Bitcoin is here to stay. Bitcoin is not a ponzi. It's not going to “crash to zero”. If you haven't realized this, you're NGMI (not gonna make it). This is not an article about whether or not Bitcoin is legit or not. We have crossed that bridge already.
Bitcoin is still pretty new though, and there's a lot of conflicting information out there. Can you still make money in bitcoin, or has the train already left the station? It seems like crypto people are getting rich, but what exactly is going on?
First off, I would like to distinguish between “crypto” and Bitcoin.
“Crypto” in general is basically a bunch of scams, or at least misleading projects where some people get rich, but most people lose. Early buyers hoard coins, then dump them on retail investors during hype cycles. Most of these projects have a founder, a board of trustees, and a development unit. They are basically companies selling unregistered securities and no realistic plan to deliver on their roadmap.
Crypto would include recent ideas that have entered the news cycle like DeFi, NFTs, and Web3.
Bitcoin is a different animal.
Bitcoin has no leader. Bitcoin is not a company. Owning more bitcoin doesn't give you more “votes” in the system. Bitcoin cannot be killed by taking down a single person or group of people. Bitcoin is decentralized, which is a core component of how it's able to maintain its strict monetary policy of only ever being 21 million bitcoin.
How open source, permissionless, digital money will affect the future of the world is still unknown, but it's pretty exciting. So let's take a look at how to actually make money with bitcoin
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Table of Contents
Making Money In Bitcoin Without Getting Rekt
Bitcoin Is Savings Technology
To make money in bitcoin without getting rekt (losing all your money), you need to first understand what bitcoin is. Bitcoin is not a “get rich quick” scheme. Bitcoin is savings technology. Bitcoin is a return to a world where you can actually save money and have it store value over time. This is why it's often called digital gold.
Through trade, and over time, over thousands of years, the world decided that gold was money. It's hard to dig out of the ground, easy to recognize, and doesn't degrade over time. Gold contained the properties of money:
However, gold is very heavy and hard to divide into very small units, so over time the world moved to paper claims on gold instead. This worked until 1971 when governments around the world agreed to remove the link from paper money and gold.
Since then, our paper money is inflating away the value of our savings accounts at a rate of at least 2-3% per year in developed countries, and 10% or more in many others. We can't save money anymore because governments basically have an unlimited money printer. We can't go back to a gold standard either, because, well, we'd be stuck in the same position as before, struggling to move ships full of gold between countries to settle transactions.
Being able to have a limited supply like gold, but be digitally transferrable across oceans is why bitcoin has value.
Is bitcoin durable? Yes. It's digital, so it will not degrade over time.
Is bitcoin portable? Yes. I can send bitcoin to anyone's wallet in the world using the internet.
Is bitcoin verifiable? Yes. You can run your own node or use a reputable node in the network to instantly verify transactions.
Is bitcoin fungible? Yes. Every bitcoin (or satoshi) is equally tradeable with any other unit of equal amount.
Is bitcoin scarce? Yes. Digital scarcity was something that never existed before the invention of bitcoin! There will only ever be 21 million bitcoin.
Now we can save money again, thanks to bitcoin! This is why bitcoin is savings technology.
Don't Get Rekt Trading Bitcoin
If you want to make money in bitcoin, many people have the preconception that you have to trade it. Buy low, sell high. Easy, right?
Well, it turns out trading bitcoin isn't that easy.
The truth is, nobody knows which way bitcoin is going to go in the short term. There are lots of factors affecting bitcoin's price at any given time, some known, some unknown.
There are lots of people drawing charts online, who may appear confident that bitcoin is going to make a move up or down based on technical factors, but these chart readers have been proven wrong over and over again. There are many logical fallacies and biases to point to when looking at trader confidence, including the gamblers fallacy, recency bias, survivorship bias, normalcy bias, hindsight bias, and confirmation bias.
In other words, traders have no idea what they're doing, so don't follow their advice.
“Models” are just as bad.
One extremely popular online persona called PlanB spent most of 2020 and 2021 promoting various “models” about bitcoin's price movement. His floor model, which he said never missed in 10 years of bitcoin's existence, predicted $98,000 by November and $135,000 by December. Fail and fail. His “stock to flow” model predicted $100,000 bitcoin by Q4 2021. Another fail.
If you were trading based on this information, you would have lost money.
Just recently, another chart popped up which claimed technical analysis proving that bitcoin had lengthening bull market cycles, and that another price pump was just around the corner! The tweet below was posted on Jan 3, 2022, and predicted a violent price movement to the upside.
Of course, by Jan 6, 2022, we had flushed from $49,000 down to $42,000. Again, if you traded based on this model, you would have lost money.
Trading bitcoin is not a good way to make money. The most compelling reason why you shouldn't trade on a regular basis is that even if you can win sometimes, you can't win all the time. Trading bitcoin is not a good way to generate cash flow for your daily living, especially when you consider the tax implications of your winning trades!
Leveraging Your Bitcoin Holdings For Cash Flow
Bitcoin isn't a company, and doesn't create products or services to generate cash flow. There are companies which use bitcoin, but bitcoin itself doesn't pay holders a yield or dividend.
Bitcoin doesn't make money. Bitcoin is money.
Because bitcoin is a scarce asset, limited to 21 million units, as more people continually buy, the price is expected to rise. This is basic supply and demand.
However, a rise in price in bitcoin just means your bitcoin has more purchasing power. It can buy more stuff. That's cool, but it also means you have to spend your bitcoin to buy stuff. That means you have to dip into your “bitcoin savings account”, and then you'll have less bitcoin at the end of the day.
This is why bitcoiners tend to spend their paper cash (fiat) money first, and only spend bitcoin in emergencies.
The only way to actually get cash flow from bitcoin is to borrow against it. This is a well-known strategy for wealthy people to access cash from the value of their assets without actually selling. You can also use this strategy for things like stocks, real estate, and other assets that go up in value over time.
The main idea is that you post your bitcoin as collateral to get cash-in-hand as a loan. When you pay back the loan, you get your bitcoin back!
For example, with a loan to value ratio of 50%, you'd need to post $20,000 worth of bitcoin to get $10,000 cash. To pay back the loan, you'd have to pay an origination fee, plus the interest rate on the loan, which could be somewhere between 10-20%, so $1000 or $2000.
The strategy is that as the price of bitcoin goes up, you'd continually roll over into new loans to pay back old loans.
This is how you get cash flow with bitcoin.
There are two major hiccups in this strategy though, and both have to do with the fact that this strategy requires that bitcoin's price always goes up.
First, if there is a market crash or long term bear market, you could be force to post more bitcoin or have your collateral liquidated. You MUST maintain the required minimum LTV. If it's 50%, and your $20k worth of bitcoin dips down to $15,000 in value, you'd have to post more bitcoin to maintain your LTV ratio. If not, they'll just take your bitcoin, even if the price dip is temporary!
Second, bear markets can last years. If you borrow a years worth of expenses against your bitcoin, and suddenly a year later you need to pay back the loan, you can't just roll over into a new loan to pay back the old loan as expected! You'd need to pay the loan in full, then post the bitcoin again to get another loan. Where are you going to get the cash?
Overall, this is not a fool-proof strategy to get cash flow from bitcoin. Most likely, you'd still need a day job or business to execute this type of strategy effectively, long term. You don't want to get caught with your pants down.
Earn Interest On Your Bitcoin & Cash
One way to earn money with bitcoin is to deposit your bitcoin into an interest-earning account. There are several out there, but the one I use is BlockFi (affiliate link). Ledn.io (affiliate link) is also a great company which is bitcoin-only. This method requires that you already have bitcoin or cash, and there's one other major caveat to consider.
The cool thing about interest bearing accounts is that they leverage compound interest to help you stack more bitcoin, over and over again. If you deposit $1000 and earn interest on it, the next month, you earn interest on your new account balance (original deposit + interest), not just the originally deposited $1000. I was able to earn 0.683 BTC in just under a year, simply by having a cash and bitcoin account balance with BlockFi.
One very important thing to consider, however, is that when you deposit money into this type of account it is NOT A BANK ACCOUNT. Your account is not FDIC insured, and companies which offer this type of service are most likely using your funds to invest. There is a chance you could lose your money if these companies go bankrupt.
Of course, companies like BlockFi are not asking you to “invest” with them. Your account balance will remain the same regardless of what they're doing in the background. Loss of funds is a worst-case-scenario. Just wanted to give you the full disclosures of what's going on.
So although this method requires that you already have some savings to deposit, and does require some risk, it's a great way to earn passive income with bitcoin.
Bitcoin Mining At Home
The only “legit” way to make money in bitcoin is to actually mine it. Bitcoin's “proof of work” mining is famous, and it's the most fair way to distribute new coins. To acquire bitcoin without just buying it, you still have to put in the work of competing against other bitcoin miners.
I'll hazard to guess that most people reading this article won't want to start mining bitcoin because it involves purchasing some equipment, learning some new skills, and maintenance of your bitcoin miner(s). If you're brand new to bitcoin, it may be too big of a step.
That being said, if you are up for the challenge, there are many guides on how to mine at home, and it's something that anyone can learn to do with free internet resources. It's not rocket science. Plus, there's a thriving community of enthusiasts on Telegram, Discord, and Twitter who are excited to help newbie entrants to the space.
When you mine bitcoin, you'll be earning bitcoin in exchange for electricity. You run your miner on your home electricity (which costs money), and in exchange you get some bitcoin from your mining pool. The cheaper your local electricity, the more you profit from each fraction of a bitcoin mined. Keep in mind, when calculating profit, you also have to factor in the cost of your ASIC (bitcoin miner). An S9 will cost a few hundred dollars, depending on where you acquire it from, while a newer S19 will cost $10,000 or more and require special electricity hookup.
You can keep your mined bitcoin in cold storage for savings, or sell the bitcoin for local currency on an exchange for cash flow.
Pay Me In Bitcoin! (Then Hold)
The most logical way to make money in bitcoin for most people is going to be by working a normal job and getting paid in bitcoin. Everyone has a unique skill set that allows them to get paid to do the everyday jobs required to run society. You could be in IT or construction, or a fast food worker or maid. Whatever you do, there's a need for it, and if you're good at your job, then you'll continue to get paid to do it.
Though most jobs won't actually pay you in bitcoin, there's an awesome workaround from the company/app Strike, called Pay Me In Bitcoin! Much like the famous CashApp app, you can direct-deposit your monthly salary into your Strike account, and have them divide a portion (or all of it) into Bitcoin automatically.
This means you can earn bitcoin every month, even though your employer is actually paying you in paper currency. Now you're earning bitcoin doing something you're good at!
Of course, if you think your job is worthless or you're not good at it, it's time to do some soul-searching and find an industry where you are happy, so you can get paid bitcoin to do a job you actually like.
Alternatively, you could start a business that accepts bitcoin as payment, and provide goods or services directly in exchange for bitcoin. Remember, you can start a simple shop on Etsy selling handmade goods, or even do handyman work on something like Thumbtack. You can also learn how to build a profitable affiliate website like me. It's perfect to start as a side hustle, then grow to a full time online income. I don't get paid in bitcoin, but I convert the earnings to bitcoin and keep some in a business account and some in personal account.
The key then, is to hold your bitcoin through the ups and downs of the market. If you plan on holding your bitcoin in cold storage for ten years or more, I think you'll be very happy with the results!
Overall, there's no easy strategy to just make money in bitcoin like you might have read about. There are lots of incredible stories of lost hard drives full of 50,000 bitcoin, or bitcoin millionaires being minted by mining bitcoin in their college dorms. It's old news, and it's not the norm. These exceptional stories make great headlines and get your clicks, but to actually make money in bitcoin, we need to look at what works for most people, most of the time.
Bitcoin is money, and the best way to earn money is to grind with a smile. Find work you love and convert your paycheck to bitcoin, or start a business that accepts bitcoin.
There's a lot of meaning behind Bitcoin's proof-of-work mining To earn money, you have to put in the labor. There's no such thing as a free lunch.
Likewise, to make money in Bitcoin, you have to grind, earn, and save. Good luck!