As of 2021, there are approximately 6000 cryptocurrencies available, with the top 20 making up nearly 90% of the total market. There’s no denying that the emergence of this new class of assets has changed the investment landscape in the past few years. The global cryptocurrency market size was estimated at $1.4 billion in 2020 and is anticipated to reach $4 billion by 2030. With the increasing popularity of digital assets, more people are jumping into cryptocurrency trading than ever before.

As it can be expected, there are both advantages and disadvantages when buying and selling crypto. A lot of people argue that crypto trading is nothing more than a form of gambling. Critics cite high volatility, unpredictability, and potential for large losses to place cryptocurrencies in the gambling category. However, just because there are certain similarities between crypto trading and gambling it doesn’t mean we should equate the two.

The simple truth is that cryptocurrency, just like any other type of asset, can be both an investment and a gamble. It’s the strategy people use when managing their assets that makes the difference between these two activities. Whether you’re investing or gambling, it all depends on your approach to crypto trading. So, in order to shed a bit of light on this matter, we’re going to discuss a few aspects that can help you tell the difference. 

Goals

The first aspect that can differentiate gamblers from investors is the purpose of their activity. It’s true that the ultimate goal when trading crypto is to make money, but not everyone employs the same strategies to achieve financial gain. While gamblers are looking for short-term gains, investors are in for the long ride. If you’re trading crypto with the sole purpose of getting rich overnight, you’re just gambling, not to mention that you’ll probably be extremely disappointed with the results.

Investing in crypto, on the other hand, requires careful planning and creating a long-term strategy, which is definitely not as exciting as gambling. In fact, it can be quite boring, as you have to put in a lot of time and effort to calculate each move you make.

Risk management

Both gambling and investing imply a certain degree of risk. Even with the right skills and knowledge, there’s no guarantee that you won’t lose money when trading crypto, as you can’t eliminate risks altogether. But it’s how you manage these risks that determine the type of activity you’re performing.

People who think nothing of taking high risks such as spending all their precious savings to trade crypto can be considered true gamblers. Those who play it safe and assess risks before making any crypto-related decision can call themselves investors. An investor will take the time to evaluate his financial situation and calculate how much money he can afford to lose when trading crypto. Avoiding rash decisions and being well informed ensures proper management of risks. 

Types of cryptocurrencies

Since there are so many cryptocurrencies on the market right now, it’s quite obvious that not all of them are created equal. We’re not going to go into details on which cryptocurrencies are better and which are more dangerous, but this is an important aspect to keep in mind if you plan on trading cryptocurrencies.

Unlike gamblers, investors are well aware they have to perform thorough research and learn about each cryptocurrency’s pros and cons. For example, trading gold-backed cryptocurrency can be a much safer option than trading regular crypto, as fluctuation in gold price is very low. Gamblers usually base their decisions on how popular a cryptocurrency is at a certain time, without taking into consideration other aspects. The bottom line is, if you’re not keen on gambling, you have to choose your cryptocurrencies wisely.

Diversification

Any skilled investor knows that it’s not wise to put all your eggs in one basket. In other words, relying on only one class of assets to build wealth is not the smartest thing to do. What will happen if you invest all your money in crypto and then one day the prices suddenly drop? The all-or-nothing approach that is specific to gamblers can lead to some disastrous financial consequences.

If you’re planning to make smart finical investments, you’ll have to look beyond crypto and search for other investment opportunities to diversify your portfolio. Trading different types of cryptocurrencies doesn’t count as diversification. You have to invest your money in other types of assets as well. This will help you minimize the risk of loss, increase your opportunities for return, protect you against unexpected market downturns, and reduce volatility.

Education

Gamblers usually have no interest in expanding their knowledge on crypto because they’re not looking for long-term wins. They just want to win the bet and make quick money. That’s not how investors think. In order to turn crypto trading into a profitable investment, you have to stay up to date with the latest news and information in the crypto market.

Most investments have a high degree of complexity, and investing in crypto makes no exception. Since this is an ever-changing field where innovation is the only constant, the volume of information you need to process is quite high, so you have to keep your eyes and ears open and learn as much as you can on the topic. Otherwise, you’ll rely on sheer luck and that’s not always going to work in your favor.

Backup plan

Another thing that investors do differently than gamblers is that they hope for the best but plan for the worst. Savvy investors will always have an emergency fund or a backup plan in case all their investment plans fail and they lose all the money they’ve put into crypto trading and other types of assets. Gamblers usually consider planning for worst-case scenarios a waste of time, so they won’t have a plan B in place if their crypto trading goes downhill.

The crypto industry is still in its infancy, so no one can tell for sure what the future holds for crypto trading. But one thing’s for sure: if you want to maximize your chances of success as a crypto trader you have to think like an investor, not like a gambler.