Benefits of Holding VS Trading Crypto
If you’re new to the crypto world, you may consider your options for generating rewards in the long run or making a quick buck in the short term. Both options can offer rewards on your investment if you know how to apply your investment. You can spot-trade to make quick returns or hold your crypto and generate long-term rewards through staking or liquidity farming. Here’s a quick look at these options.
Spot Trading Crypto
Spot trading is when you trade immediately and in cash, and the trader makes money when the price of a particular asset goes up or down. The advantages of this method include:
- You can make money when the price goes up or down
- This form of trading does not require any knowledge about technical analysis or charting tools, as all decisions are based on fundamental factors that influence the market.
- You can use leverage to increase your profits if you correctly predict how an asset will perform over time.
Though this is an excellent option for quick returns, you need to be able to quickly and constantly track the value of your token. The Ether, Solana, or Bitcoin price at any moment is determined in part by the total number of tokens in circulation.
If you’re not ready to try spot-trading, you can hold your tokens and invest them in a stake pool. While the Bitcoin price may make it a desirable token to participate in, you will most likely see a much higher margin of rewards when staking with a relatively new token with a growing stakeholder base. Staking is allowed through proof-of-stake blockchain models, which enable token holders to act as nodes on the network. Each epoch randomly selects these nodes to verify a block of transactions within the network. As an investor in that particular token and blockchain, you can stake your crypto with one of these nodes and earn a portion of the rewards. The more tokens you have staked in a particular pool, the greater the rewards you will receive. As the pool grows, it will be more likely to be selected to verify blocks in the future. Before you stake your tokens, do ample research to find your best stake pool. The success of staking depends on the reliability of your node operator. If your node operator does not verify the block in time, all stakeholders within the pool will lose coins as collateral.
Yield or liquidity farming is another excellent way to hold your tokens and generate rewards. You can join a liquidity farm through a dApp that allows you to lock your coins into a pool via a smart contract for a specific period. During this time, your tokens will be lent out to borrowers on the network in return for fees or new coins. There is a risk with liquidity farming, as with any form of lending. You can check the health of a liquidity pool by its TVL (total value locked). The more tokens locked into the pool, the greater the likelihood of successful farming.
Incentives for Holding New Tokens
Another way to generate rewards from holding tokens is by investing early on in a new coin. Many new tokens are designed with specific incentives for new investors who hold the token and participate in the blockchain associated with it. These strategies help to increase participation in specific cryptos and exchanges. If you invest in the FTX Token, for example, you can receive random airdrops of SRM tokens to utilize on the new Serum DEX. You can also receive discounts on all exchanges across the FTX platform and an opportunity to join the FTX DAO, a decentralized digital community of FTT stakeholders.
There are many benefits of spot-trading and holding your crypto investment. Consider your financial goals and decide which option is best for you. There’s never been a better moment to start earning rewards through crypto.