What is The Most Effective Way To Make Money on Crypto?

The most popular way to make money on cryptocurrencies is to buy coins and simply wait for their price to rise (the so-called HODL strategy). But “the most popular one” does not mean “the most effective one”. Although cryptocurrencies sometimes show impressive growth figures, they sometimes show equally impressive falls. So HODL does not bring either stable income or rapid capital growth.

This is why many people choose trading as the main method of earning income with cryptocurrencies. When the exchange rate can change by a dozen percent in both directions within a day – the idea of making money by trading looks extremely appealing. The potential profit from trading on crypto exchanges is much higher than from trading on stock markets or Forex.

But it’s not all sunshine and rainbows either. As we’ve already told, cryptocurrencies offer not only nice growth figures but also painful falls. Moreover, falls can be extremely long. For example, the decline of Bitcoin and the entire crypto market during the so-called “crypto winter” lasted for more than a year – from the beginning of 2018 to the spring of 2019. Traders can make money on the bearish market too, but it requires a lot of knowledge, experience, and luck. So falling markets hurt traders as well. Fortunately, there is a way to make money that works equally well regardless of the price moving up or down – binary options.

When buying a cryptocurrency binary option (for example, BTC/USD one), the buyer makes a forecast that the coin will become more expensive or cheaper before the option’s expiration date. If the forecast is justified, the buyer is refunded the cost of the contract and receives a premium for the correct forecast. If the direction of movement was not guessed correctly, the option expires and the money is lost.

Besides the methods above, here are a few more to consider when making money with cryptocurrencies:

1. Staking: Staking is participating in a proof-of-stake (PoS) network by locking up some of your cryptocurrency to support the network’s operations, like validating transactions. In return you get rewards, often in the form of more coins. This can be a steady income stream if the staking rewards are good in the network.

2. Yield Farming: Yield farming or liquidity mining provides liquidity to decentralized finance (DeFi) platforms. By depositing cryptocurrencies into liquidity pools you get interest or tokens as rewards. While yield farming can be profitable, be aware of the risks, smart contract vulnerabilities, and market volatility.

3. Mining: Cryptocurrency mining uses computational power to solve complex mathematical problems, validating transactions and securing the network. Miners get rewarded with new coins. However, mining requires a big upfront investment in hardware and ongoing electricity costs so it’s not accessible for everyone.

4. Participating in Initial Coin Offerings (ICOs) and Token Sales: Investing in ICOs or token sales allows you to buy new cryptocurrencies early, often at a lower price. If the project succeeds the value of the tokens can increase a lot. However, this approach carries high risk as many projects don’t deliver on their promises.

5. Arbitrage: Arbitrage is buying the same cryptocurrency at a lower price on one exchange and selling it at a higher price on another. This can be profitable but requires quick execution and consideration of transaction fees and the risks of transferring funds between exchanges.

6. Airdrops and Forks: Sometimes cryptocurrency projects give out free tokens through airdrops or as a result of blockchain forks. Being an active member of the crypto community and holding certain cryptocurrencies can make you eligible for these distributions and get more income opportunities.

7. Services or Products for Cryptocurrency: Accepting cryptocurrency as payment for goods or services is another way to earn. This integrates crypto into your daily business and can be good if the accepted cryptocurrency appreciates over time.

Each of these has its own risks and rewards. Do your research,and know your risk tolerance and your financial goals before getting into any cryptocurrency related income generating activities.