Just imagine, in 2017, right at the peak of the bull trend, a person invests $20,000 in Bitcoin and soon discovers that their investment has plummeted by about 75-80%. Some in such a situation, aiming to salvage at least something, liquidate their assets, while others patiently wait for a market rebound. In the case of Bitcoin, the wait was three years. The reward? A 300% return.
No trading instrument will give you as much excitement as crypto, promising so much and often delivering!
How to make money with cryptocurrency while keeping your investment safe — let’s find out together.
What is cryptocurrency, and how does it work?
Cryptocurrency is a digital format of currency that has no physical form. Individual units of cryptocurrencies can be referred to as coins or tokens.
Cryptocurrencies operate without a central issuing or regulating authority. Instead, they rely on a decentralized system to keep track of transactions and create new units. Essentially, cryptocurrency is a decentralized payment method used for online trading.
Cryptocurrency operates on blockchain — a digital transaction ledger. This ensures that the same coin will never be used twice. Transactions are processed in a blockchain network consisting of thousands of machines. New coins are mined when computers perform complex mathematical operations to verify transaction legitimacy in the blockchain. Owners of these machines receive cryptocurrency — they mine crypto.
What influences the value of cryptocurrency?
Any cryptocurrency can suddenly surge in value if a major corporation announces that it will accept it as a payment method, or when changes occur in the mining processes, or when celebrities like Elon Musk express their opinions about a certain altcoin on social media. Cryptocurrency can also increase in value when demand rises and supply is limited. For example, once 21 million bitcoins are mined, the mining process will finish. However, this is projected to happen around 2140, making it a truly long-term investment.
Cryptocurrency loses value when companies refuse to accept it as a payment method. If there’s a market sentiment among many large and small players to sell off crypto as quickly as possible, its price falls.
Various factors like news events, cryptocurrency exchange failures, and large investors’ (known as whales) manipulations can lead to a drop in crypto prices and cause the market to enter a phase known as the “crypto winter.”
How to Start Earning with Cryptocurrency
Many experts concur that investing in crypto is one of the riskiest options. However, digital currency remains the most popular asset. By the beginning of 2023, the global cryptocurrency market capitalization reached $2.66 trillion, and it’s expected to continue growing. If you’re ready to embark on cryptocurrency earnings, the following tips will help you make an informed choice.
1. Analysis and Information Gathering
Cryptocurrency buying and selling are enabled by cryptocurrency exchanges. At first glance, there shouldn’t be a problem with the choice: the more exchanges, the better. However, after the bankruptcy of one of the largest cryptocurrency exchanges, FTX, this assertion seems quite dubious. There’s an opinion that FTX went bankrupt due to excessive centralization. The blockchain industry was initially built on decentralization principles, but it has come to be concentrated in the hands of a few who have abused their power. What’s the solution? Returning to the roots — decentralization.
Others believe the issue isn’t with that but with ineffective management and inexperienced leaders at FTX. Third parties believe it’s about the absence of regulation, although this contradicts the essence of the crypto market. In a nutshell, take some extra time to reconsider before settling on one of the 600 cryptocurrency exchanges currently out there.
2. Diversify Your Investments
This advice stems from the previous one. Diversification lies at the heart of any proper investment strategy. It’s not a good idea to invest all your money in a single cryptocurrency just because of its trendiness. It’s smarter to spread your investments across various digital currencies and different cryptocurrency exchanges.
Also, remember that trading crypto isn’t limited to cryptocurrency exchanges only. Some brokers offer accounts denominated in Bitcoin. You trade various assets (including crypto) and earn in bitcoins. Typically, the activities of major brokers are regulated by independent international bodies, such as The Financial Commission. This means there’s at least some protection for your investments. A pleasant bonus is that when the Bitcoin price rises, your account balance grows too.
3. Prepare for Volatility
The cryptocurrency market is always unstable, so be prepared for ups and downs. You’ll experience what price fluctuation truly means when, for instance, you’ll be observing Bitcoin’s unrestrained drop once again, into which you literally invested your entire capital just yesterday (which you shouldn’t do). If your mental well-being is beyond your control, cryptocurrency might not be the best way to earn money for you.
How to Actually Make Money with Cryptocurrency
Now that we’ve covered what to pay attention to, let’s move on to the ways of earning with crypto.
1. Traditional Buy and Hold Strategy
This crypto earning method is favored by risk-takers who buy crypto assets during price drops. It’s called buying on the dip. After several months or years, you can sell the asset at a higher price compared to the purchase price… or not. I’m telling you, it’s a risky approach.
Bitcoin, Ethereum, and Litecoin fluctuate daily, but looking at the chart, you can see that these coins have shown a tendency to rise. Sometimes new coins debut at a high price due to hype, and then the price drops.
It takes a long time for it to recover. And it’s possible that no recovery will occur, and the altcoin disappears as it becomes irrelevant since it was a flop. That’s why it’s crucial to always read the technical documentation of the altcoin you plan to buy. This will give you a clear understanding of the coin’s origin and the purpose it serves.
2. Trading
The cryptocurrency market is unpredictable. Asset prices go up and down within short time frames. You can earn from this through trading. To be a successful trader, you’ll need the right technical and analytical skills. When trading cryptocurrencies, you can buy or sell depending on whether you anticipate the asset’s price to rise or fall. This way, you make a profit regardless of whether the price goes up or down. Or you don’t, if you’ve entered a trade at the wrong point.
Here are a few ways to minimize trading risks:
- Diversify your crypto portfolio. Combining different cryptocurrencies helps reduce daily risk associated with a specific coin.
- Minimize trading costs by choosing a reliable exchange or broker with low fees.
- Stay updated on cryptocurrency news.
- Use technical analysis and indicators.
- Always set stop-loss orders for each trade. ALWAYS! And start with a 2:1 loss ratio.
3. Cryptocurrency Lending
Both traditional and cryptocurrency lending provide loans, but they do it differently. Overcollateralization is a key feature of crypto lending.
Let’s explain with an example. Imagine someone urgently needs money. They seem to have it, but it’s all tied up in assets, specifically in 15 ETH coins. Ethereum is among the most promising cryptocurrencies. They don’t want to sell it. What to do? Head to a cryptocurrency lending platform and use their Ether as collateral. This is where overcollateralization comes into play. Due to the volatile nature of crypto, the lender will ask the borrower to provide collateral in Ether that’s twice the amount of money they’ll lend. When the borrower pays back the loan, the crypto lending platform unlocks their assets. If the crypto’s price has risen, the borrower ends up in profit despite paying interest on the loan.
So, if you’re looking for a way to make your cryptocurrency work and earn extra money, lending is one possible approach. Some exchanges that support cryptocurrency lending include Nexo, SALT Lending, BlockFi, Oasis, and Celsius.
4. Airdrops
Airdrops are when you’re given tokens or NFTs for free, just like that. Seems like part of a marketing strategy to promote a product, right? That’s pretty much what it is.
There are two types of airdrops:
- Traditional airdrops. Tokens are distributed among holders of a certain cryptocurrency and don’t require any action in return. It’s like a chef’s compliment.
- Bounty airdrops. In this case, coins are given for completing simple tasks like subscribing or reposting on social media.
Upcoming airdrops can be found on specialized websites like AlertAirdop, Coin Airdrop, Bitcointalk.
5. Mining Cryptocurrencies
Mining is one of the oldest ways to earn with cryptocurrencies. It involves verifying transactions and securing the PoW network. Miners receive coins as a reward for these functions. At one point, Bitcoin mining could be done on a home computer, but today it requires specialized and expensive equipment and willingness to cover hefty electricity bills.
6. Dividends
If you’re familiar with stock investing, you know that dividends are cash payments to shareholders. It’s somewhat similar with crypto, except that crypto dividends differ from stock dividends in that they’re paid in tokens, not regular money.
Here are a few cryptocurrencies that pay dividends: NEO, VeChain, Reddcoin, NAVCoin, Decred.
Conclusion
Earning from cryptocurrency is possible. However, it’s challenging and risky. It will require not only deep immersion into the subject but also personal growth. If you find it hard to handle stress, keep your feelings in check, or are hoping for quick cash, then cryptocurrency might not be the best for you.
The market is as volatile as it gets. Today, your capital invested in crypto can make you feel like a millionaire, and tomorrow, after a sharp coin crash, you might not even be able to afford a pair of New Balance shoes with the proceeds from selling your crypto assets. You can buy some altcoin with a quirky name just for fun, like Dogecoin, and discover a few years later that you’ve suddenly become wealthy. Anything is possible. It’s crypto 🙂
