Beginners looking to dip their toe in the cryptocurrency market can make money in a number of ways. If you’re wondering how to make money with crypto in 2022, here are some of the many ways crypto users or holders make money. With beginners in mind, these mETHods comprise accessible strategies that normal retail investors can utilize and at a lower risk than complicated strategies used by professionals.
How to Make Money with Crypto?
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. 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.
Buy and Hold
This mETHod of making money from cryptocurrency is preferable for people with long investing horizons that are willing to take a chance. This would involve buying a crypto asset of choice from a crypto exchange and buying more when possible or when prices drop – conventionally called ‘buying the dip’. Then after months or years of HODLing – holding on for dear life – the asset may be sold at a significant overall profit compared to purchase cost.
Long established crypto coins, such as Bitcoin, ETHereum and Litecoin, do rise and fall in value daily but have generally maintained an upward trend across years. Newer altcoins that pop up everyday, are more likely to debut at a higher price due to hype, lose value and take a long time to recover, with the possibility of being snuffed out of existence if there aren’t enough buyers in the market or enough utility yielded by the function it serves.
Before choosing which cryptocurrency to hold onto as a long term investment, it is critical to read the coin’s whitepaper for a start. It will explain its origins, the purpose it serves, and give enough information to ascertain whETHer it will stand the test of time.
Trading Cryptocurrency
- 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.
- 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.
- 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.
Arbitraging Cryptocurrencies
Arbitrage involves trading one cryptocurrency for another, or trading the same cryptocurrency on different exchanges. This mETHod is preferred by people who are accustomed to day trading, and have an even higher appetite for risk than those who are simply day trading. Being a hands-on trader reveals many imbalances in the market, and thus opportunities for profit each day.
For example, let’s assume XYZ coin is priced at $10 on one exchange and at $11 on the second. A person could then buy ten XYZ coins on the first exchange at $100, transfer the coin to the second exchange, and then sell the cryptocurrency for $110. The absolute gain would seem to be $10. However, transaction costs could eat away as much as $8 and leave investors with a profit of only $2.
This is similar to how investors play fiat currencies against each other in traditional currency markets. There could be more complex routes, such as transferring value between three currencies on the same exchange, to end up with a larger quantity of the first currency. This is usually done when the value of newer cryptocurrencies rises or falls considerably within minutes.
In other instances, ‘stablecoins’ whose value remains ‘tETHered’ to specific national currencies – like Tether (USDT) which will remain at 1 USD – may be useful to benefit from imbalanced prices.
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 – usually the farm’s native token.
Another difference between staking and yield farming is the yield you receive. It isn’t uncommon to see emerging new farms paying out yields in the hundreds or thousands of percent to incentivize liquidity. Though, 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 Nexo 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.
Sign-Up Rewards
Those who do not have the capital to invest in cryptocurrencies or buy expensive mining equipment have the option of earning cryptocurrency directly. One way to do this is to sign up to a crypto exchange. Some crypto exchanges like Coinbase and Gemini, offer a tiny quantity of free coins to users who sign up and fund their account at a minimum threshold.
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. Participating 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.
Closing Thoughts
It is still very early in the cryptocurrency asset class when it comes to the number of ways to make money. There will undoubtedly be innovations in the crypto space that we cannot even imagine right now. These new directions will most likely provide even more ways on how to make money with crypto.
But of course and as always, do your own research when it comes to making money with cryptocurrencies and remember that if somETHing sounds too good to be true, it usually is.
