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 establishment of a new industry all require time for validation.
In 2008, the father of Bitcoin, Satoshi Nakamoto, released a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” giving birth to blockchain technology and the first cryptocurrency, Bitcoin (BTC). Since I entered the blockchain industry in 2013, the phrase “Bitcoin is dead” has echoed multiple times between every bull and bear market cycle.
Despite the numerous times Bitcoin has been pronounced “dead,” its value has consistently trended upward amidst volatility throughout its 16-year journey. However, during the first decade of Bitcoin’s existence, lacking sufficient data made it challenging to prove this fact. Simultaneously, many have questioned the narrative that Bitcoin is digital gold, doubting its value storage function compared to gold.
We may never return to thousands of years ago, but did gold also face similar doubts, debates, and attacks before assuming its contemporary monetary role? Gold initiated human monetary civilization, while Bitcoin ushered in a new monetary era. Perhaps, we are fortunate to witness this unique chapter in human monetary history.
With the approval of Bitcoin and Ethereum spot ETFs in the US and the gradual transition to heavy regulation globally, along with Donald Trump’s election as US President and Switzerland considering including Bitcoin in national reserve assets, it is evident that the emergence of blockchain has introduced new technologies, industries, and assets as an irreversible trend, impossible to ignore. Everyone has begun discussing it, becoming curious about it, inevitably influenced by it.
There are still numerous unexplored areas for the practical application of blockchain technology. Its initial successful application is cryptocurrency, which, after over a decade of development, investing in cryptocurrencies has become a prevalent practice and a choice for asset allocation. This moment is ideal for rethinking “long-term investment,” “short-term trading,” “volatility,” “greed,” and “fear.”
These five terms are familiar to everyone, frequently heard in traditional finance, as finance remains finance regardless of the investment target, retaining human reactions and market operation methods. However, when investing in cryptocurrencies, the significance of these terms may vary for each individual. As investing in cryptocurrencies becomes common, it is worth reflecting on the meanings behind these terms.
Dispelling Myths: Both “Long-Term Investment” and “Short-Term Trading” Are Equally Important
Most people hold a neutral view of “long-term investment,” considering it a positive investment behavior. However, regarding the term “short-term trading,” many still harbor negative perspectives, viewing it as speculation, a means to profit opportunistically.
This is a common misconception. In any financial market, “long-term investors” and “short-term traders” must coexist to ensure the market operates smoothly.
Short-term traders: Creating market liquidity
“Short-term trading” and “high-frequency trading” refer to seizing opportunities promptly, meaning trading frequently within a short period to profit from price differentials, trading when opportunities arise, with transactions being relatively frequent.
Taking Taiwan’s stock market as an example, according to Yahoo Finance, approximately 40% of the total trading volume in the Taiwan stock market in 2023 came from day trading.
What is day trading? It is the abbreviation for “day trade,” referring to completing buying and selling stock transactions within the same day without holding the stock overnight, aiming to profit from price differentials, a short-term trading strategy.
When this 40% figure is considered, it provides significant insight. For any trade to occur, there must be sellers and buyers. The ability to swiftly trade one share or fractional shares in the Taiwan stock market is largely due to the substantial market liquidity provided by up to 40% of day traders, ensuring that trading can occur smoothly.
Therefore, investors and traders coexist. Only when both exist simultaneously can a complete and efficient trading market be established, without either being superior to the other.
Long-term investors: Believing in the long-term value of assets
Investors believe in the value and future development of a specific asset or company. They invest their funds to support the long-term growth of the project, typically avoiding frequent buying and selling in the short term.
Taking Taiwan’s stock market as an example, individuals who believe in Taiwan Semiconductor Manufacturing Company (TSMC) playing a crucial role in the future AI era regularly invest in TSMC stocks through scheduled purchases, participating in the company’s growth and profit sharing over the long term.
For Bitcoin holders, believing in Bitcoin’s value as digital gold leads them to continuously acquire Bitcoin through scheduled purchases to partake in Bitcoin’s long-term growth.
The key difference between “traders” and “investors” lies in the fact that traders do not necessarily need to believe in the long-term value of the assets they trade. They only need to identify suitable assets for executing buying and selling transactions to profit from their trading strategies.
For instance, a trader specializing in day trading would seek assets with significant volatility on that specific day, suitable for day trading.
For typical long-term investors, the focus lies on long-term value. Frequent fluctuations signify risks and instability for long-term investors.
Neutral View on “Volatility”: Some Profit from Fluctuations, Others Wait for Upswings
The cryptocurrency market differs from traditional financial markets. Currently lacking a comprehensive listing review mechanism like the stock market, with no circuit breaker mechanism, fixed trading hours, or trading limits in place, the prices of many cryptocurrencies commonly fluctuate by up to 30% to 40%. Admittedly, these characteristics have triggered several irregularities in the early market stages, leading to negative perceptions, deeming it unfavorable.
However, aside from so-called “air coins” (cryptocurrencies lacking actual value and application backgrounds), some cryptocurrencies undergoing early market trials and gradually maturing as assets in the cryptocurrency market, such as Bitcoin and Ethereum, demonstrate stability.
These assets have experienced drastic daily fluctuations of 30% to 40%, but with market maturation, increased market capitalization, and enhanced trading efficiency, their price volatility has significantly decreased. Although they still exhibit high volatility compared to traditional financial assets, it does not imply that Bitcoin or Ethereum are merely speculative commodities or will maintain high volatility in the future.
In reality, “volatility” is a neutral concept, with its significance varying for different market participants and strategies.
Traders: Leveraging Cryptocurrency’s High Volatility
For traders, the high volatility of cryptocurrencies presents arbitrage opportunities and the chance for quick profits.
Without traders engaging in short-term and high-frequency trading, the market cannot promptly respond to various short-term, medium-term, and long-term positive or negative information, resulting in reduced market efficiency. An inefficient market fails to adequately meet the needs of long-term investors. Therefore, the relationship between volatility and market efficiency is the key driving force for market growth and maturity.
Long-term investors: “Stable Upswings Amidst Volatility” Do Not Affect Long-term Profit
For long-term investors, volatility provides the space to gradually enter and exit trades, realizing investment value.
Cryptocurrencies encompass various categories, making it challenging to generalize. However, Bitcoin’s cyclical nature and value storage function have withstood multiple tests, offering high reference value for investors.
Analyzing data spanning the past 16 years, while Bitcoin has experienced periods of significant volatility with fluctuations of 30% to 40%, its overall market value and price have consistently trended “upward amidst volatility.” Hence, for long-term investors, Bitcoin remains a highly promising investment.
Due to Bitcoin’s unique cyclical nature, such as the “Bitcoin halvening” occurring every four years, reducing the block rewards for miners, gradually reducing Bitcoin’s supply to control inflation, long-term holders of Bitcoin boast a high success rate, akin to investing in gold.
Even if the price of Bitcoin experiences short-term declines, based on its characteristics, it is bound to reach new highs eventually. Time has proven the value of Bitcoin and its position as “digital gold.” By focusing on long-term investment and not excessively monitoring daily prices, Bitcoin is indeed suitable for long-term investment.
What is the “Bitcoin halvening”? It refers to reducing the block rewards received by miners on the Bitcoin blockchain every four years. By gradually decreasing the supply of Bitcoin, this mechanism controls inflation, an essential rule coded by Bitcoin’s founder, Satoshi Nakamoto, in the protocol.
Combatting Greed and Fear: Understand Yourself First – How Much Risk Can You Tolerate?
As cryptocurrency investments become prominent in 2025, when faced with greed and fear, the crucial first step is to recognize oneself, understand “investment,” “trading,” and “volatility,” and reevaluate one’s investment goals, character, and risk tolerance level.
Otherwise, if you claim to be a long-term investor but constantly check prices on your phone, frequently trade based on price fluctuations, buy high and sell low, lose sleep due to market volatility, you are not a long-term investor. Conversely, if you are a trader, you would monitor various market opportunities, utilize tools aiding your trades, adhere to discipline and rules, and implement precise stop-loss and take-profit strategies.
Investing and trading are not mutually exclusive. Most individuals have both these needs, necessitating proper asset allocation. In the new year, if you intend to enter the cryptocurrency market, align your investment plan, allocate a portion of funds for scheduled long-term investments, engage in short-term trading or use specific financial tools to generate returns with another portion of your funds.
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. These two assets are critical, and exploring the free XREX Academy blockchain basics course systematically over four weeks can help establish correct introductory knowledge.
Insufficient understanding of Bitcoin and Ethereum makes it challenging to grasp the buying and selling of virtual financial products comprehensively. With a deep understanding, you can consciously realize what you are buying, selling, why you are making money, and why you are incurring losses. As cryptocurrency investments become prevalent, distinguishing between “investment” and “speculation,” understanding your role in market “volatility” is crucial. Through these reflections, you can confidently combat all forms of greed and fear, avoiding becoming victimized.
Co-authored by: Winston Xiao, Yoyo You, Carlos Gao
The viewpoints presented in the article represent diverse opinions and do not reflect the stance of “WEB3+.”