Cryptocurrencies are becoming increasingly popular assets for making money, both actively and passively. With Bitcoin being the most popular and valuable crypto, you must be wondering if there are ways to make money when you buy bitcoin.
In this article, we explore some of the best ways to make serious cash with bitcoin. We will take a look at how to approach each one of these methods. To this end, we share the pros and cons for each method, the level of upfront investment needed, and the knowledge required to be successful in your venture.
Let’s begin with some of the reasons why you should be using bitcoin to start making some profits.
How to make profits with bitcoin – Why Bitcoin?
First of all, Bitcoin is the original cryptocurrency. Created in 2009, it was the precursor that spurred the crypto revolution, providing humanity with a real alternative to traditional money. But more importantly, this popularity and pioneering status make it much more viable as an investment asset. Here are some of the reasons why Bitcoin is a better asset to grow your capital than any other crypto out there:
- Bitcoin has the safest network – because of its incredible popularity and longevity, there are more than 12000 nodes running the bitcoin blockchain momentarily. With millions of miners competing for a piece of the cake, the Bitcoin network is considered to be the most decentralized in all the crypto markets. This makes it incredibly secure and resistant to malicious attacks.
- Bitcoin dominates the rest of the market – because it’s so popular, bitcoin is also the most highly valued crypto out there. It dominates the rest of the market with a share of more than 45% at the moment of writing. Consequently, when the price of Bitcoin moves, the rest of the market usually follows.
- Bitcoin is a proven store of value – Bitcoin has a limited supply of 21 million coins, which increases its scarcity, and therefore, value over time. Moreover, when looking at the long-term returns, Bitcoin’s value has only gone one direction – up.
How to make good money with Bitcoin and turn a profit
Below is a complete list of all of the activities an investor could undertake to start making profits with Bitcoin. Each one comes with its own benefits and drawbacks. We detailed them the best we could so you could form an opinion of which method should suit your investing style the best.
Mining is the process of creating new Bitcoins and verifying transactions on its network. This is done by solving increasingly complex mathematical puzzles (called hashes) to try and discover the next block in the chain.
For this, miners use powerful and specialized (ASIC) computers called mining rigs. These are quite costly and require a significant upfront investment before miners can become profitable. Moreover, miners are rewarded with new bitcoins because they use an expensive real-world resource to solve the blockchain hashes – electricity. This is because the rigs consume large amounts of electricity to provide the computational power needed.
To become a profitable miner, you will need access to the following:
- Cheap electricity – the cheaper the electricity in your region, the higher your profits will be.
- Reliable internet connection – your rigs need to stay online 24/7, so a stable and fast internet connection is mandatory.
- Solid power grid – because ASICs draw so much power from the grid, the infrastructure where you plan to launch your mining operation should be top-notch.
The last thing worth mentioning is that you will probably need to join a mining pool as well. While these will charge a small commission, they considerably increase your chances of receiving rewards.
Spot trading is certainly the most profitable method of making money with Bitcoin. With thousands of altcoins present on the market, you can trade bitcoin for them and wait for their value to rise. Once they have peaked, you can sell them for bitcoin and increase your portfolio.
With that said, trading isn’t easy and requires a good amount of knowledge and experience before you can become successful. You will need to learn technical analysis and understand how swing trading works. The goal is to buy low and sell high, and with cryptocurrencies and their high volatility, this is easier said than done.
Leverage or Margin trading is considered a high-risk, high-reward method of trading. Here, you will trade with borrowed funds, that can help you decuple your gains in ratios of 2x, 5x, 10x etc.
However, the higher the margin of borrowed funds, the higher the risk will be. For instance, if you bet against (short) bitcoin on a 10x margin, you could gain 10x more profit if the market goes your way. But if Bitcoin’s price rises, a simple 1% upwards move could wipe out your entire capital.
Long-term investing with dollar-cost average
Dollar-cost averaging (DCA) is a low-risk investment method that works best in the long term. It involves dividing your investment into smaller and regular purchases at fixed periods.
This allows you to negate the short-term volatility of Bitcoin and smoothens the price curve on its way up. By purchasing Bitcoin regularly, regardless of its price, you will be able to benefit from the huge upwards cycles this cryptocurrency experiences every 4 years.
Finally, one great way to earn passive income from your BTC holdings is by providing liquidity to centralized lending platforms. These companies require liquidity so that other users can borrow crypto.
Once you lock in your coins, you will be able to gain interest, where rates average between 3% and 6%, depending on the demand and the platform used. Some of the most popular lending platforms for bitcoin holders are Celsius, Nexo, and Blockfi.
Conclusion on how to make profits with Bitcoin
Bitcoin’s value has gone up by more than 1 million % since its release on the markets. In just over a decade, this digital asset has proven to be one of the best stores of value available to humans. It can be used to hedge against inflation and more importantly, used to make considerable profits thanks to the many financial products it offers.
Disclosure: This is a guest post. Please note that investments can go up as well as down and capital is at risk. Consult a financial advisor before making any big financial decisions.