How Should You Trade: Crypto-to-Crypto versus Fiat-to-Crypto?

By Kriss
Published on: August 24, 2021

As the cryptocurrency markets continue to rise, clever traders are taking advantage of market moves to benefit from crypto trading. But what is the most efficient technique to trade cryptocurrency?

Join us as we look at the principles of fiat to crypto and crypto to crypto trading, and debate which is the best option for you in the present market!

Fiat-to-crypto: a stepping stone for newcomers

Fiat to crypto trading is the most common way for newcomers to the crypto markets to get started. Newcomers to the realm of digital asset investing often begin by purchasing Bitcoin (BTC) with dollars, euros, pounds, or other fiat currencies.

Advanced traders will usually deposit fiat currency on exchanges like Binance, Gemini, Kraken, and others, then trade the most popular cryptoassets against fiat currency. The most common method of cashing out is to withdraw fiat currency from the exchanges via bank transfer.

Given the general upward performance of leading cryptoassets, most notably Bitcoin (BTC) and Ethereum (ETH), investors who switched from fiat to crypto and stayed in crypto during the last five to ten years have done well.

As a result, fiat to crypto conversion has become the most popular method of investing in digital assets.

Crypto to crypto trading, on the other hand, may be a superior option for riding the bull market wave.

Crypto-to-crypto: how skilful trades trade

Some experts say that crypto to crypto trading is the only way to trade digital assets, especially if you want to profit from market cycles, in today’s global economic climate, when money printers are operating louder and faster than ever and fiat currency is losing value versus cryptocurrency.

Crypto to crypto trading is the process of exchanging one digital asset for another in order to profit from market chances while maintaining your cryptocurrency as your trading capital.

BTC, ETH, or a stablecoin like Tether (USDT), USD coin (USDC), or DAI are the most common digital assets used by traders to store their trading money.

The advantages of crypto-to-crypto trading

Experienced traders who want to take advantage of new chances in the emerging decentralized finance (DeFi) sector or make wagers in the altcoin market should stay in the crypto world since it offers them more freedom and a variety of perks. The following are some of the advantages of crypto to crypto trading:

the ability to move money more quickly;
a higher level of fund security due to decentralized trading;
options for overnight/dormant funds to generate income;
the possibility of profiting from DeFi investments

When the chance arrives, you can immediately execute a new trade if you have funds in crypto. There’s no need to wait for a bank transfer or a credit card transaction to complete.

Trading crypto to crypto often entails converting one digital asset to another utilizing decentralized exchanges (DEXes), such as Uniswap. DEXes boost fund security by allowing you to preserve control of your assets while trading. When trading fiat to crypto, on the other hand, you’ll have to store your assets on controlled exchanges, which is why many skilled crypto traders choose to stay in the crypto world and use DEXes.

When you keep your trading money in crypto rather than currency overnight, you have the option of storing it in a yield-generating protocol that will almost certainly provide a higher yield than your bank account. As a result, your trading profits increase.

Furthermore, while trading crypto to crypto, you can shift funds effortlessly in and out of multiple DeFi protocols to maximize yield. This is often not available on centralized fiat to crypto exchanges.

The disadvantages of crypto-to-crypto trade

Despite its great earning potential, crypto to crypto trading has some disadvantages. The following are some of them:

Only expert, crypto-savvy traders and investors should engage in this type of trading.
Due to code vulnerabilities in DEXes and DeFi protocols, you run the risk of losing money.
A fiat off-ramp will still be required at some time in the future.

Regrettably, crypto to crypto trading is a game for seasoned traders only. You may struggle in the realm of DeFi unless you are comfortable handling and holding your own funds and communicating with smart contracts.

While using decentralized exchanges rather than centralized exchanges increases fund security, coding flaws in decentralized trading protocols pose a severe risk to crypto to crypto traders. As a result, it’s best to stick to tried-and-true decentralized finance protocols. Even audited protocols, however, can be subverted, as history has shown.

Finally, you’ll need a crypto to fiat off-ramp when it’s time to cash out (and pay taxes on your earnings). So, unless your tax agency accepts crypto payments, staying totally in crypto is quite impossible.

Conclusion

For beginners and long-term HODLers, fiat-to-crypto is the favored on-ramp – and investing option. So, if you want to acquire Bitcoin or Ethereum and hold it for a long time, converting your local currency to a cryptoasset is generally a good idea.

If you want to actively trade the crypto market, utilize yield-maximizing methods in the DeFi markets, and take advantage of trading opportunities in the altcoin market, trading crypto to crypto makes more sense because of the agility and flexibility it provides.

Kiara Sofia Smith

My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.