I think it's fair to say that everyone is in a cryptocurrency craze right now. Whether it's a bubble or not, and whether it's justified to be so enthusiastic about cryptos and blockchain is another story.
The question I'd like to help answer on this page is whether or not it's possible for YOU to make money trading cryptocurrency. Even beyond “trading”, I'm sure you want to know if it's worth buying or investing long term into cryptocurrency.
Table of Contents
- Making Money Trading Cryptocurrency
- Make Money Trading Cryptocurrency
Making Money Trading Cryptocurrency
Before we get too far into the topic at hand, let's talk a little bit about where I'm coming from.
Why Should You Listen (or NOT) To Me?
I'm just a guy. Why does my opinion matter? Well, first off, I have bought and sold a variety of cryptocurrency over the last year. I have made money and lost money, but overall am in the black as far as money-making goes.
But beyond that, I also invest in the stock, real estate, and own a business. So my experience in making money and investing is much wider in scope than just day trading crypto coins, and my experience is longer than just the past six months of craziness in the world of cryptocurrencies.
Basically, if you bought and hold almost anything in the past year, you would have made money with cryptocurrency, so even the guys who are millionaires now don't necessarily have the best advice.
However, keep in mind that my experience with investments only goes back to 2012, so only about 5 years. During that time, the value of stocks, real estate, and just about everything else has been on the uptrend.
The S&P is at an all-time high. Real estate is back to 2008 highs. Sure, I've made money, but I don't think it's because I have any better strategies or skills than anyone else.
Trading Cryptocurrency Advice
In all honesty, my advice is to not even try to “trade” unless you want to make it a hobby like gambling. Many times, altcoins, or even big names like Bitcoin, Litecoin, or Monero will bounce up or crash on surprise news. Sometimes even on no news.
You may invest $1,000 USD in the evening, and wake up $500 poorer in the morning just because. The fact that you can't guess what's going to happen in the future really does make trading a gamble.
Follow Crypto News
Following a blog like CryptoCoinNews.com is a good start to becoming a successful crypto trader, but by the time it reaches the front page of the crypto blogs, you're already likely too late. Follow coin-specific channels for cutting edge, insider knowledge. Get on email lists and participate in forums that only talk about your coin, and you may beat the crowd by a couple of days.
For example, I follow an altcoin called PivX to check up on upcoming news. Where will it be integrated? Is a hard fork coming up? Are they trying to get listed on an exchange? That's the type of news that can make a coin “pop” when it hits the mainstream media cycle.
For example, Monero doubled overnight and increase 200% over the next few days when it got listed on Bithumb. It went from $40 per coin to $150.
But back to my original advice, the price of Monero has since dropped to $88 (now almost $500, 3 months later), with no change in the technology, or no negative news. It was simply hype of trading on a new platform that jacked the price up, and when people got bored the price sank.
A few weeks later, the price of Bitcoin rose about 15%, and Monero did not participate in the rally. Then when Bitcoin slumped 8% from its all-time high, Monero decided to join along and lost another 5%.
See how sometimes it's logical and sometimes it's not? You can guess all day long, and be right sometimes, but wrong others. How confident are you in guessing trends at the right time? I know I'm not very good at it.
Get In On Rallies, Even If You're A Little Late
Another strategy that has helped me make money in the past is to simply follow the crowd, and get out early before the slump. What usually happens is that a coin will rise on some kind of rumor or news.
For example, the price of Litecoin went from about $40 to $90 after it made the first lightning network transaction. Wow! I saw the rise from $40 to $50 and bought in. Even though I missed out on the initial increase, I still caught the tail end and made about 30%.
Of course, as I mentioned above, I rarely “trade”, so I just kept the coins. Now the price is hovering around $60. If you had sold somewhere along jump from $50 to $90, you'd have some profits!
Watch out though! What if you bought in at $85 and expected it to go to $98? Then waited too long on the trip back down to $60? You'd have lost money.
It's impossible to predict the path of the price of a coin, no matter how many charts you read. It's easy to look backward and think how nice it would have been to do X or Y, but in reality, we can't guess what we would have done.
Maybe you buy at $50, sell at $70, then buy again at $90, and sell at $70. I don't know if you would have made or lost money making those trades, but the point is that you wouldn't have been rich from doing it.
Trading at exactly the right time is very difficult!
Can YOU Actually Make Good Money Trading Cryptocurrencies?
Obviously, some people do. I know a friend of a friend who made 3.5 million dollars in the last year!
There's plenty of success stories out there to prove that it's possible. Keep in mind, some are outright scams, and they just want to pump their altcoin or token, and some are ploys to get you to sign up for services like cloud mining. Some stories are legit though! Could you be the next crypto millionaire?
Chances are, no. Most of the time, people lose money. People buy the hype and sell disappointment, meaning they buy high and sell low. That's the opposite of what you should do!
I just saw a DentaCoin skyrocket 200% last night, with people on CryptoCompare.com declaring they “just bought in” and will see what happens. They are really buying a coin aimed at dentists after a 200% rally? That's a great example FOMO, and sure to play out poorly.
Plus, think about how much you have to invest to really make good money.
If you put in just $100 and a coin pops 10% in one day (that's a lot!) You only earn about $10! That's not much, and you risked a full $100. When was the last time you just threw $100 into the garbage? Never!
OK, so you want to risk more money to make more money? This is starting to sound like BlackJack! Why waste time at the $5 buy-in when you could go with the high rollers and make real gains? Exactly. Risking more money simply isn't an option for most people.
Why not invest in an inexpensive token, like BAT. It's worth a fraction of a penny, so if it goes to $1 you'd make a 1,000% increase. There are thousands of tokens and coins launching every month. You can't invest in all of them. Are you willing to do the research to find a good one, or do you just want a guru to tell you which one will be the next Bitcoin? There's plenty of gurus out there. Most aren't worth listening to!
Essentially, the way to strike it rich in the world of cryptocurrencies is to risk a ton of money on big projects, or a little bit of money on tiny projects. Both of which are high-risk situations.
If you have the money you don't need and an appetite for risk then maybe trading obscure cryptocurrencies is something you could benefit from. But for most folks, it's just not possible or smart.
If You Want To Make Money Long Term
…then don't trade. Buy and hold for a longer period of time. If you read online articles, especially Twitter and Reddit, people always use the phrase “hodl”, which is an inside joke that just means don't sell your cryptos because they will most likely be worth more value in the long term.
For example, if you bought Bitcoin in 2012 when it was worth $10 per Bitcoin, you'd have made a ton of money by the time it was worth $300. But if you bought at $290, you'd have lost money a year later when the price of Bitcoin crashed after the exchange MtGox got hacked. But even if you bought at $290 and held past the crash, you'd have made bucketloads of gains now that the price is worth almost $6,000.
The fact is, you can never “guess” what's going to happen in the news, and it takes a lot of skill to read charts if they even are reliable. Unless you plan on diving deep into the world of crypto charts and being plugged into the crypto news 24/7, it's very likely you're going to lose money trading cryptocurrencies.
Honestly, there's a good chance you'll make decent money if you just buy Bitcoin and wait for 10 years. There are three pieces of advice I try to live by. So far, they have worked out.
- Buy only what you can afford to lose, and understand that it could go to $0
- Put in a little bit each month
- Aim for 1% of your net worth in Bitcoin
The overarching theme is that cryptocurrencies and blockchain are here to stay, and will make some very interesting changes to certain markets. We can't predict what will happen in the future. Right now is still the early stages of technology, so it's a great time to “get in”, if you look at the long term timeline of history. Sure, we're in a bit of a bubble right now, but in terms of technology evolution as a whole, blockchain is still in the early stages.
For those that want to benefit from this technological change, and don't want to take on too much risk 1% is a relatively small value compared to every other asset in your life. Though Bitcoin and crypto investing is risky, risking 1% of your wealth is not a huge deal for most people. You might not be the next Bitcoin millionaire, but you'll at least make something.
Making Money With Traditional Stocks And Cryptocurrencies
For the completely risk-averse, there is still one more way you can benefit from this “revolution” in technology. It's easy to understand and has a much lower chance of your money going to $0. Invest in stocks that benefit from cryptos!
One obvious example is to invest in companies like NVDA or AMD, that sell cryptocurrency mining hardware. The more popular crypto is, the more people will want to mine or increase their hash power. That means more sales for companies like Nvidea and AMD.
What about banks? BAT is a coin that is supposed to make it easier for banks to settle money transfers. You can certainly invest in bank stocks that are the first to adopt this technology. Do you think Amazon is going to integrate Bitcoin into their payment system? Maybe by AMZN. Shopify is a publicly-traded company and allows merchants to accept Bitcoin, that might be another stock to look into.
These are all just ideas to get your brain jumpstarted, and there are probably many more ways to invest in cryptocurrencies without taking on the full risk. Even if Bitcoin implodes and is worth nothing next year, Invidea, Shopify, and Amazon are still going to be around and be making money in other ways.