How to make money by investing in cryptocurrency
Nowadays, cryptocurrencies are one of the most popular topics when it comes to investing, and there are hundreds of websites out there containing articles on how to actually make a profit from investing in digital currencies. This is something anyone can learn, and by the time you finish reading this article, you’ll understand how to invest and profit from cryptocurrencies.
We see the news related to the crypto world every day - Litecoin hit a new high, analysts predict that Bitcoin's price will jump as much as $50,000 etc. You’ve heard or read about it, but how can you actually make a profit from investing in digital currencies? Here, we outline three simple ways on how to make money by investing in cryptocurrency.
1. Buy and Hold
When talking about investing and making money with digital currencies, buying and holding is likely the most common method. You purchase a digital asset, wait for the interest to build up, and finally, you cash out. In essence, you wait for the price of the currency to rise in order to sell it at a higher price than when you bought.
This is one of the best and easiest ways to focus on when it comes to making money in cryptocurrency.
Back in 2013, Bitcoin was worth around $13, but fast forward 5 years later, it reached the outstanding value of almost $20,000 in 2018. So if you had invested $100 in BTC in 2013 and sold it at its highest mark in 2018, you would have made a profit of nearly $150,000. It really shows the power of making an income with cryptocurrency.
However, the most common mistake among amateur crypto investors is holding the position for too long. Cryptocurrencies are still not considered to be a store of value, its price can plummet as easily as it can rise and that’s why investors need to be very careful about it.
2. Trading crypto
Compared to buying and holding, trading cryptocurrencies is a method that requires more knowledge and experience as it includes searching for patterns in financial trading charts every day. As we’ve mentioned earlier, digital currencies can be very unpredictable and their price can change dramatically over a short amount of time. Because of its volatility, traders who keep an eye on the price all the time and identify a potential price change can make large profits by purchasing the currency and selling it when the price change occurs.
The main concern about trading cryptocurrencies is the volatility. It’s not unusual to see the price of a cryptocurrency change drastically in a single session and that’s something you can’t see in regulated markets such as forex markets.
Nevertheless, if you develop a successful trading strategy, this is the most productive method when it comes to making money with cryptocurrencies. You can check Bitspark’s crypto trading blog and learn more about some of the most productive crypto trading strategies.
This method involves making a profit on price differences between markets. In short, an investor buys and sells a certain currency in two different markets, and due to the difference in price, they make a profit. Let’s mention the three most common methods of crypto arbitrage: spatial, cross-border and statistical.
- Spatial arbitrage is when an investor capitalises on the cryptocurrency price difference between two different exchanges. For instance, while Bitcoin’s value on Exchange 1 is $9000, on Exchange 2 it’s worth $9300. An investor can purchase BTC on Exchange 1, sell it on Exchange 2 and capitalise on the price difference.
- Cross-border arbitrage is very similar to spatial arbitrage and the main difference is that the two exchanges engaged in the transaction are located in different countries.
- Statistical arbitrage is an advanced method that typically requires mathematical modelling. It’s less safe than other methods given that the idea is about trading algorithms that take advantage of the price differences that exist for a very short period. While you can sometimes easily make a profit using this method, it’s important to identify whether or not a certain transaction is worth the effort.
Learn more about crypto arbitrage in our Simple Guide posts.
Making money with crypto
Buying and holding cryptocurrency involves purchasing the asset, waiting for its price to rise and selling it at a higher price. Trading assumes a bit more of a diligent approach as it requires searching for chart patterns and recognising a potential price change, and it’s the most effective method if you know what you’re doing. Finally, arbitrage trading involves capitalising on the price difference between the same assets but on two different exchanges.