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If you asked the average person how to make money with cryptocurrencies, they would most likely say "the same way you do with stocks." You buy them and hope that the price rises so that you can sell them for a profit.
Many people are unaware of the numerous opportunities to earn money with cryptocurrencies. If that sounds like you, keep reading. Benzinga lists as many as possible here and briefly summarizes each opportunity.
Keep in mind that all investing and trading carries some risk, and some asset classes are riskier than others. Crypto is on the riskier side of the spectrum. On top of that, you also have risks associated with the style of investing or trading. Day trading or scalping is probably the riskiest style of trading. In any case, there are platforms from MoneyLion to Celsius and beyond that help you access the crypto markets and earn money. You simply need to decide how you want to spend your money.
Traditional Buy and Hold Investing
Buy-and-hold, long-term investing can be profitable if done correctly. You need to do your homework, though; you can’t just buy any cryptocurrency and expect to make money. The lowest risk positions would be to invest in Bitcoin or Ethereum and dollar-cost average into your position over a long period.
Looking at the table above, you can see that holding either Bitcoin or Ethereum over the last 5 to 6 years has been very profitable. Moving forward, there are no guarantees, but using a dollar-cost averaging strategy should give you an acceptable position cost average.
Dollar-cost averaging is an investment strategy that tries to reduce the impact of market volatility on large purchases. Instead of entering a position all at once with a large purchase, purchases are spread out in regular intervals over a long period. The intervals could be weekly, monthly or whatever fits your strategy. The critical part is to purchase the same dollar amount at each interval.
With this strategy, when prices are higher, you will be purchasing a smaller amount of whatever coin or token you are investing in. When prices are lower, you will be buying larger amounts of the token. This strategy will lower your overall average price. Some good places to get started dollar cost averaging into cryptocurrencies are Gemini and eToro.
Looking at the table below, you can see how buying in equal dollar amounts can give you a better position cost average than purchasing equal amounts of Bitcoin.
Trading Cryptocurrency
- Trading Style #1: Day Trading: Day trading is a trading style where you anticipate that the price will rise or fall. Depending on how you believe the price will move, you will either buy (go long) or sell (go short). Hold time for day trading can be as short as a few minutes up to a few hours. Attempting to anticipate such short-term price movements is not easy, which is why day trading is one of the riskiest trading styles.
- Trading Style #2: Swing Trading: When swing trading, you will be anticipating price movements the same as with day trading. The main difference is you will be dealing with much longer time frames. Positions will be held for days or even weeks.
- Trading Style #3: Automated Bot Trading: An automated crypto bot is a software program that will enter and exit trades based on your predetermined trade conditions. Trading bots have advantages over manual trading in that they are able to trade 24/7 and that they eliminate human emotion and react much quicker.
Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
Staking Cryptocurrencies
The staking of cryptocurrencies is very similar to depositing fiat into a savings account. The big difference with staking is that you can realize a much higher yield. A traditional bank will pay you around 1% interest if you are lucky. Some banks pay as little as 0.01%, including JPMorgan Chase, the largest bank in the United States. Staking yields will vary depending on the coin or token you stake, but it is not uncommon to receive 15% to 20% or even higher.
Many exchanges and platforms offer staking, with both centralized and decentralized options. You can even stake crypto from some hardware wallets. The lowest risk option for staking would be to stake stablecoins. When you stake stablecoins, you eliminate most of the risk associated with the price fluctuations of cryptocurrency. Also, if possible, avoid lockup periods when staking.
Yield Farming
Yield farming is similar to staking but with a twist. Yield farms consist of many liquidity pools, and each pool will require a pair of cryptocurrencies to be staked into a pool. You just pick a pool you want to farm and buy equal amounts of each required coin or token. After purchasing the coins or tokens, you need to deposit them together. This process takes place on the liquidity section of the platform. You manually input the proper crypto that you need to deposit and click to add liquidity.
Once the coins or tokens are paired, you open up the farm you want to join and stake your liquidity pair. Your rewards will be paid out in one of the paired cryptocurrencies.
Looking at this screenshot of the Raydium yield farm, you can see that the required pair is the USDC stablecoin and Frakt token (FRKT). You can also see that the reward is paid out in FRKT tokens.
Another difference between staking and yield farming is the yield you receive. You can see that this farm is paying out over 393% APR. Many times new farms go online with yields in the thousands of percent. As the TVL (total value locked) increases, the yield will trend downward.
As with staking, you need to watch the price of the LP pair. Ideally, you want a stable market while you are farming. Otherwise, you could lose more money than you get in rewards from a price decline of one or both of your staked cryptocurrencies.
Crypto Lending Platforms
You can lend out your cryptocurrencies and earn interest using centralized and decentralized lending platforms. However, be aware of the differences in how they operate.
Centralized lending platforms operate more like a traditional bank. You deposit crypto on their platform, and they will pay you interest on your balance. Before depositing your crypto, it would be wise to check to see if they pay compounding interest. Compounding interest is when you are paid interest on the original principal and the accumulated interest. Some lending platforms only pay interest on the original principal. The difference between the two can significantly affect your total return.
You should also check to make sure that they pay the interest in crypto and if your crypto is locked up for a specific period. BlockFi and Celsius are the two major centralized lending platforms.
Decentralized finance (DeFi) lending differs from centralized lending in a few ways. First, there is no centralized intermediary; loans are handled on a peer-to-peer basis with smart contracts taking the place of the intermediary. Also, borrowers must deposit crypto as collateral; once the loan is paid off, it is returned. Aave, Maker and Compound Finance are all top DeFi lending platforms.
© Image credit: LeewayHertz
Cryptocurrency Mining
Another way to make money with crypto is to mine for it. This option does, however, require an outlay of capital upfront. You would have to buy a miner (or miners) or build them yourself. Either way, there will be a substantial investment in equipment required. You will also incur facilities costs because miners produce a lot of heat, so you can’t just stick them in a room and turn them on without some sort of cooling.
If you are willing to invest capital upfront, mining can be profitable depending on market conditions. A helpful website to determine what to mine and how profitable it will be is whattomine.com. The type of miner you will need will depend on what you decide to mine.
If you strictly want to mine Bitcoin, you need an ASIC miner like the Antminer S19 Pro. However, if you're going to mine a variety of cryptocurrencies, you need a GPU miner.
Crypto Airdrops
Cryptocurrency airdrops are a way for crypto projects to distribute free coins to their community. Crypto projects use airdrops to increase visibility, increase the coin supply and stimulate trade. To participate in an airdrop typically requires you to hold a specific coin or token in a wallet. Some projects require the coin or token to be stored in the wallet for a while before the airdrop. If you qualify, the free crypto will be deposited into your wallet, or you may have to claim it. CoinMarketCap has a section that lists upcoming airdrops.
Invest in an NFT or Mint Your Own!
NFT investing might not appeal to everyone, but it can be a fun way to earn crypto. Buying and collecting NFTs can be addictive. Once you purchase your first, chances are you will be looking for more to buy.
As far as minting your own, most NFT platforms make it easy to mint your own NFTs, so almost anyone can do it. A few of the more popular NFT platforms include OpenSea (Ethereum blockchain), Solanart (Solana blockchain) and NFTrade (Avalanche blockchain).
Pros and Cons of Making Money With Cryptocurrency
After examining a few ways you can make money with crypto, here are some pros and cons.
Pros:
- Adding additional income streams is always a good thing.
- This technology is the future. The more you learn about it, the better.
- It’s good to have a portion of wealth isolated from fiat.
Cons:
- It possibly could complicate tax preparation.
- You risk losing your investment.
- Cryptocurrencies can be volatile.
Is it Too Late to Make Money With Cryptocurrencies?
Not at all. It is still very early in this asset class. There will undoubtedly be innovations in the crypto space that we can not even imagine right now. These new directions will most likely provide even more ways to make money with cryptocurrencies.
Frequently Asked Questions
How do you make a lot of money with crypto?
A few ways to make money with cryptocurrency include: Investing, Trading, Staking, Lending, Mining, and Airdrops.
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About Donald Hancock
Donald’s expertise lies in the technical analysis of both stocks and crypto.