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How To Make Money With Cryptocurrencies

The question of how to make money with cryptocurrencies is as old as the decentralized industry itself. The moment cryptocurrencies started gaining value and being sold for considerable sums as “money out of thin air”, masses of users started flocking to the industry in hopes of easy money. Buying some amount of Bitcoin or an obscure token of some shady project led to the notion that profits were guaranteed. The popular meme “when Lambo” is a direct afterbirth of the crypto industry and a striking illustration of the biggest misconception about cryptocurrencies as an asset class and their capabilities.

How To Make Money With Cryptocurrencies

The fact is that cryptocurrencies are just assets with a high degree of volatility and, ergo – a high degree of risk. Making money on cryptocurrencies is not a matter of waiting for a miracle to happen, but a complicated process that requires not only hard work and careful analysis, but a proper understanding of the market, its state, dynamics, players, and possibilities in both the short and the long run.

First Steps

Before even considering becoming a participant in the crypto industry, one must carefully analyze and examine both the state of the market and the assets present in it. The given step is essential as a prerequisite not only for successful money-making, but also for determining on a personal level whether the given industry suits one’s mindset and emotional state.

The crypto market is full of risks, largely because of the high degree of volatility present in it, and a large amount of fraud that is constantly making hundreds of investors lose their money. The given factors are a fact and cannot be changed, thus raising the question of whether one is willing to take such risks and whether their emotional state is suitable for participation. Giving in to panic the moment an asset starts falling in price, a negative piece of dubious news emerges, or someone utters the word “hack” in a chat or forum, is a sure way to failure. As such, investors must first evaluate themselves and decide whether they are ready to risk their funds.

If one has decided that they have the mettle to partake in the crypto market in light of its inherent risks, the next step involves in-depth learning of the underlying principles of cryptocurrencies. This includes learning about blockchains, the types of cryptocurrencies, how they work, where to buy cryptocurrencies, where to sell cryptocurrencies, how to buy cryptocurrencies, the techniques and trading strategies, and much more. Luckily, there are numerous resources on the internet that provide accurate and detailed information on all of the given topics.

Once sufficient information has been acquired and knowledge is solidified, one must turn to analyze the available market players and their metrics.

Analysis

Analysis of cryptocurrencies involves fundamental analysis and technical analysis, both of which are essential for determining whether an asset is worth investing in.

Fundamental analysis involves on-chain and project metrics. On-chain metrics are statistical information about a certain project and its digital currency that can be found online in real-time. They include such data as the total number of transactions with the given asset, its market capitalization, trading volumes, numbers of addresses holding it, and other metrics that determine its market dynamics and activity.

Project metrics must be considered in parallel, since they take into account the information about the project, such as its White Paper, which contains all of the fundamental concepts about the asset and its mode of operation. Other fundamental analysis metrics include the project team, its economy, marketing plan, competitors, roadmap, plans, partnerships, and other factors.

Combined, project and on-chain metrics paint an overall picture of the asset and its prospects. By relying on overall reviews and news backgrounds surrounding the projects, as well as common sense and experience, potential investors should determine whether a specific cryptocurrency has the potential for price growth or not.

No matter how we twist and turn the issue, making money on cryptocurrencies is largely a question of the growth of their prices. And this is where technical analysis comes into play. As an entirely different science, technical analysis is the study of historical data on a cryptocurrency’s price in an effort to project its future price movements.

Technical analysis may seem like soothsaying and poking blindly into thin air by making predictions, but mathematics never lies, and experience, as well as history, have shown that price movements in the cryptocurrency market are cyclical and largely mimic the behavior of assets on traditional exchanges. This makes it possible to translate the same instruments of technical analysis from traditional markets to the crypto market.

The main tools for technical analysis are price charts and the instruments applied to them. The tools are largely automated analysis models that paint patterns based on indicators. Though the tools make charts readable, it is the job of the investors to identify emerging patterns and act quickly upon them. Only profound knowledge and experience allow this, reserving the given area of cryptocurrency activities for experienced investors.

The Ways

 There are four main ways of making money on the cryptocurrency market, all gauged by the level of their profitability and risk. The lower the risk, the lower the profitability – that is the general rule of all markets – the rule that applies in full to the crypto market.

Given its inherent volatility, the crypto market is one of the most profitable arenas for making money. Volatility is the market’s biggest asset, which allows all three ways of making money to generate returns. The only factor determining the amount of revenue will be the approach the investor decides to take.

Holding (HODLing)

Holding is the simplest and most secure of all cryptocurrency strategies for making money. It is simply holding the assets in a portfolio in expectation of their appreciation. The term comes from a typo on the BitcoinTalk forum, where the word “hold” turned to “hodl” and became a staple of the industry.

Though simple in theory, holding is more complicated in practice. It may involve simply holding the asset and refraining from active trading, but investors must constantly monitor the market for the purpose of risk management. Portfolios must be diversified and contain several types of cryptocurrencies to ensure that the decrease in price of one asset in the portfolio will not depreciate its overall value. Thus, investors must regularly monitor the overall valuation of their portfolios and the news backgrounds surrounding the assets within it.

Once an asset starts depreciating, it should be sold off, unless the investor believes that it will appreciate in the long run. Most holders believe in coins like Bitcoin and Ethereum, and are latent investors, watching the market and waiting for appreciations to fix profits.

Staking

The advent of the Decentralized Finance market unleashed a slew of investment opportunities into crypto space. Offering such a concept as staking, the DeFi market allows investors to transfer their holdings into specialized pools and receive rewards for transactions carried out within networks.

The basic form of staking is providing assets in the form of stakes to PoS network validator masternodes in exchange for a commission from transactions they validate. This is a relatively low-risk activity, but one that demands investors to constantly monitor the value of their holdings, shifting stakes between different blockchains in search of higher revenues.

Liquidity mining, or yield mining, is the second type of staking. Some platforms and exchanges offer users the chance to transfer their coins and tokens into liquidity pools in exchange for rewards. The platforms use the pooled assets for providing liquidity to trading operations they undertake. In exchange, they reward users with commissions. Just like with PoS staking, investors should constantly manage risks by migrating to more high-yield pools.

Mining

Mining coins is a risky activity since the profitability of the coin is largely dependent on its fluctuating market price and the cost of electricity needed for running the mining rig or masternode. The stiff competition on the mining market, as well as its legality that depends on local regulations, makes mining a full-time job that can often be either profitable or break-even at best. Miners must constantly monitor the coin’s price and either keep mining or shut down their rigs.

Trading

Trading is the riskiest type of activity on the crypto market, but also the most profitable if approached with experience. The vast number of strategies employed in trading include scalping for minor profits from a huge number of small transactions, news trading based on sudden price hikes on news backgrounds, intraday trading for profiting from daily price movements, swing trading for holding long positions in expectation of price increases, trend trading, and many others.

All trading strategies rely on careful consideration of technical analysis and can be extremely profitable, or ruinous for investors.

Conclusion

There is a power of money to be made on the crypto market, but everything depends on proper analysis and choice of strategy.

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