Reconsidering “Long-term Investment,” “Short-term Trading,” “Volatility,” “Greed,” and “Fear”
The success of a new technology, the acceptance of a new asset, or the viability of a new industry all require time for validation.
The father of Bitcoin, Satoshi Nakamoto, published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008, giving birth to blockchain technology and the first cryptocurrency, Bitcoin (BTC). Over the past 16 years, since I entered the blockchain industry in 2013, the narrative of “Bitcoin is dead” has echoed back and forth amidst every bull and bear market.
Regardless of how many times Bitcoin has been declared “dead” in the eyes of many, its value has consistently trended upwards amidst volatility when looking back at its history. However, in the first decade of Bitcoin’s existence, due to a lack of sufficient data support, it was challenging to prove. Simultaneously, many questioned the narrative of Bitcoin being digital gold, doubting its value storage function akin to gold.
We may never return to thousands of years ago, but did gold also face such skepticism, debates, and attacks before becoming the currency it is today? Gold initiated human monetary civilization, while Bitcoin has opened a new chapter in monetary history. We may be fortunate to witness such a unique era, experiencing this human monetary evolution.
With the approval of Bitcoin and Ethereum spot ETFs in the United States, countries entering an era of significant regulation, the election of Donald Trump as a crypto-friendly figure, and Switzerland considering Bitcoin for national reserve assets, it is evident that blockchain’s emergence has ushered in new technology, industries, and assets. This irreversible trend cannot be ignored, as discussions on it are inevitable, arousing curiosity and influence in everyone.
The real-world applications of blockchain technology still have many unexplored areas. Its initial successful application was cryptocurrency, which, after over a decade of development, has become a significant investment option and asset allocation choice. This moment prompts us to reconsider the best practices of “long-term investment,” “short-term trading,” “volatility,” “greed,” and “fear.”
Everyone is familiar with these five terms, often heard in traditional financial realms, as human nature’s reactions and market operations remain consistent across different investment targets. However, in cryptocurrency investments, the meaning of these terms may vary for each individual as cryptocurrency investment becomes mainstream, prompting a deeper reflection on their significance.
Dispelling Myths: Both “Long-term Investment” and “Short-term Trading” Are Essential
Most people view “long-term investment” neutrally as a positive investment practice, while “short-term trading” often carries a negative connotation, perceived as speculative and opportunistic. However, this common misconception overlooks the necessity of both “long-term investors” and “short-term traders” for a market to function efficiently.
Short-term traders create market liquidity through activities like day trading and high-frequency trading, seizing opportunities swiftly and frequently engaging in buying and selling to capitalize on price differentials. For instance, in the Taiwanese stock market, approximately 40% of the total trading volume in 2023 resulted from day trading.
What is day trading? It refers to completing buying and selling transactions of stocks within the same day to profit from price differentials, without holding stocks overnight for the next trading day.
This 40% statistic offers valuable insights. In any trading market, transactions require both buyers and sellers for execution. In the Taiwanese stock market, the substantial market liquidity provided by day traders ensures efficient transactions, enabling swift buying and selling.
Therefore, investors and pure traders coexist, and both are essential for constructing a complete and efficient trading market, where neither holds superiority over the other.
Long-term Investors: Believing in the Long-term Value of Assets
Investors commit their funds believing in the value and future potential of an asset or enterprise, supporting its long-term growth and profitability. They typically do not engage in frequent buying and selling within short periods. For instance, in the case of the Taiwanese stock market, investors who believe in Taiwan Semiconductor Manufacturing Company’s (TSMC) significant role in the future AI era may regularly invest in TSMC stocks through long-term holdings to participate in the company’s growth and profit-sharing.
Similarly, Bitcoin holders believe in its value as digital gold, investing continuously through regular purchases to participate in Bitcoin’s long-term growth. The distinction between “pure traders” and “investors” lies in the former not necessarily needing to believe in the long-term value of the traded commodity but focusing on executing trades to profit from trading strategies.
For example, a trader employing day trading as a strategy would seek assets with high volatility suitable for day trading transactions.
Long-term investment involves appreciating long-term value, where frequent fluctuations denote risk and instability for long-term investors.
Neutral Perspective on “Volatility”: Some Profit from Fluctuations, Others Await Upswings
Unlike traditional financial markets, the cryptocurrency market lacks robust mechanisms like stock market listings to safeguard asset quality, set price fluctuation limits, implement circuit breakers, or establish fixed trading hours. Consequently, price fluctuations of up to 30%-40% are common in many cryptocurrencies. Admittedly, these characteristics initially caused chaos in the market, fostering negative perceptions that this was not beneficial.
However, apart from so-called “air coins” lacking real value and background application, certain cryptocurrencies have weathered early market tests and evolved into mature assets, such as Bitcoin and Ethereum. While these assets experienced drastic daily fluctuations of 30%-40% in the past, as the market matured, expanded in market capitalization, and improved trading efficiency, price volatility significantly decreased. Although, compared to traditional financial assets, they still exhibit high volatility, this does not imply that Bitcoin or Ethereum are merely speculative commodities or will sustain high volatility in the future.
In reality, “volatility” is a neutral concept, with its significance varying among different market participants and strategies.
Traders: Leveraging Cryptocurrency’s High Volatility
For traders, cryptocurrency’s high volatility presents arbitrage and quick profit opportunities. Without traders engaging in short-term and high-frequency trading, markets would struggle to promptly react to short, medium, and long-term positive or negative information, diminishing market efficiency. An inefficient market fails to fully meet long-term investors’ needs. Therefore, the relationship between volatility and market efficiency is the key driver of market growth and maturity.
Long-term Investors: Navigating “Stable Upswings” Amid Volatility
For long-term investors, volatility provides opportunities to gradually enter and exit positions to realize investment value. While cryptocurrencies vary significantly, Bitcoin’s cyclicality and value storage function have been tested multiple times, offering valuable insights for investors.
Reviewing 16 years of data, although Bitcoin experienced significant fluctuations of 30%-40% during specific periods, its overall market value and price have consistently trended “steadily upwards within volatility.” Therefore, Bitcoin remains an excellent investment choice for long-term holders. Due to Bitcoin’s unique cyclicality, such as the “Bitcoin halvening” occurring every four years, long-term Bitcoin holders enjoy high success rates, akin to investing in gold.
Even if Bitcoin’s price dips in the short term, its characteristics ensure it will eventually reach new highs. Time has proven Bitcoin’s value and its position as “digital gold.” By focusing on long-term investment and not obsessing over daily prices, Bitcoin is an ideal asset for long-term investment.
What is the “Bitcoin halvening”? It refers to halving the block rewards that miners receive for accounting on the Bitcoin blockchain every four years. This gradual reduction in Bitcoin supply aims to control inflation, a mechanism written into Bitcoin’s code by its creator, Satoshi Nakamoto.
Combatting Greed and Fear: Understand Yourself and Your Risk Tolerance
As cryptocurrency investment becomes mainstream in 2025, self-awareness is crucial in the face of greed and fear. Understanding “investment,” “trading,” “volatility,” and reassessing your investment goals, personality, and risk tolerance are paramount.
If you claim to be a long-term investor but constantly monitor prices on your phone, engage in frequent trading, buy high and sell low, lose sleep due to price volatility, you may not align with long-term investor principles. Conversely, a trader monitors market opportunities, utilizes trading tools effectively, adheres to discipline and rules, and implements precise stop-loss and take-profit strategies.
Investment and trading are not binary choices; most individuals have both needs, necessitating proper asset allocation. In the new year, if you intend to enter the cryptocurrency market, allocate a portion of your funds for regular long-term investments based on your investment plan. Allocate another portion for short-term trading or utilize specific financial tools for profit generation.
Lastly, regardless of your investment plan, it is highly recommended to spend time understanding Bitcoin (BTC) and Ethereum (ETH) comprehensively, the foundational technologies in the blockchain world. Consider enrolling in free blockchain basics courses like XREX Academy to establish a systematic understanding of these technologies over four weeks.
Without a deep understanding of Bitcoin and Ethereum, trading virtual financial products lacks profound insights. However, with comprehensive knowledge, you can consciously discern what you are buying, selling, why you make profits, and why you incur losses. As cryptocurrency investment becomes mainstream, distinguishing between “investment” and “speculation” and identifying your role in market volatility empowers you to resist greed and fear, avoiding becoming a victim of market manipulation.
Co-authors: Winston Hsiao, Yoyo You, Carlos Kao