The unstoppable rise of bitcoin (BTC) has been so stark that even countries, such as El Salvador, are introducing the decentralized currency as legal tender.
It’s not too late to join the party, and when choosing the right cryptocurrency exchange platform, you will have access to an extensive array of coins and tokens with which to trade.
But there’s one question that puzzles many newcomers to cryptocurrency trading: Should you use your fiat currency to trade with, or should you invest in coins first and use those as your trading capital?
Fiat currencies are those used to buy goods and services in your country, be it Australian dollar (AUD), US dollar (USD), British pound (GBP), and so on.
So this is the most accessible way of investing in crypto for many people. It enables you to connect your bank account or a credit card to your chosen trading platform and simply acquire bitcoin, or any other coin for that matter, in the usual fashion.
With several quality crypto exchanges and brokers available these days, fiat-to-crypto investing is a solid and reliable experience that is not unlike investing in any other asset online.
Another option for trading cryptocurrency is to hold one coin and then exchange it for another when the time is right.
For example, you might invest in BTC at a particular time and enjoy a healthy return on your capital. At this point, rather than selling for fiat currency, you could invest in another coin, let’s say ethereum (ETH), in the hope that that enjoys a price jump, and you benefit once more. The chain then continues as you invest in other coins again and again.
If you want to trade crypto-to-crypto using a less volatile base currency, you could always make a stablecoin your go-to option as a form of investing insurance. These coins, such as Tether, are pegged against an external market force, such as USD, to lessen the almost violent price swings that other cryptocurrencies can experience.
With a stablecoin as your crypto-to-crypto trading base, you get to enjoy a more reliable asset that enables you to invest in BTC, ETH, and company at the right time – switching back to Tether when the crypto market suffers one of its regular periods of volatility.
Fiat-to-crypto vs. crypto-to-crypto: which is best?
Ultimately, your personal circumstances and preferences will determine which route to take in your crypto investing.
The beauty of fiat-to-crypto transactions is that they are an excellent way for newcomers to enter the market. They can buy crypto using their bank account, credit card, or e-wallet, and then when the time comes, sell their coins and withdraw funds back to their bank using the same method.
To that end, using fiat is a suitable method for trading cryptocurrency when you expect to be in the market for only a short period, where you only have interest in one coin, or when you are simply testing crypto trading.
If you are planning to trade crypto for the long term and are knowledgeable about several different coins and when they might be about to experience a price change, trading crypto-to-crypto is a way that you can maximize your returns; exchanging one high-performing coin to invest in another that you believe is set for an upturn in value.
Or, if you want the added security of a coin that is linked to a recognized market instrument such as USD, a stablecoin like Tether allows you to enter crypto-to-crypto trades with the peace of mind of knowing that your base investment is on a more secure footing than the ever-fluctuating price of bitcoin and its contemporaries.
It is quicker to trade crypto-to-crypto than use fiat currencies. You are already up and running with an exchange when you have an investment in a coin. With fiat-to-crypto, you may have to wait for your bank or payment processor to process a deposit request; this takes time, and your trading opportunity may have already passed by the time the funds are in your account.
Interestingly, some cryptocurrencies enjoy a return just for holding them so-called ‘yield farming.’ In some cases, this will see a more significant return-on-investment on your capital than a savings account at the bank; as ever, do your research. So in that sense, holding crypto to trade with, rather than fiat, can be the smart play.
But, as we have learned, whether to action crypto-crypto trading or fiat-to-crypto trading ultimately depends upon your personal tastes and investing goals.
Photo Credit: 123rf.com