Any day trading activities involve taking significant risks to achieve big rewards.
Day trading crypto is similar to stocks, bonds, or mutual funds. Your goal is to take advantage of the market’s volatility to purchase and sell when it’s most advantageous to you. Instead of holding onto the assets, you’re seeking short-term gains.
Crypto day trading can offer significant opportunities because of its volatility. It can also deliver shocking results that cause investors to lose virtually everything. That’s why it is essential for everyone to determine if this technique is worth it for them.
Is Day Trading Crypto Worth It?
Day trading cryptocurrencies can be a lucrative money-making opportunity. It is also one of the most high-risk ways to interact with this financial asset. Understanding the details of how crypto gets traded daily is crucial to being able to create long-term gains. The goal is to take advantage of significant price swings while buying low and selling high.
The primary starting point for trading crypto is to own some of your preferred currency. Most people choose Bitcoin or Ethereum, but there are over a 1,000 different choices to consider.
If you don’t have any cryptocurrencies in your possession, the easiest way to start is to open an account with a centralized exchange. Several platforms are available for this purpose.
However, it is best to keep the coins in a hardware wallet that you control. The best one so far is the Ledger Nano X.
You’ll need to fund the account with your local fiat currency (dollars, pounds, euros), then purchase your preferred cryptocurrency.
Once you have crypto assets, you can start the day trading process to see if this form of wealth building makes sense for your needs.
History of Cryptocurrency and the Day Trading Marketplace
The world’s first known decentralized cryptocurrency was Bitcoin, which was introduced to the marketplace in 2009. It was open-source software at the time.
Today, a total of 70 different cryptocurrencies have a market capitalization that exceeds $1 billion.
Crypto’s story begins much earlier than most people realize. Cryptographer David Chaum first conceived of the idea of “ecash,” or electronic cash, as a cryptographic option in 1983. In 1995, Chaum brought this vision to reality by introducing Digicash.
Digicash required people to use software that could withdraw notes from a bank and designate encryption keys before sending it to a recipient. These steps ensured the currency wasn’t traceable by third-party solutions.
In 1996, the National Security Agency published a paper that described a cryptocurrency system much like what is available today.
Today, El Salvador and Cuba have authorized the use of cryptocurrencies for official government transactions. China has taken the step to declare all transactions involving crypto to be illegal.
If you want to pursue crypto as a day trading option, it’s essential to review what the local rules and standards are for your location. Once you know that you can legally proceed, a few additional choices require review to see if this course is profitable.
What Day Trading Crypto Strategies Are Available?
The only difference between gambling at a casino and trading on the open market is an effective strategy for building wealth. Anyone can get onto a lucky streak, but it requires insight and industry knowledge to experience consistent long-term results.
Different trading strategies can apply in various situations, depending on the market’s nature for the day and your current skill levels.
It’s up to you to determine crypto’s performance each day, decide when to buy, or know when to sell.
Here are a few different cryptocurrency trading options to consider implementing if you’re exploring options for day trading.
1. Scalping Strategies
Scalping is a crypto day trading strategy that makes a small profit while conducting a large number of trades. When you get these returns frequently, you get greater returns. It uses significant levels of liquidity to be successful, taking advantage of small pricing changes that happen during a short time.
Most scalping strategies take place within a few minutes each time, but some windows can be only a handful of seconds long.
2. High-Frequency Trading Strategies
HFT, or high-frequency trading, is a technique where traders use price changes that occur in seconds or fractions of seconds to their advantage. They often order dozens of trades per second using software or AI to recognize opportunities, which means the work is beyond what a single human can initiate.
You can have bots monitor the market to recognize crypto opportunities in this day trading scenario. It executes trades continuously while connected to the exchange.
The benefit of this technique is that it can operate on a scale that can build profits quickly. If the technology doesn’t follow the algorithm correctly, you could also lose your portfolio faster than you can shut everything down.
3. Range Trading Strategies
This crypto day trading strategy operates on the assumption that cryptocurrency prices fluctuate within a certain range over a specific time. When price movements occur outside that structure, the odds of an abnormal (and potentially profitable) change about to happen are relatively high.
If the price dips below the lower levels of an identified range, it suggests that the time would be to buy or sell because a downswing is happening. When you buy low, and the price goes higher than the expected range, you’d probably want to do some profit-taking to build your net worth.
4. Technical Analysis Trades
This statistical trading strategy takes a lot more time to implement, but it can deliver huge long-term results when the information is correct. The goal is to uncover trends in the crypto market that support your overall strategy.
Instinct is what guides many day traders in this area. Some crypto day traders use news sources and live website updates to fuel their strategies with this technique.
If you decide to use news and sentiment analysis as part of your strategy, it helps to analyze the sources to understand the general social consensus of specific trades or actions people take.
Why Is Crypto Such a Volatile Option?
Cryptocurrencies see significant fluctuations because the prices are heavily influenced by supply and demand. Different user sentiments can play a role, as can investors who follow their intuition by working with specific coins or tokens.
Media hype even plays a role in the volatility of certain cryptocurrencies.
Bitcoin is limited to 21 million coins. As the circulating supply gets close to this limit, the higher the prices typically climb because it is more difficult to acquire what you want.
When the limit of a specific coin is reached, there’s no longer any profit available for those mining it. That means any actions taken by suppliers or traders will cause potential fluctuations.
In 2020, the top 10,000 investors in the world held one-third of the total Bitcoin resources available.
Most exchanges have limits on the amount of crypto that investors can liquidate in a single day. These caps are in the range of about $50,000, but they can be higher in some circumstances. Those restrictions can limit how much profit you can generate from day trading activities, which is why it often helps to target multiple coins and tokens.
Regulations have begun to be developed for crypto, but this financial asset doesn’t receive as much attention as others that could be in your portfolio. For American investors, the IRS holds the stance that you must pay taxes when using Bitcoin, which means that cost gets factored into its market price.
With all that in mind, there is no limit to how high Bitcoin can reach. It’s volatility in the past decade has gone from a few hundred dollars per coin to over $60,000. If you had an opportunity to buy low and sell high, you’d have plenty of cash available for your retirement – or any other financial needs.
What Are the Pros and Cons of Crypto Day Trading?
Every investment opportunity has different advantages and disadvantages to consider. With crypto day trading, there can be a lot on the line with each transaction.
Before you get started, it’s important to evaluate all the potential pros and cons that could impact your finances.
| List of the Pros of Crypto Day Trading | List of the Cons of Crypto Day Trading |
| You get to be your own boss with this wealth-building technique. You’re in total control of each trading decision, governing your actions over each investment based on your beliefs and instincts. It’s a chance to have 100% personal liberty over your schedule. | Significant tax complications could apply for some day traders. Since these assets are held for long-term gains, you’ll pay up to 37% on what you earn throughout the year instead of 20%. Your actual rate is based on your total income and the specific transaction. |
| Crypto day traders have more than one method to use to generate wealth. You can decide to make a few trades each day, a bunch every hour, or maximize results with dozens in a few minutes. You get to pick the approach that best suits your needs. | Most crypto day traders lose more than they earn when they first get started. When you wager a lot, there is that much to lose – and the stakes can be uncomfortably high when managing cryptocurrencies. |
| Long-term traders have overnight risks that they must manage when picking stocks, bonds, and mutual funds. Will the market crash? Is their equity going to drop significantly? Day trading lets you see the results of your work at the end of the day. | It would be best if you had a lot of capital to use some crypto day trading techniques. If you’re trying to bootstrap your portfolio to have it gain wealth, you might need to start small or look for smarter, more long-term opportunities. |
| You don’t need to meet the minimum balance requirements to use day trading techniques. The amount required to manage stocks this way is enough to buy a car or make a down payment for a new house, which could be lost in a single day. | It requires a lot of research to be active in the cryptocurrency day trading markets. Some investors spend hours in front of their computers, checking the markets and their preferred tokens, to see what the right moves are each day. |
| Crypto offers more volatility than other investment options. That means you have more chances to make trades and find opportunities than you would with the more traditional markets. | A person’s overall success or failure tends to be tied to the current market environment. Although crypto is volatile, it can also go through swings where there aren’t big upward or downward moves. That causes accounts to get churned with remarkable speed. |
Crypto day trading can be advantageous. It’s probably more likely that you’ll get wealthy using these techniques than by playing the lottery or visiting a casino but your mileage may vary.
It’s also true that this trading style can go wrong quickly, creating significant stress for the investor to manage. If you get it all wrong, everything you put into the trade could be gone in less than a day.
Anyone wanting to get involved for the first time would be well-advised to take things slow, find a mentor, and build a solid trading strategy.
What Are the Best Cryptocurrencies for Day Trading?
Although there are nearly 2,000 crypto options and over 20,000 projects to consider in the global marketplace, only a handful qualify as legitimate day trading contenders.
Here are the options to consider in a marketplace that was valued at $802 billion in 2022.
- Bitcoin. The original cryptocurrency offers a market cap of $309.9 billion. It runs on a blockchain, with distributed ledgers solved by solving cryptographic puzzles for proof of work. That makes it a safe option.
- Ethereum. From April 2016 to November 2022, the price of this crypto went from $11 to $1,129. Nothing in the traditional marketplace reaches that level of growth, including the highest-performing stocks. It uses smart contracts that make the NFT market viable. It has a market cap of $138.1 billion.
- Tether. This crypto is backed by fiat currency, making it different than other investment options. It hypothetically keeps a value equal to the denomination, allowing you to get involved in a Forex-style trading atmosphere with less overall volatility.
- XRP. Founded by the people who created Ripple, this crypto is usable on networks that facilitate exchanges of different currency types. In 2017, you could get each coin for 6/10 of a penny. Its price reached $0.37 in 2022, and the market cap is about to his $20 billion.
- Cardano. Although this crypto option is a relative newcomer, it was one of the first to embrace the proof-of-stake validation idea. It expedites transaction times while working like Ethereum to enable smart contracts.
Cryptocurrencies have volatilities that cause some investors to stay away. Conservative investments, such as treasury bonds or CDs, can maintain current value when managed appropriately. They don’t offer the gains that crypto can deliver, which is why day trading is such a lucrative opportunity.
Please remember that market caps are subject to change, and the prices for crypto can vary dramatically in a few minutes.
Should I Be Investing in Crypto Day Trades?
Cryptocurrency is a highly volatile and changeable opportunity that makes day trading a worthwhile activity. The best options provide high liquidity with a significant trading volume. Gains are already recognized as taxable in the United States, so investment decisions should be based on exposure, risk acceptance, and knowledge of the technology.
Several financial industry experts suggest that the average person shouldn’t be involved in crypto day trading whatsoever because of the significant loss risks that exist.
Tyrone Ross, who serves as the Chief Executive Officer of Onramp Invest, suggests that most people shouldn’t even try investing in cryptocurrencies at any level. Although it can work for the right person, especially when there’s crypto asset management technology and software available to use, there are more critical steps to take before getting there.
Ross suggests that young professionals and families should pay down their debt, have at least six months of emergency savings available, and have solid financial goals to reach. If those items aren’t checked off the list, it’s not the right time to be investing in crypto.
Taylor Greenberg, who serves as the Head of Business Development at Allnodes, is less conservative when discussing the pros and cons of day trading with cryptocurrencies. She recommends having a complete understanding of the underlying technology and the assets involved before initiating a trade.
Greenburg suggests learning about the network size, what the blockchain does, and the protocols to follow so that a greater understanding of the investment is available. There could also be governance issues for some traders to manage.
Crypto day trading is extremely risky, so invest only what you can afford to lose. When approaching this work with the same respect one would have for any serious employment opportunity, including learning the assets and craft, some people can create positive outcomes for themselves.
