How Does Bitcoin Work To Make Money?
As more and more people learn about cryptocurrency, the question of “how does bitcoin work to make money” becomes a common one. There are those who want to make money fast, and those who understand that investments are generally long-term ventures. There are those who have money to invest, and those who do not but have read or heard that bitcoin can make you money. The fact is, each individual has different funds, circumstances, and goals. To learn how bitcoin works to make money, each person should first determine their own position before choosing a strategy or method.
Buying and Hodling Bitcoin
Hodl is not a typo – in the bitcoin world, it means “hold on for dear life” and is a popular term that describes those who hold rather than sell their bitcoin even in a bear market. If you believe bitcoin will increase in price per the upward trending historical data, event with the volitility, those who combine disciplined dollar cost averaging with hodling will make money.
For example, the graph shows how a savings of $500 per month starting 4 years ago would have resulted in a total investment of $24,000 and an unrealized gain of $78,879 for 228.66% profit. Even if a person has the worst timing for “buying the dip”, this disciplined strategy will result in better gains than most traders realize. The point is to average out the cost paid to accumulate more bitcoin at lower prices overall. It is also important to understand this strategy will not work on altcoins – only for how does bitcoin work to make money.
How does bitcoin work to make money when mining?
It is no longer considered profitable for individuals to mine bitcoin at home, as this practice has long shifted to larger operations. Expensive equipment is needed for the complex task of solving the mathematical algorithms in exchange for newly created bitcoin. The reward for mining was recently halved per the Bitcoin protocol on May 11, 2020, as it does every 4 years.
- how does bitcoin work to make money mining: Cloud Mining – somewhat effective
- how does bitcoin work to make money mining: Home Mining – not effective at all
Cloud mining is an alternative that mines bitcoins using a remote datacenter with shared processing power that allows mining without having to manage the hardware. There is a cost for mining with such a service that must be factored into overall earnings, but there is no software, hardware, bandwidth, electricity, or other offline issues or expenses incurred.
The biggest problem with cloud mining is finding a reputable company. That, and the fact that it will take over a year to make a profit – if the price of bitcoin doesn’t drop. Those looking for a lucrative investment should seek other avenues.
Peer-to-Peer Bitcoin Loans
Excellent returns can be generated by lending bitcoin to entrepreneurs on a peer-to-peer lending platform. Individuals, startups, and SMEs borrow from other individuals without a traditional bank or financial intermediary. Financing those who find it hard to qualify for a fiat loan from a bank generates strong fixed interest returns with low fees. It is recommended lenders lessen the risk by lending to a number of smaller borrowers vs. putting all funds into one loan.
Become a Market Maker
You can make some easy money as a market maker on OTC (over the counter) platforms and applications such as LocalBitcoins or Bisq. Buying and selling bitcoin in exchange for national currencies to hundreds of traders around the world is profitable. Transactions are fast and secure, with escrow procedures in place to protect both buyer and seller, and there are many payment options supported. Bid/offer prices vary greatly depending on the country. Making markets in less saturated areas can be quite profitable.
Those with knowledge of financial markets, the time to put into research and analysis, as well as discipline to trade without emotion can become day traders. Basic speculation strategy applies to buy low and wait for the price to go up before selling to generate a profit. Understanding the market trends and price dynamics are key to successful day-trading. There are exchanges that permit using leverage, which can increase profits substantially, but with higher downside risk. It takes a certain level of expertise and is not recommended for amateurs. Arbitrage trading is also profitable when you can buy cheaper on one exchange and sell it higher on another. Using automated trading bots is more lucrative.
The is another option that works well, and that is to copy the trades of experts. This method is simple and easy for anyone by subscribing to copy a professional. When the expert trader opens, updates, or closes a position – it is automatically replicated on the subscriber’s account. The expert controls the risk and is trading his own money. The copier is merely tagging along for the ride. If the expert makes a profit – the copier makes a profit. The same holds true for a loss. The key is finding the right expert to copy.
Conclusion for how does bitcoin work to make money?
These are a few options to answer that question of “how does bitcoin work to make money?” There are other ways, but this article focuses on how to make money without gambling crypto, using bitcoin faucets, or any of the many sketchy options that exist.