Digital currencies have seen quite a profitable year for investors, with several coins reaching all-time highs, a trend set by Bitcoin (BTC) and Ethereum. Those who have kept a watchful eye on crypto market news and witnessed the recent price spikes may be interested in trying their hand at their first crypto investment or thinking about trading within the crypto space.
While investors can purchase digital currencies with fiat (government-issued, standard currency), there may be some advantages to crypto-to-crypto transactions.
What is Crypto-to-Crypto Trading?
Crypto-to-crypto trading refers to the practice of trading or exchanging one cryptocurrency for another.
The value of fiat currency remains relatively stable compared to cryptocurrency, which could fluctuate every second. Experienced traders can improve profits by prospecting the varying prices of cryptocurrency and trading between them.
For example, if you have $100 worth of BTC and $100 worth of Ethereum, and one cryptocurrency drops by a dollar in value while the other rises by the same amount. You may be able to trade one for the other to net a $2 profit.
Crypto-to-crypto trading is highly suited for investors who intend to speculate to potentially make a short-term profit. A coin-for-coin exchange lets investors trade in the volatile crypto world without ownership over exchanged digital currencies.
Ultimately, digital currency trading can be highly profitable with the proper research, strategy, and experience.
Why Trade Between Cryptocurrencies?
1. Profit From Market Movements
Crypto-to-crypto trading helps you take advantage of market movements in both directions (i.e., spikes and downtrends) to make a profit. For example, some investors may short the market by borrowing cryptocurrency at a high position and selling it at the current price. Investors repurchase and return the borrowed amount during a price dip and keep a profit.
Short-selling comes with its fair share of risks. For example, lenders may recall borrowed assets before the price dips enough for you to make a substantial profit, or crypto prices may soar, resulting in a steep debt. It is essential to always check your lender’s specific short-sell guidelines before finalizing an arrangement.
Investors may also benefit from the conventional trading method, purchasing cryptocurrencies at a low position and selling during uptrends.
2. Avoid Missing Bullish Runs
Bullish runs refer to periods of high confidence in the crypto market, which sees increased purchase demands and rising cryptocurrency prices. Price spikes may occur for short windows, and the transfers between cryptocurrency and fiat may result in missed selling opportunities.
Specifically, individuals would sell their assets (i.e., cashing them out to fiat currency) at the earliest signs of a bullish run, only to miss out on a further spike.
Additionally, a bullish run includes fluctuations, dips, and corrections that traders may misread as the start of a bear market (where cryptocurrency prices fall as traders sell their assets with reduced market confidence). Coin-for-coin trading keeps investors within the crypto market, giving them the flexibility to transfer investments through various currencies in response to market trends.
3. Insights Across Multiple Crypto Exchanges
The price of digital currencies differs across exchanges due to varying transaction fees. Specifically, crypto exchanges charge a transaction fee for crypto to fiat (and fiat to crypto) trades. These fees may place investors at a profit disadvantage.
Alternatively, by trading between cryptocurrencies, investors can choose to make a transaction with their preferred crypto, preventing pricey conversion fees.
4. Improve Liquidity
Markets can be unpredictable, and sometimes investors need quick and effective liquidation to purchase hard assets or pump an IRA. Crypto-to-crypto trading offers optimal liquidation rates since investors may cross-check pricing from multiple exchanges. While the crypto market is highly volatile, trading between cryptocurrencies can help reduce the pressure on a single traded currency.
The risk of loss in cryptocurrency-related investments can be substantial. It is important that you fully understand the risks involved, that you have adequate financial resources to bear such risks, and that you monitor your positions carefully. We do not provide you with any investment advice. If you are in any doubt about the risks involved with your account, you should seek professional advice.
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