Cryptocurrencies: Trading Vs Investing in Futures


In the world of financial speculation, there are two types of participants: traders and investors. Decades of historical results have proven that it’s very difficult for a person to be both a great trader and a great investor, virtually impossible, in fact. It’s actually quite rare to successfully conquer even one category. Let’s take a look at trading vs investing and whether it’s possible to be both a trader and investor.

Trading vs Investing

So, what are the main differences between trading vs investing and what does it take to become profitable at either? What special characteristics do these disciplines have in common? What’s the best strategy and which markets offer the best opportunities? Let’s start by examining the various markets that are available for trading and investing.

Cryptocurrencies Offer a Great Opportunity for Trading and Investing

The global investment community recognizes five major asset classes. The list includes stocks, bonds, commodities, cash, and alternative investments. Thanks to Satoshi Nakamoto, a sixth asset class has recently emerged on the scene.

Of course, we’re referring to cryptocurrencies, also known as digital currencies. It’s only a matter of time until cryptocurrencies are officially recognized as a major asset class.

The Wall Street community is beginning to embrace cryptocurrencies as a legitimate vehicle for trading and investing. This type of endorsement will definitely enhance the relevance of the crypto universe.

Although Bitcoin and other cryptos have been in existence since 2009, daily trading volume remained very light until BitMEX launched its cryptocurrency futures exchange in 2014. During the past five years, volume has exploded, partially due to interest in trading and investing in futures contracts for cryptocurrency.

Based on data provided by CoinMarketCap, it’s not uncommon for daily volume to exceed $15 to $20 billion. This figure includes the volume on the spot market as well as derivatives volume on the BitMEX exchange. There is clearly a large market for futures investing.

In addition to spot volume and derivatives volume at BitMEX, the CME and CBOE launched Bitcoin futures contracts in December 2017. According to data obtained from both exchanges, daily volume is in the neighborhood of 3,000 to 5,000 contracts per day. The average daily volume of the market for futures investing has been rising on a regular basis for the past 13 months.

If we include volume from all exchanges, it becomes quite clear that cryptocurrencies offer plenty of liquidity for trading and investing. In fact, among all major asset classes, a strong argument could be made that cryptocurrencies provide the best opportunity for traders and investors. Why?

Because cryptos are currently the most freely traded market on any domestic or foreign exchange. In comparison to other assets, cryptocurrencies are a brand new vehicle for the trading and investing community. Consequently, this asset class has not yet been manipulated by the Wall Street community and other professional investors.

Becoming a Successful Trader and Investor

As we previously discussed, it’s virtually impossible to become both a successful trader and investor. Therefore, the first step is to look at trading versus investing and determine which category is best for you. As a general rule, traders use a short-term approach. Investors use a long-term approach.

For example, Adam Todd, the founder and CEO of Digitex Futures, was a successful pit trader at the LIFFE Exchange. The majority of Adam’s trades would only last a few seconds! In fact, the main reason Adam launched Digitex was to create a new market for futures investing and provide traders with the opportunity to trade on a commission-free platform.

If you asked Adam how he felt about trading vs investing, he would probably tell you that he is more comfortable being a trader instead of an investor. Trading fits his fast-paced lifestyle. Investors have a completely different set of characteristics. They are long-term thinkers. They prefer to look at the big picture and examine the macro view of their investments. They perform best by using a “buy and hold” approach.

Whether you choose to become a trader or an investor, it’s critically important to develop patience and discipline. These are the two most important characteristics of all successful speculators, whether they are trading cryptocurrency or investing in futures. Without patience and discipline, you have very little chance of achieving profitability.

Successful Trading and Investing Strategies

Arguably, the best book ever written concerning successful trading and investing is Market Wizards by Jack Schwager. In his book, Schwager interviews some of the most successful market speculators of all-time. He allows each person to describe a few of their most profitable strategies.

Schwager was surprised to learn that all of these world class speculators had one thing in common concerning their trading strategy: “simplicity.” Each of these world-famous traders and investors used very simple trading strategies.

Most people would assume that the best speculators in the world would be using some type of sophisticated trading system with dozens of different complicated indicators. This is simply not true. As a general rule, the best trading strategies are usually straightforward with a few basic indicators.

During his interviews, Schwager also discovered that most of these world-class speculators used a trend-following approach. Additionally, approximately 70% of Schwager’s group considered themselves to be investors instead of traders. They were more successful following a long-term trend following approach.

For those of you searching for a simple trading strategy, a good place to start is by following the trend of the market. The best way to accomplish this task is to use a simple moving average. As an example, please review the chart below.

[caption id="attachment_3104" align="aligncenter" width="1080"]Chart Two false breakouts in 2018. Source:[/caption]

This chart covers the price of Bitcoin over the course of the past 12 months. A simple 50-day moving average has been added to the chart. The best crypto strategy for using this approach is to buy when the market is above the moving average and sell (or sell short) when the market is below the moving average.

As you can see, this approach has worked quite well during the past 12 months. There were two “false breakouts” in May and August, which would have created a losing period. However, the overall results are positive.

This strategy will keep you on the right side of the market. It will prevent you from missing the “big moves” which usually occur a few times per year. Of course, using a moving average is certainly not perfect. For example, this approach will perform poorly when a market is stuck in a trading range. It will perform best when the market moves in the same direction for an extended period of time (e.g. 2018).

Always remember, the best trading and investing strategies are usually simple and rather boring. Generally speaking, traders and investors have a tendency to overcomplicate their trading approach. This type of trading method usually results in frustration and losses. Keep it simple and follow the trend!

Trading vs Investing: Which is DGTX Designed For?

During the past few months, DGTX has experienced several volatile price moves. The token generated an all-time high on October 14, 2018, at over 14 cents per token. A few days ago, on January 16, DGTX temporarily dropped to $0.0244. This represents a trading range of 84.8% over the course of 90 days.

Some crypto speculators might be tempted to trade DGTX in an effort to capture a portion of the short-term price fluctuations. However, it’s probably best to avoid the temptation. As a general rule, tokens derived from an Initial Coin Offering (ICO) were not designed to be traded on a short-term basis.

ICO tokens are typically thinly traded with relatively light volume in comparison to large cryptocurrencies. Traders who attempt to participate in short-term token price movements are usually disappointed with the results.

When it comes to trading versus investing in terms of DGTX, the best approach is to allow the native token to potentially appreciate in value over a long period of time. Therefore, DGTX should be treated as an investment, as well as a necessary component for anyone looking forward to investing in futures on the Digitex Futures exchange.

As investors, we should provide the extraordinary team at Digitex with the necessary time to create a world-class futures trading exchange. The best strategy concerning DGTX is avoiding the day-to-day noise that often accompanies ICO tokens. Instead, focus on the “big picture” of DGTX by investing for the long-term.

Personal Observations

Despite the massive bear market during the past 11 months, the Digitex token (DGTX) still remains well above its ICO price from January 2018. This is a testament to many of the brightest minds in the crypto space working at Digitex in an effort to launch the industry’s first fee-free futures exchange.

In terms of technological innovation, we are living in one of the most exciting time periods of the past few centuries. And Digitex is right in the middle of the action!

Full disclosure: I own DGTX.

Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.