Is it possible to make money on cryptocurrency, what can be the profit and how not to go into the red? We talk about crypto trading in detail
Trading crypto-currencies with successful hands allows you to get a yield of several hundred percent per annum. But if all risks are realized, you can lose all invested capital. Proven strategies and hard hedging of all risks work in the cryptocurrency market. Let’s try to figure out whether it is possible to earn on cryptocurrency and how much such earnings can be.
Cryptocurrency earnings. Basic ways
Cryptocurrency trading on the exchange is a business with its own risks and rewards, where every decision either brings income or leads to losses. Earnings on cryptocurrency are determined by several indicators, and in professional trading it depends only on the size of the deposit.
Investors working for the medium or long term use several profitable strategies at once:
portfolio investments with the formation of a set of profitable coins;
hodling — passive investment: you keep coins in your wallet until they reach the planned profitability;
staking is the storage of a cryptocurrency with a commission in a wallet that is used to support the blockchain network;
mining is a way to make money on cryptocurrency by mining coins on specialized equipment;
a hodling option with an investment in promising tokens in the hope of their explosive growth;
use of referral programs.
How to Build a Cryptocurrency Portfolio
To make money on cryptocurrencies, it makes sense to build a competent portfolio. First of all, it should be balanced, that is, it should consist of 4–8 cryptocurrencies, selected according to a number of parameters.
There are two types of cryptocurrency portfolios that are built in a similar way to traditional assets. In a conservative portfolio with minimal risks, there will be reliable and proven currencies, in an aggressive one — promising and new, which means that they imply a certain risk.
Conservative cryptocurrency portfolio
Consider a conservative portfolio. The main share — 70% — should fall on reliable coins from the top 5 cryptocurrencies (BTC, ETH, USDT).
Another 25% can be coins from the top 10, backed by serious companies that have proven themselves in the cryptosphere (XRP, SOL, ADA).
5% can be left for high-volatility coins that have shown rapid growth — for example, in March 2022 it would be ApeCoin (APE), Waves (WAVES), THORChain (RUNE). Even if there is a sharp drop, the losses will be balanced by a large proportion of reliable coins.
Aggressive cryptocurrency portfolio
Now let’s look at an example of an aggressive portfolio. In it, reliable coins — bitcoin, ether, USDT will occupy 50%.
At the same time, promising coins from the top 50 — SOL, ADA, RUNE and others — will account for 25%, and another 25% — for high-risk assets in the range from 50th to 100th position (BAT, OMG and others).
During the period of growth of the main cryptocurrency, the profitability of such a portfolio can exceed 100% per annum. This is because the rise of bitcoin is always followed by the season of altcoins — the time when the main coins pull up in price next.
What is HODL and why is it beneficial?
Hodling is a recently popular option for long-term investments that allows you to earn on cryptocurrency.
What is the principle of long-term retention of a coin in a wallet based on? In the long term, any market is growing, but the development of market trends is cyclical, with corrections. Therefore, if you buy an asset and hold it, for example, for several years, then the probability of further growth exceeds the probability of the asset falling. At the same time, sharp, large movements of the market against the trend can be ignored.
It is better to choose reliable and well-established cryptocurrencies with a high market capitalization for hodling: bitcoin, ether, USDT and a number of other coins. If you choose a currency that is growing in the moment, but weak in the long run, then you can lose your money on a deep drawdown of the coin. Moreover, a weak currency has every chance to cease to exist. Hodling profits can reach tens and hundreds of percent.
How much can you earn trading cryptocurrencies
The answer to the question of how much you can earn on cryptocurrency depends largely on the investor’s strategy. It makes sense for risky investors who are ready for losses but want to make high profits to catch x — that is, to profit from coins that have suddenly risen due to a combination of a number of factors.
For example, 2021 will be remembered for the sharp growth of the decentralized finance (DeFi) industry and the emergence of a huge number of new promising projects.
For example, AVAX is a native token of the Avalanche project that works with smart contracts. Back in January 2021, AVAX was worth $4.6, and by the end of July 2022, one coin is worth $25.
How to make money on cryptocurrency. Bitcoin example
Back in March 2020, the price of bitcoin fell just below $4,000 amid panic due to the spread of the coronavirus. And in July 2022, it is trading at $23,690.
Bitcoin not only survived the global economic crisis caused by the coronavirus pandemic, but also fully revealed its potential as one of the main defensive assets of the financial world. In addition, it has received a huge amount of attention from institutional investors who are now actively investing hundreds of millions of dollars in cryptocurrencies.
How to make money staking
Storing coins, or staking, can also be profitable — the presence of cryptocurrency blockchain in some networks is necessary to keep them running.
Staking happens in the following way. Validators — nodes that keep the blockchain running — freeze their coins for a certain period, for which they receive a part of the reward. The more coins are frozen, the higher the income. You don’t need ASICs and powerful video cards for stacking — a laptop is enough.
For the network, this is a less energy-consuming phenomenon than mining, and for validators, it is an opportunity to receive passive income for generating coins. According to experts, earnings in the Ethereum 2.0 network will be from 5% to 21% in the first year before deducting the cost of equipment and energy, which will be 5–20%. However, given the price fluctuations of ETH, staking will not necessarily be consistently profitable.
How to make money on mining
In the long run, BTC mining is more profitable than mining any altcoins. The latter have too much volatility — the rate can skyrocket and also fall rapidly in a short period of time.
But if you want to try to make money on another coin, the most universal advice is to mine only the first 20 coins by capitalization. As a rule, these are time-tested and relatively reliable projects. In this article, we looked at the cryptocurrencies that are most profitable to mine in 2022.
How to make money on referral programs.
Working with referral programs is a business with minimal risks, based on the recommendation of services and goods of the blockchain platform to third parties.
To start, you need to connect a business account, generate a referral link and start working. The reward is calculated from the amount of spending of all invited users, and income depends on activity.
Imagine that you managed to invite 10 active traders to the cryptocurrency exchange. According to the results of the month, traders made 200 profitable deals and spent $2,000 on exchange trading commissions. With a 10% commission for the one who invited them, the income will be $200.
Disclaimer: The information provided in this article is solely the author’s opinion and not investment advice — it is provided for educational purposes only. By using this, you agree that the information does not constitute any investment or financial instructions. Do conduct your own research and reach out to financial advisors before making any investment decisions.