Crypto 101 (Part 2)
How to Make Money With Money in Crypto
I was amazed by the feedback I got from Part 1 of this article.
Here is the link to the previous article.
If you haven’t read it, I would advise you to read it first before reading this one to understand better the point I was trying to make.
It is crucial to note that every method of making money I will be mentioning here involves investing your money to make more money.
Without further ado, let’s get started.
How to Make Money With Money in Crypto.
- Spot Trading.
- Futures Trading.
- Arbitrage Trading.
- Yielding Farming: Staking, Liquidity Provider, Borrowing and Lending.
Trading Spot or Spot trading is the process of buying a coin on an exchange. You buy low and sell high. That is how you make money in crypto, not buying high and selling low, NGMI.
Different people have different approaches to spot trading.
Non-active Traders: We call this set of people investors. They buy and HODL (crypto slang for hold) for months or years. They do not have time to check the price of bitcoin now and then.
They allocate a certain amount of money from their earned income to buy cryptocurrencies they believe in, and after a few months or years, they withdraw their money irrespective of how much it made them.
Imagine you have a project you would want to start in 5 years. So instead of saving your money in the bank, you keep it in bitcoin to hedge against inflation and when the time to kick start the project comes, you withdraw your funds from crypto and convert to fiat.
How about if your investments are at loss?
It is advised that 2 years before your project starts, remove your investments whenever you see any major pump in the crypto market.
Active Traders: We have this set of people actively trading cryptocurrencies. They include day traders and scalpers. They use different time frames to trade the market ranging from 15mins, 30 mins, 1 hour, etc. Any time frame they see an opportunity to buy low, they buy immediately and wait to sell high.
These trades don’t usually exceed a day or a week. When they find out they entered a bad trade, they cut their losses and wait for another opportunity, than wait for weeks for their trades to break even or make them profits or never make a profit.
Futures trading is the same as Spot trading, but this time around, you use leverage.
Imagine the bitcoin price is $30,000, and you have $30,000 to buy a Bitcoin. With futures trading, you can increase your leverage to 2x and buy two Bitcoins. You can also increase your leverage by 3x, which will give you three Bitcoins with your $30,000, and you can increase your leverage up to 125x on Binance.
There is more to buying 2 Bitcoins with your $30,000 in futures trading. It has liquidation prices. Take a look at the picture below.
This liquidation price means that if you bought two Bitcoins with your $30,000, and your liquidation price is $20,000. If the price of bitcoin reaches $20,000, you will lose your $30,000. I mean, the exchange will wipe out your money forever and forever. That is the risk that comes with futures trading.
If you have to engage in futures trading, learn how it works first from those who have successfully traded futures.
Arbitrage trading takes advantage of the slightest price difference between two exchanges or markets.
Imagine Bitcoin is $36,000 on Binance, while $36,600 on FTX. An arbitrage trader would buy Bitcoin on Binance at $36,000 and send it to FTX immediately to sell at $36,600. The same is applicable for various altcoins out there. Arbitrage trading is capital intensive, as the price difference is not always huge enough to make an impact except you use huge capital for such trade.
Just as i defined it here, yield farming is the process of investing your cryptocurrencies in DeFi Protocols in other to maximize return on your capital. There are different kinds of yield farming you can engage in to increase your cryptocurrencies. We have Staking, Liquidity Provider, Lending, and Borrowing.
Staking: Since Proof of Stake(POS) was introduced, DeFi protocols prefer using POS to validate transactions on their network to POW(Proof of Work). So to keep transactions validated, investors have to stake their coins on the platform.
When you stake your crypto on a DeFi protocol, you earn some percentage annually, popularly known as APR(Annual Percentage Return/Yield). Most staking platforms offer 5–100% or more APR.
It is important to note that the higher the APR, the higher the risk. Some DeFi Protocols disguise as a Ponzi Scheme. They promise high APR to attract people and then scam exit. Some, the APY is not sustainable for a long-term period. DYOR before investing.
Liquidity Provider: Then we have a liquidity provider. This is predominant in Decentralised Exchanges(DEXs). When you go to exchanges like Uniswap to buy ETH, the order immediately executes the best price. Then you ask yourself, these exchanges seem not to have an order book. How was it able to complete your order?
DEXs have pools. Investors buy coins and invest them in the pools. For every transaction carried out within the pool, investors get a percentage of the transaction fees.
Take a look at the picture below; you provide liquidity with a pair of coins ETH/AAVE
Borrowing and Lending: Just as the name implies, you can lend a platform your cryptocurrency to earn interest, and you can also borrow money from a protocol. DeFi Protocols can’t borrow you more than you have on their platform. What I mean is this, if you want to borrow $200 from a platform, you have to have at least $700 on that platform to be eligible to borrow money from that platform.
However, if you have $700 Ethereum, and you believe Ethereum is going to go up in the future, you can buy Ethereum and use it as collateral to borrow USDT. You can either top up your Ethereum to borrow another USDT or whatever you intend to use it for.
Borrowing USDT comes with interest as well.
You can buy coins and HODL for some time; it could be six months or above before you sell to ensure you come out of such trade with profit. You don’t just buy coins and HODL. You buy coins with good fundamentals (great team, good tokenomics, and solving a problem either in the crypto space or real life).
Buying ICOs, IDOs, seed stage, presale, etc., are various means of investing in the crypto space. You can also fund a project to have equity before they launch or do ICO.
Again, if you want to approach crypto as an investor, you have to do your own research(DYOR) before investing a dime.
P.S: If you don’t have time to do in-depth research before buying a coin. I will do that for you and simplify the research results for you, such that after work, spending 5 mins reading my comprehensive research result will determine if you should invest in a project or not.
Send me an email at firstname.lastname@example.org, my assistant replies in less than 2 hours.
In summary, crypto is very vast, and just like any other thing in the world, if you want to make money from it, you have to specialize in one niche, just one niche, and make the best out of it. Many people in the crypto space have achieved their dreams using any of these niches and you too can do the same with the right information and guidance.
You can combine more than one niche though, provided you know what you’re doing. For instance, you can be an investor and also hunt for airdrops. You can be a crypto social media manager and be a spot or futures Trader. There is no limitation to what you can engage in crypto, just don’t spread yourself too thin.
Talk to you soon.