There are many different ways to make money with cryptocurrency and generate income in the crypto space. Given the inherent volatility of crypto assets, most involve a high degree of risk while others require domain knowledge or expertise.
Investing is usually associated with taking a long-term view by buying and holding assets for some time. Crypto assets are generally well suited to a buy and hold strategy. They are extremely volatile in the short term but have tremendous long-term potential. Research by investment firm Fundstrat shows that the majority of Bitcoin gains come in the 10 best trading days of the year. In fact, missing these days every year between 2013 and 2018 would result in a negative 44 percent annual return. Because of this inherent volatility, long-term investing is one of the better approaches to make money through cryptocurrency. As with any investment, crypto should be considered in the portfolio context based on your investment goals and risk tolerance.
The main difference between trading and investing is the time horizon. While investing is a long-term endeavor, trading is meant to exploit short-term opportunities. Trading cryptocurrencies requires certain skills and experience. Specifically, the ability to read charts and understand technical indicators. Having an in-depth knowledge of blockchain and different projects, however, is not required. This way of making money is more about understanding the price action in the historical context and using that to predict future prices, often on a short-term basis. To make money online trading cryptocurrency, investors can either buy and sell actual crypto coins or use derivatives instead. Some types of derivatives are Contract for difference (CFD), futures, and options. You can either take a long or short position depending on whether you expect the price to rise or fall. Unlike traditional investing, traders can make money from both sides of the direction.
Cryptocurrency arbitrage is a type of trading that exploits differences in prices to make a profit. These price differences commonly referred to as “arbitrage spreads”, can be used to buy a cryptocurrency at a lower price and then sell it at a higher price. This particular form of trading is the most “risk-free” method since the trader is not bothered about future prices. However this particular method of trading is more difficult than it seems, time is a big key factor in here, hence many arbitrage traders trade using an arbitrage bot. At AlphaROC, our in-house proprietary system uses strong AI to make situational decisions along with machine learning component to collect data and run the statistical analysis with past data that forms predictive analysis, also by placing dedicated servers in data centers, we get price information faster than anyone else, trades are executed in nanoseconds!
Staking and lending
Staking and lending are quite similar and allow investors to make money with altcoins. Staking essentially means locking coins in a cryptocurrency wallet and receiving rewards to validate transactions on a Proof of Stake (PoS) network. Instead of mining, the PoS algorithm chooses transaction validators based on the number of coins they committed to the stake. PoS does not require expensive hardware and is much more energy-efficient. Cold staking is also an option, allowing investors to stake coins while holding them in a secure offline wallet. Tether, NEO, and Stellar (XLM) are some of the coins you can stake.
With staking, investors are lending coins to the network, to maintain its security and verify transactions. Another option to earn money with crypto is to lend coins to other investors and generate interest on that loan. Many platforms facilitate crypto lending, including exchanges, peer-to-peer lending platforms and decentralized finance (DeFi) applications.
Mining is a crucial component of the Proof of Work (PoW) consensus mechanism and is one of the oldest ways of making money with crypto. It is a process of verifying transactions and securing a PoW network. Miners are rewarded with new coins, through block rewards, for performing these functions. In the early days of Bitcoin, mining could be done on a desktop computer but today requires specialized mining hardware.
On the subject of supporting a network, running a master node can also be profitable. Masternodes are wallets that host a copy of the entire network.
Both of these methods require technical expertise and significant upfront and ongoing investment.
Airdrops and forks
Airdrops and forks are the crypto equivalent of being in the right place at the right time. Airdrops are free tokens, usually distributed by an exchange to generate awareness and create a large user base for a project. Forks are essentially changes or upgrades in a protocol that creates new coins. When a blockchain forks, holders of the coins on the original chain typically get free tokens on the new network.