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Riding the wave of making profits from cryptocurrencies can be tempting, and if you are new to trading, you might be confused about what it is, and how it is possible to make money from cryptos.
Cryptocurrency is digital money that is used to buy goods and services online. There are different types of cryptocurrencies that can be traded, common ones that have a lot of value are ones like Bitcoin and Ethereum, while other cryptos hold less value like Litecoin and Ripple.
Just like any other financial instrument, cryptocurrencies are traded in financial markets. Many investors buy cryptos until their prices go up and realize profits after selling.
Cryptos are known for their great volatility which enables traders to gain significantly, but they are also associated with a high level of risk. Therefore, you need to be aware of what you are trading and how you can make the most of it, which is what we are going to discuss in this guide.
One of the first cryptocurrencies was created in 2009 by a programmer known as Satoshi Nakamoto. It was to be used as a digital currency that can allow people to pay for goods and services online. They can be digitally created, stored, and exchanged.
The intention behind founding cryptocurrency was to decentralize money transactions and transfers. There is no bank or official financial institute that can intervene which makes for less control by the state and fewer transactional fees.
The value of cryptocurrencies remained insignificant until 2016 when they suddenly boomed, and the value of most cryptos grew significantly. The boom was caused by increased media coverage and speculation about the use of cryptocurrency as a futuristic method of payment.
That period was accompanied by several political changes around the world, which caused changes in the currencies and other financial markets.
Additionally, the reason for the great valuation of cryptos, especially Bitcoin, was due to the popularity of blockchain technology which is the backbone of the whole cryptocurrency system.
Blockchain technology works as a ledger for the cryptos, it records and processes all the virtual transactions of cryptocurrencies in a secure decentralized database. A huge community of developers and cybersecurity experts administer the blockchain to secure it against infiltration or hacks.
There is a huge amount of cryptocurrencies and the numbers are only increasing every year. You can buy a cryptocurrency and store it in your crypto wallet, and from there you can pay on different platforms.
Recently, more and more eCommerce companies are adopting cryptocurrency as a method of payment as it is faster, more secure, and usually cheaper than bank wire transfers.
Financial traders benefit from the great valuation of cryptocurrencies over the years, and they treat cryptos, especially Bitcoin, as a financial instrument that can be traded. You can buy and sell cryptos through financial brokers and speculate on price movements based on the historical growth in their prices.
The price of Bitcoin alone grew more than 4,000% since the 2016 boom, which means that if you spent $1,000 in 2016 and purchased one Bitcoin, you could sell it in 2022 for more than $40,000.
By August 2022, there are more than 18,000 cryptocurrencies that can be traded, and their value varies according to several factors such as popularity, value, and security.
Cryptocurrencies are usually more volatile than other financial instruments. You can find many cryptos that swing by more than 4% in a single day, giving a huge gain opportunity for crypto traders.
There is a huge number of cryptocurrencies in circulation, but not all of them are traded at the same frequency. You can find currencies that are offered by most financial brokers due to their popularity and value.
Other cryptos make a distinguished buzz due to the marketing campaigns associated with them or their relevance to any social media trends such as Dogecoin and Shiba Inu.
Liquidity is another factor when it comes to choosing the cryptocurrency that you want to trade. Commonly traded coins have high liquidity, which means that you can easily buy and sell these cryptos, with minimal delays.
There are two main ways to make money from cryptocurrencies. You either trade cryptocurrencies or invest in them. Trading is more of a short-term activity, you buy and sell cryptos and benefit from the daily or weekly price change.
Investing implies purchasing digital coins and keeping them in a crypto wallet for several months or years, hopefully gaining from long-term growth.
Investing for the long term requires careful analysis of the current trends and tendencies, and if you are confident in the future value of a cryptocurrency and guess correctly as to where the price is going, you can gain some amazing returns.
Bitcoin is the first and the most popular cryptocurrency due to its valuation over the years, it is the most owned crypto with more than 100 million holders around the world.
It is an accepted method of payment on many e-commerce websites that accept online payments and transactions. The price of bitcoin fluctuates more than any other cryptocurrency, and in 2021 alone the price went from $29,000 to $67,000 before returning to $47,000 by the end of the year, and now is back to the $29,000 mark.
The value of bitcoin swings more than 3% around its average market price, yielding high gaining opportunities for traders. However, this wide volatility can lead to excessive losses as well.
Ethereum is the second cryptocurrency after Bitcoin in terms of value and ownership, and it is more volatile than Bitcoin, which comes with more rewards and risks to crypto traders.
The price of ETH grew more than 550% between the cryptocurrency boom in 2017 and 2022, and in 2021 alone the price fluctuated more than 400% around the average price.
Ethereum was created as an improved version of Bitcoin, and today it is used in Non-Fungible Token (NFT) marketplaces. These NFTs are traded between buyers and sellers in an auction-like manner.
Additionally, it is used as a method of payment on websites that deal with cryptocurrencies, in this way it is similar to Bitcoin.
Tether was created as a stablecoin that is pegged to a fiat currency.
The USDT is fixed at 1 USD, with minimal price swings. The price fluctuations happen due to changes in demand, but very soon it balances itself back to the $1 mark again.
Therefore, the volatility of USDT is very low, and it is used as an online method of payment. In 2019 alone, Tether exceeded the trading volume of Bitcoin, and it achieved the highest trading volume in daily and monthly averages.
Dogecoin set the foundation for “meme coins”, or crypto coins that are satirical in nature. The logo of the DOGE is based on a dog that is considered an internet joke.
The establishment of this coin was accompanied by a huge marketing buzz as it circulated massively through the internet and social media platforms, and many people considered buying DOGE coins due to its huge valuation.
In 2021, the price of DOGE increased by more than 13,000% in 5 months, before declining by 75% towards the end of the year.
It was a massive pump-and-dump scheme that resulted in huge gains and losses, where many traders made quick profits while others lost their money due to the decline after June 2021.
This pump-and-dump caused investors to lose tens of millions of dollars and has led to a $258 billion racketeering lawsuit against Elon Musk who was the person most responsible for pushing up the price of Dogecoin.
Here is yet nother meme coin that made it big due to a pump-and-dump scheme. It was created in 2020 to replace Dogecoin where both used the same dog breed as their icon.
The price of SHIB grew more than 1,000% in one month between September and October 2021, and it also came with a significant marketing campaign that drew great attention from most traders who started buying this coin.
However, a few weeks after the sharp price increase, Shiba Inu eventually dropped by 75% and maintained its price at around $0.00002285 since the start of 2022.
The high volatility and growth in the price of most cryptos made it a huge gaining opportunity for traders to make money from cryptocurrencies. Just like any other financial instrument, traders buy and sell different cryptocurrencies every day, and benefit from the wide price fluctuations of most cryptos.
Some cryptos are more popular and commonly traded in the market, and these have high liquidity and are highly speculated on, causing their market price to change several times a day. These common coins include Bitcoin, Ethereum, Tether, Ripple, and Litecoin.
On the other hand, some cryptos are less commonly traded, they have fewer traders involved in buying and selling them. However, it is risky to trade cryptos that are uncommon because fewer traders are involved which means more volatility and less liquidity, which can see the price change direction dramatically.
Additionally, less popular cryptocurrencies have lower liquidity, which means that when you place any market order on these coins, a slippage time is most likely to happen. When this happens the executed price in the software is different from the price you intended to pay.
Depending on your trading style and expectation, you may trade cryptocurrencies in long-term or short-term timeframes. It also depends on the cryptocurrency you are choosing, and your confidence in the blockchain.
For example, you can trade with Bitcoin in a short-term strategy where you can buy and sell it according to price trends and future estimations. Also, you can buy a specific amount of Bitcoin and keep it for a longer period, and sell it later after several months or years.
Regardless of your trading strategy and the crypto you are planning to buy, you need a platform where you can exchange fiat money for cryptocurrency.
Crypto exchanges allow you to exchange Fiat money for cryptocurrencies. They are mostly online-based websites where you open up a crypto wallet, and then transfer money to your wallet to conduct transactions.
There is a huge number of online crypto exchanges, and each of them offers different features, cryptos, and handling fees. To start, you need to register your account with an exchange like Coinbase or Binance, verify your account using an ID, and then select your method of payment.
Once you are set up, you can add funds to your crypto wallet, and then buy cryptocurrencies that are available on the website.
Most of these exchanges offer a price chart for each crypto to track the price changes. You can use the chart to analyze price changes and future price fluctuations, to make your buying and selling decisions.
For example, let’s say that you added $10,000 to your crypto wallet, and you exchanged $2,500 for one Ethereum. Now you have $7,500 and 1 ETH in your wallet. If the price of ETH increased during the day by +$8, you can exchange the ETH back for USD, and gain $8 more in your wallet.
However, you can keep the ETH in your wallet for an extended period of time if you expect that its price will increase. If the price of ETH becomes $2,550 for example, you can exchange the ETC for USD and gain $50 in your wallet.
Financial brokers developed the idea of CFD trading (Contracts For Differences), which means that you do not own the asset physically, you are only trading on the future price expectations.
CFD was also introduced in cryptocurrency trading where you can open different market orders according to your price analysis. If you expect the price to increase, you execute a buy order and keep it for some time until you get some gains and then sell the market position.
Similarly, if you expect the price to decrease in the future, you can open a sell position in the market, and when the price of a cryptocurrency declines, it means that your trading position is gaining, and you can close it whenever you have made enough profit.
However, you need to be careful when working with a CFD broker, some brokers conduct a fraudulent scheme where you deposit your money and gain nothing in return, even if you try to withdraw your funds.
Therefore, you need to check the broker out carefully and make sure they are regulated. There are several licenses that regulate the broker’s conduct, such as FCA, CySEC, FSCA, ASIC, or IFSC, and you need to ensure that your broker holds at least one or more of these licenses before depositing any money.
These licenses are issued by regulatory authority bodies that observe financial conduct around the world. Additionally, you need to check the payment methods, and if cryptocurrency CFD trading is available on the broker’s website.
Most importantly, check the broker’s fees. There are some fees associated with trading or opening an account, such as spread, withdrawal fees, or handling fees. Therefore, a trader needs to make sure that these costs do not offset the projected profits.
You can also own a cryptocurrency using a local broker or a crypto ATM. Many countries adopt cryptocurrency as an accepted method of payment in the economy, and they facilitate the process of owning and selling different cryptos.
The easiest way to do so is via crypto ATMs. They work similarly to conventional cash machines, with a slight change. With crypto ATMs, you can deposit money and exchange it for a selected cryptocurrency in your wallet, but not withdraw anything.
Crypto wallets come with a QR code that you can scan on the cryptocurrency ATM, select the cryptocurrency you want to exchange, select the currency you are depositing, and deposit the amount of money you want.
It is usually an instant process to exchange from USD to Crypto using ATMs, however, it is better to check the local supplier if you are concerned about the reliability of the ATM.
Most Crypto machines enable you to exchange money into cryptocurrencies that you can store in your wallet, and only a few of them allow you to withdraw money by selling your owned cryptocurrencies.
Just like trading stocks, commodities or currencies, there are some risks associated with crypto trading. However, since digital coins usually have higher volatility, the risks that come with crypto trading can be higher.
There are several risks that accompany cryptos, and it is not only about price fluctuations. Some risks come from the structure of that cryptocurrency or the legal point of view.
In fact, cryptocurrencies are decentralized and are not controlled by any state or national bank. Therefore, the price does not change due to local factors like inflation or economic growth. The prices fluctuate due to changes in demand and supply patterns.
The price of cryptocurrencies also relies on speculations, which means that when a trader or a group of traders expects that a digital coin will perform well, many traders will agree to buy that currency, and the huge number of people buying will cause the price to increase.
On the other hand, when traders expect that a certain currency will become worthless, everyone starts abandoning that currency and its price falls dramatically.
Therefore, it is challenging for traders to read the market movement and the projected price changes, which causes many traders to go with the flow because they fear missing out.
The fear of missing out (FOMO) is a well-known term among traders who buy or sell a specific asset just because everyone is doing so. They don’t want to be left behind and want to get a piece of the pie.
Cryptocurrencies are decentralized and are not controlled by a state or a central bank, which can be a good and bad thing at the same time. The transactions are recorded in a virtual ledger-like technology called a blockchain, which is governed by a group of developers.
The structure of the blockchain raises concerns for some traders. There are fears that similar to any financial bubble or meltdown, blockchain technology will face the same fate and at any moment it can crash and millions of traders will lose their holding of cryptocurrencies.
That risk is insignificant because a group of highly skilled developers is holding the structure of the blockchain in check and they consistently update the cybersecurity against any hacks, especially for the most valuable cryptocurrencies like Bitcoin, Ethereum, and other top cryptos.
However, less-traded cryptos, or new ones, might have a less secure structure which makes them more prone to hacks and infiltrations. For that reason, not many traders favor new emerging cryptos as they fear that their coins might disappear or get stolen.
Additionally, newly emerging cryptos might be the outcome of pump-and-dump schemes without a stable backup. Investing in these sketchy cryptos can either be a very short-sighted gain strategy, or a crypto scam that does not allow you to resell your holding because they simply have no liquidity.
Some risks arise from the fact that countries around the world change their policies regarding cryptocurrency trading. Some countries adopt Bitcoin as an authorized method of payment, while other countries ban trading with it altogether.
Therefore, before you get involved in crypto trading, check the local policies and requirements for trading. Additionally, keep checking as the local regulations can change the acceptance of crypto trading.
If cryptocurrency is something that is not allowed in your country, you will not be able to withdraw/add funds using a local broker or bitcoin ATMs, and you will require an online crypto exchange to conduct your transactions.
In some cases, if the local regulations strongly ban dealing with cryptocurrencies, you might not be able to register with an online crypto exchange, or you might face punishment if you were found to be dealing with cryptocurrencies.
As we have mentioned earlier, you can trade cryptos using long-term or short-term strategies, it all depends on your preferences and expectations.
Just like trading in any other financial market, there are certain strategies that work well with cryptos, taking into account the volatility of the price fluctuations of most cryptocurrencies.
The scalping strategy includes entering and leaving the market several times a day with each position being open for no more than 10 or 15 minutes. The idea behind that these short trading intervals will accumulate small gains during the day, which can become significant by the end of the trading day.
One of the advantages of the scalping strategy is that traders keep their eyes on their market positions most of the time, especially if the traders set the trading timeframe to 5 minutes.
Keeping a close eye on these trading positions eliminates the shock from sudden price changes, as traders can conduct changes or stop their trading position if it seems like it is losing excessively.
Trading cryptocurrencies using the scalping strategy can be fruitful due to the volatility of some cryptos. Within the short trading intervals, your traded cryptos can move multiple pips, and you can make some gains in a short period of time, and accumulate them by the end of the day.
However, the downside of scalping cryptos includes not gaining enough in one interval to offset the broker’s fees, therefore trading at a loss. Another disadvantage is missing out on big gains if you prematurely close your trading position.
A day trading strategy can be used in most financial markets, and when you apply it to cryptocurrencies you may benefit from the relatively high price swings during one trading day.
This way, after you select the cryptocurrency that is more likely to move during the day, you open a trading position. Then, you close the market order by the end of the day, reaping whatever was gained during the trading day.
To trade successfully using this strategy you need to select a cryptocurrency that has a medium to high volatility rate. In day trading you are looking to gain enough profits during the day before you close your market position.
The swing trading strategy utilizes various price changes during the day. On average, cryptocurrencies fluctuate more than most financial instruments in the market, and you can open a market position on both sides of the swing.
When the price of a cryptocurrency increases, you may initiate a buy order, and when the price declines, you can open a sell order. This way, you are moving following the price trend.
This strategy focuses on short-term profits, as most cryptos do not keep moving in the same direction for days or weeks, and you need to open and close market positions several times according to the market price direction.
This trading strategy focuses on the long-term outcomes, you open a market position and keep it active for several months or years.
Trading long-term means that you ignore small price changes that happen during the day, or during the week, as you only care about the bigger picture after a long period of time.
This strategy is preferred with well-established and strong cryptos, as traders are confident they will not fail any time soon.
Most crypto traders who prefer position trading purchase a specific amount of Bitcoin or Ethereum and store them in a crypto wallet, and then after a few years pass, these cryptos have hopefully increased in value.
Cryptocurrencies as financial assets are characterized by some features like volatility, liquidity, and speculations. Therefore, if you want to trade successfully, you need to look into the following matters.
Since there are thousands of cryptos being traded, the liquidity varies depending on the cryptocurrency being traded. Common currencies like Bitcoin, Ethereum, and Litecoin are traded by millions of traders around the world, which means it is easy to find a buyer or a seller.
Therefore, popular cryptos have high liquidity. On the other hand, less traded cryptocurrencies have relatively low liquidity. So, if you want to go for less traded but highly volatile cryptos, you need to consider that they have low liquidity and a higher chance of slippage time.
Cryptocurrencies are highly speculative, which means higher volatility. The price of most cryptos changes a lot in one day. Even the most commonly traded one like Bitcoin changes its price by more than 3% around the average market price in one day.
Less commonly traded cryptos have higher volatility, simply because there are fewer traders involved, and trading operations can significantly affect the market price.
However, most cryptocurrencies enjoy higher volatility than other financial instruments, which attracts more traders to make more gains in a short period of time.
The cryptocurrency market is highly speculative, and the prices change massively based on traders’ sentiments and competition among cryptocurrencies.
Therefore, to successfully trade with cryptos, you need to take into account the global regulations regarding crypto trading. For now, most leading developed countries allow crypto trading, but if anything changes in this pattern, the prices of most cryptocurrencies will change.
Another reason why you need to keep your eyes on the crypto market is to look out for other emerging coins. There are thousands of cryptocurrencies, and their prices change wildly. An increased price of Bitcoin can hugely affect the price of Ethereum for example.
Finally, since the market relies on the law of supply and demand, you need to check the market sentiment. If there is a huge tendency towards buying Ethereum, it is more likely for the ETH price to increase, and vice versa.
Our partner, XM, lets you access to a free demo account to apply your knowledge.
No hidden costs, no tricks.
It is safe if you do not invest all your life savings in it. Despite the fact that high volatility and speculations make crypto trading riskier than other financial markets, some crypto traders made fortunes from the great valuation of major cryptocurrencies.
You need to find a crypto exchange to trade your money for cryptocurrency that can be stored in your crypto wallet. Then, when the price of that cryptocurrency increases you can sell it and gain some profit.
You can make money from Bitcoin in two ways. You can purchase a specific amount of BTC and store them in your crypto wallet, then when the price increases you can exchange it back for potential gains.
Or you can trade with a CFD broker, where you can place market orders depending on price movement. If the price increases you can place a buy order, and if the price is decreasing you can execute a sell order.
Despite the fact that crypto trading is highly volatile, and the prices change dramatically in a short period of time, many traders make a lot of money in crypto trading. The price of Bitcoin in 2021 grew by more than 50%, which means if you invested $5,000 at the beginning of 2021, you would gain $2,500 from investing in it.