time. However, traders do not typically trade with assets they wish to keep for a long time. For example, day traders would be more likely to day trade memecoins over Bitcoin. Therefore, day trading is more aligned with speculation than investment.
Crypto day traders typically use technical analysis to identify patterns in the price trends of coins and tokens. They may note bullish or bearish divergence using a graph of BTC’s price and its RSI (a marker of momentum) over the course of a few minutes, and this could imply that the price will break one way or another.
Day traders use multiple indicators of price, volume, momentum, and time to make decisions about buying and selling crypto. They may use some combination of centralized exchanges like Bitstamp and decentralized exchanges like Uniswap and SushiSwap.
Between very-short-term trading and a longer-term buy-and-hold strategy is swing trading. This is an intermediate-term strategy that may combine some of the rationale of day trading and the longer outlook of HODLing (below). Swing traders usually hold onto assets for days to weeks.
HODLing: a long-term crypto investment strategy
The term “HODL” originated with a post on the BitcoinTalk forum in 2013, when a user proclaimed in the subject line of their post: I AM HODLING. The user intended to say “holding” but clarified: “I [typed] that [title] twice because I knew it was wrong the first time. Still wrong. w/e”, accepting the misspelling and unknowingly creating a lasting meme. Their mistake turned into a common way for crypto users to assert that they are buying and holding cryptocurrencies and investing in them for the long run. HODL was later repurposed as an acronym meaning Hold(ing) On for Dear Life, but this was not the original meaning.
HODLers are longer-term crypto investors who believe in the enduring value of digital assets and their appreciation over time. They prioritize investment over speculation, accumulating crypto like others invest in stocks and bonds as part of a well-rounded portfolio.
Generally, they hope to build wealth over longer time horizons. HOLDers evaluate cryptocurrencies based on fundamental (rather than technical) grounds, assessing token economics (e.g., inflation and supply/demand factors) and the utility of coins within their respective decentralized networks.
Balancing investing strategies
Some people who trade cryptocurrencies stick to short-term strategies, while others consider themselves pure long-term investors. Both strategies are not without risk due to the general volatility of cryptocurrencies.
However, the two strategies and types of traders are not mutually exclusive. There are certain assets that are traded mostly with short-term goals (e.g., memecoins) while “blue chip” coins like BTC and ETH are more often held for longer periods of time. Traders may use different strategies with different assets and/or in different market conditions.
Summary
Crypto day trading is a short-term strategy designed to capitalize on minute-to-minute or hour-to-hour volatility.
HODLing—originally a misspelling of “holding”—is a trading strategy that more closely approximates investing, prioritizing strong fundamentals of cryptocurrencies and holding assets for longer periods of time.
Short- and long-term trading strategies are appropriate in different circumstances for different traders, and these strategies are often deployed together to create a complete approach to the complex crypto market.