Louis OngBlockchain Professional
Louis Ong is a blockchain industry consultant who has been enthusiastic about new technology since he was a young boy. He co-authored the book "Blockchain: A History," and is co-founder of The Internet of Things. He is also director of... (Read More)
How to earn money by investing in cryptocurrency
Below is a guide to get you started on your path to getting rich through cryptocurrency investing. This guide is aimed at the novice investor who just wants to get into this business and start earning money through cryptocurrency trading and investing.
There are many ways of earning money through cryptocurrency investments and many ways to lose money. Some people have become tremendously wealthy by investing in the right cryptocurrency at the right time.
Cryptocurrencies have been gaining attention in the world of finance for a while now, being used as an alternative currency among some of the countries in the emerging world. This is especially true of China, where the market for Bitcoin is booming.
For regular mom-and-pop investors, the cryptocurrency boom also offers options to gain wealth quickly, or, when careless or unlucky, to lose a fortune just as rapidly. One risk cryptocurrency investors should always be aware of is getting involved in scams. There are many different types of scams out there in the cryptocurrency world.
The greatest returns however are booked by those who figure out early whether a particular cryptocurrency is going to face mass adaption. This is of course easier said than done.
Many cryptocurrencies skyrocket in value, only to face a rapid crash soon afterwards. The ones that tend to stick around tend to be those that genuinely bring added value to the market. Smart investors often use Google trends and other metrics to check whether a cryptocurrency is gaining attention from growing numbers of people. However, as this isn't a standard analysis and often takes years to develop, most investors prefer to wait for the cryptocurrency to rise before committing to buying. This makes them lose out on the highest potential gains however.
Cryptocurrencies that have done tremendously well
Some cryptocurrencies have increased in value by more than three orders of magnitude since their initial launch. Examples are Ripple, Bitcoin, Ethereum and Verge. This means that if you bought one thousand dollars of them at the right time and sold them at the right time, you'd be a millionaire.
Cryptocurrencies that have done terrible
Unfortunately, most cryptocurrencies eventually end up declining in value by a lot. An example of a cryptocurrency that has lost most of its value is Nano. The exact reason is always hard to determine, but in this case, a lot of Nano was stolen when the main exchange used to trade this cryptocurrency (Bitgrail) ended up hacked. If criminals end up owning most of the coins in a cryptocurrency, they'll gradually try to get rid of their coins and sell them to uninformed investors, as long as there are people out there willing to buy more coins. This is more or less what happened to Nano and a number of other cryptocurrencies.
It should be noted that most early Bitcoin exchanges were hacked too, but the difference here is that Bitcoin was very new and so faith in the underlying technology meant that people did believe the cryptocurrency would eventually recover, which turned out to be correct.
Earning money by betting on the fall of a cryptocurrency.
Sometimes it's possible to earn money when a cryptocurrency loses value. This is known as short-selling. Short-selling is only possible for a few cryptocurrencies. Examples of cryptocurrencies that can be shorted include Dogecoin, Monero, Litecoin, Bitcoin, Bitcoin Cash, Bitcoin SV and Ethereum.
Is it a good idea to short these cryptocurrencies? That's hard to say. The problem with short-selling cryptocurrecies is that when the price rises too much, you're forced to close your position. It's theoretically possible to short-sell a cryptocurrency, end up liquidated, only to watch as the coin ends up falling apart after all.
Be on the other side of the table
The easiest way to earn money through cryptocurrencies is probably by being on the other side of the table. Rather than gambling on their price rise, come up with a new currency yourself. This doesn't require any sigificant talents, there are generators you can find online. If you give yourself most of the coins and end up getting your coin listed on an exchange, you can dump coins on enthuasiasts who expect they'll be able to sell their coins to someone else at a later stage.
The Rise and Fall of Cryptocurrencies
Cryptocurrencies generally gain attention when they are trading at new highs. But it is the market capitalization of coins that is considered a true benchmark, and not its price to market. The market capitalization however tends to be as volatile as the price for most cryptocurrencies.
The worst potential scenario
If you're investing in cryptocurrencies, it's possible to lose all money you invested. This can happen in multiple ways. You could lose your keys, your coins could become worthless, or your coins could be stolen through carelessness or a bug. However, if you're one of the lucky few who encounters no such issues, you can expect to earn huge sums of money.