Okay! I get it. You are interested in investing in cryptocurrency. As the recent cratering of bitcoin prices, along with others, at least I won’t have to fight you on the it never comes down thing like I spent the last years of my financial planner days about real estate. So, making money with cryptocurrency is easy or hard, depending on your situation.
How To Make Money with Cryptocurrency
Alright. I’m going to start kind of from the beginning, but if you are looking for a cryptocurrency explained or cryptocurrency for beginners’ type of information, you’ll have to find that elsewhere.
There are a few ways to make money with cryptocurrency. One way is to buy and hold the cryptocurrency, hoping that it will increase in value over time. This is similar to investing in stocks or other assets.
Another way is to trade cryptocurrency on an exchange. This involves buying and selling different cryptocurrencies in an attempt to make a profit from the fluctuations in their prices. This is similar to short-term trading in stocks and bonds.
Theoretically, you could try and buy cryptocurrency for less on one exchange and sell it for more on another, but this tactic has largely been taken over by computers running split second algorithms, so unless you have a plan to write a better cryptocurrency arbitrage algorithm and pair it with lightning-fast internet access, this probably isn’t for most people.
You can also earn cryptocurrency by providing goods or services in exchange for it, or by participating in mining activities.
What Are the Different Types of Cryptocurrency
The most common cryptocurrency is Bitcoin. It is the leader in the industry by a wide margin. Its large size and following make it more liquid than other cryptocurrencies. If you plan to short-term trade, then this is one of the few cryptocurrencies that you can make large trades in without pushing the price around with your own buying or selling.
Another type of cryptocurrency is altcoins. These are alternative cryptocurrencies that were created after the success of Bitcoin. They typically have their own blockchain. Some offer unique features or capabilities that differentiate them from Bitcoin and other cryptocurrencies. Examples of altcoins include Ethereum, Litecoin, and Ripple.
Finally, there are stablecoins. These are cryptocurrencies that are pegged to the value of an underlying asset, such as the US dollar. The goal of stablecoins is to provide the benefits of cryptocurrency, such as decentralization and security, while eliminating the volatility that is often associated with cryptocurrencies. Examples of stablecoins include Tether and USDC, although there have been issues with just how deep their reserves go.
Cryptocurrency Boom and Bust
Trading in cryptocurrency is tricky to say the least. One of the fundamental issues is that crypto is so new that investors don’t actually know how it will react to things ranging from chart patterns to world events to episodes of fraud such as the FTX exchange issue. That means making money in cryptocurrency by trading is probably not the prevue of regular investors. As always, if one has excess cash, using some of that money to try trading crypto before expanding such investments into your regular portfolio is wise.
The best way to make money in cryptocurrency might be the most boring. Again, assuming an investor has excess liquid capital that is not already required as long-term investing, cash reserves, or other allocations in a long-term financial plan, then a crypto investment could be interesting. They say what goes up must come down, and vice versa. Again, with the crypto world so new, we don’t know if that is true yet or not. But, if you would like to place your bets, a buy now and wait for a big payday investment with money you can otherwise afford to lose might just put you in the right place to participate in any future blowup. Then you can tell everyone you are an expert in making money with cryptocurrency.
Brian Nelson is a personal finance expert and former certified financial planner (CFP). At the time of this article’s publication Mr. Nelson held assets in Bitcoin, Ethereum, and Ren, although that may change at any time without notification. This article, like all on Finance Gourmet, is for informational purposes only and should not be considered a recommendation to buy or sell any securities or cryptocurrencies. Consult your financial professionals for guidance specific to your situation.