Crypto is now ubiquitous. From sweetened beverages to rocket technology, applications of blockchain technology are everywhere.
All these blockchain platforms require financing and nowadays, for every blockchain out there, there are two cryptocurrencies. This has created a unique opportunity for the average citizen to profit from the crypto boom that is in the making.
This article will give you four ways you can make money from crypto and explain everything you need to know about each. I will also tell you the best platforms where you can do this.
No matter what your risk appetite or understanding of the crypto space, we have something for you to get started and capitalize on the crypto revolution. Let’s dive in without any further delay.
1. Investing In Crypto Assets
First things first. Among the options provided on this list, this one carries the most risk. Whether you are a hedge fund manager or a retail investor, investing is the most popular way to make money from crypto.
In its simplest form, you buy a crypto asset like cryptocurrencies and NFTs with good future potential and if your forecasts come true, you can sell them and make a profit out of the transaction.
Investing in crypto can be done in at least a dozen other ways but let’s just stick to our topic at hand. If you are planning to invest in the cryptocurrency market, here are a few things you should know.
Fundamental Analysis
If you decide to buy and hold cryptocurrencies, the ones you choose should better have a solid intrinsic value. No pun intended. The intrinsic value of a crypto asset, or any asset can be determined by its utility, opportunity cost, future potential, etc.
Ether, for example, powers the Ethereum blockchain which is a preferred platform for DeFi and dApps developers. That is a really good use of an asset.
Diversification
Diversification is just common sense, although people try to make a big deal out of it. It means, that when you are doing something you cannot be 100% sure about, leave some room for error by distributing your money into multiple places.
When it comes to crypto, owing to its volatility in the public market, investors can choose to put only part of their capital into crypto assets and park the remaining funds on comparatively low-risk investments.
By definition, US Treasury bonds are the least risky investment out there. You can also try gold bonds or good old bank deposits.
Financial Goals
The investment decisions you make should be based on your financial goals. If all you need is a 10% yearly return on your savings, it makes no sense to lose your sleep over investments in high beta investments that may move 50% in either direction.
Your financial goals should also be realistic. However, if you are young, you can set the bar high and split your asset allocation accordingly.
Emotional Intelligence
Benjamin Graham, who is known as the father of value investing once said, and I paraphrase, that in the short run, the market is like a voting machine, and in the long run, it’s like a weighing machine.
The idea is that the investor should have the nerve to hold on to their investments in the face of bear markets. More importantly, the investor should be able to live with the fact that some of their decisions would turn out to be wrong and that’s inevitable.
2. Staking Cryptocurrencies
Staking is not without risks, but it is far less risky than investing in crypto. It has a pretty high earning potential too.
What Is Staking?
Staking is a concept within cryptocurrencies that follows proof-of-stake verification consensus. The process involves locking up the cryptocurrency into a blockchain platform, typically in return for more cryptocurrencies or non-fungible tokens (NFTs).
Staking is kind of like an interest-bearing bond. Return from staking varies from one cryptocurrency to another. It depends on the market price of the crypto asset, prevailing inflation rate, blockchain rules, and fees among others. For the same reason, some cryptocurrencies give better yields compared to others.
How To Stake Crypto?
First, you should choose a cryptocurrency that provides maximum profitability and identify its staking mechanism. Then you should choose an exchange, dApp, or smart contract as your medium of staking.
Coinbase, KuCoin, and Wirex are some popular platforms where you can do staking. Once that is done, you should deposit the cryptocurrency and start earning passively.
3. Trading Cryptocurrencies And NFTs
If investing in crypto is not enough risk-raking for your appetite, you can always trade with crypto. Thanks to their extreme price volatility, crypto assets are a favorite among day traders.
Due to the cut-throat competition, trading is considered the most difficult way to make money from crypto.
What Is Trading
While investing is buying and holding them for long periods, trading can be buying and selling cryptocurrencies, NFTs, or crypto-related complex financial instruments to profit from the price fluctuations of these assets.
While for the initiated, trading can be the most lucrative way to make money with a smaller investment, it is also the easiest way to lose money. There are as many ways to do trading as there are traders.
The method of each trader can be different like a table and a cat. If you plan to make it big on crypto trading, note the following points.
Trading Platforms
Trading is a lucrative business for the service provider. Hence, you have plenty of options to choose from, including CEXs and DEXs. In general, CEXs tend to have an easy-to-navigate user interface and better liquidity.
DEXs, on the other hand, offer platform-wide revenue sharing and also remove counterparty risk. In return, users should pay higher gas fees and have to live with low liquidity during low-volume days.
Risk Management
Risk is what can still go wrong after everything that can be optimized is done. Diversification is probably the most common method of risk management. You can also take insurance on your positions.
Rational Behavior
To master crypto trading, you should first master your emotions. While choosing trading positions or re-organizing your portfolio, all the things you learned would not be of any use if you can not keep a cool head.
4. Crypto Lending
This is another way to make a passive income with cryptocurrencies. Lending is a way too easy activity compared to trading or investing.
What Is Crypto Lending?
To lend money in the crypto space, you need to supply your cryptocurrency to a borrower. They will repay you with interest. When you loan cryptocurrency through a blockchain platform, you do not know who the borrower is or his credit score.
But that’s okay because you are not lending your money based on the trust that the borrower will repay it. Instead, the terms of repayment are predetermined and coded into a smart contract.
How Does Crypto Lending Work?
In the most common scenario, users deposit cryptocurrencies into a liquidity pool and other users can borrow from that pool. To ensure repayment, the borrowers must give more assets as collateral than the loan amount.
To mitigate the risk from price fluctuations, the program is set to sell off the collateral and repay the lenders, If the market price of the collateral goes below the loan amount.
How To Lend Cryptocurrency?
- First, you need to select the asset that you want to lend. You need to choose a cryptocurrency here and choose one that has a good demand in the market.
- As the next step, you should select a crypto lending platform. You should do your lending on a platform that has a good reputation for security and an affordable fee. Youhodler, Wirex, and Bybit are good options here.
- Now you should develop an entry and exit plan and a clear strategy to mitigate risks.
- Once, that is out of the way, you can deposit your cryptocurrencies on the platform and start earning.
Conclusion
If you are planning to run the crypto tide, you have plenty of options to choose from. Trading and investing are the riskier of the bunch and also require sound background knowledge. However, their potential returns are also high.
Staking and Lending are two ways you can earn a passive income from crypto and carry considerably less risk. The method you choose for making money with crypto should be based on your understanding of finance and technology, your risk appetite, and your financial goals.
All being said, it is crucial to understand that crypto is not for everyone and you need not go into FOMO mode and jump into the crypto market with all your life savings only because your neighbor is making it big on the crypto market.
