It seems that nowadays, many people are riding the bitcoin wave and they seem to be making a lot of money trading bitcoins and other cryptocurrencies. We see all these people getting rich and we wonder: “How do they do this?”
Though it may seem intimidating at first with scary looking charts and myriads of peer to peer exchange platforms, if you are really invested, trading cryptocurrencies gets really easy after a while and all those things that seemed daunting at first become almost like muscle memory– something you’d just do without putting too much of thought into it.
Though there are several ways to make money with bitcoin and other cryptos, the one we’re focusing right now is to make money trading them coins for long and short term profits.
Let’s begin with a short history of bitcoin and its rise to fame:
HISTORY OF BITCOIN AND HOW IT ROSE TO POWER
The first remnants of Bitcoin started in 1998 when people attempted to start cryptocurrencies like BitGold and B-Money. They never really fully developed these porotypes. When 2008 came, a person by the name of Satoshi Nakamoto submitted a design paper titled “Bitcoin – A Peer to Peer Electronic Cash System” to a forum about cryptography.
“The Genesis Block” or “Block 0” (the first bitcoin to ever be mined) was created after a year when The Bitcoin technology went public. At that time, the New Liberty Standard submitted the first exchange rate for bitcoin: 1 USD = 1,309.03 BTC. That exchange rate was achieved by computing for the electricity consumption that a computer used to generate bitcoin.
Before you begin trading, there are some strange sounding words that your novice ears should get used to.
BITCOIN JARGON THAT EVERY BEGINNER MUST KNOW
There a might be a few crypto slangs that you need to know before you get into the crypto game.
HODL – This slang was originated from someone who accidentally misspelled “hold”. it means “Hold On for Dear Life”. The term means that even if the price of your coin seems to be dipping (or going down), you ride with the coin until the value goes up again (hopefully). “HODLERS” are what you call people who do this strategy.
Bagholder – So what happens when you HODL and then the value of your coin doesn’t go up? You become a bagholder. A bagholder is a person that has HODL-ed for too long and left with little to no gain. You would not want to be a bagholder.
Whale – Whales are people who carry a lot of bitcoins. When they sell their shares, it could cause a noticeable movement in the bitcoin market.
Pump and dump – The “pump” aspect is when a group of people buys a certain coin together, creating a sudden demand in the market. The “dump” aspect is when they all sell their share together, making a profit for all those in the group.
INVESTING IN BITCOIN USING REAL MONEY
Now that you’re all caught up with all the slangs that you may encounter in the bitcoin world, we can now talk about specific ways bitcoin can help people make money.
If you want to start trading bitcoin or other cryptos from scratch than at some point, you must start with real money a.k.a fiats (USD, EUR, INR, AUD etc.)
This can be done in two ways -Either using traditional exchanges a.k.a Fiat Exchanges like Binance and Coinbase where they take your fiat and give you the equivalent of bitcoin or any other cryptocurrencies sent to your digital wallet. These bitcoin exchanges also usually have their own exchange rate, which means that the value of bitcoin may vary depending on your location and the bitcoin exchange that you’re using. Alternatively, you can choose a peer to peer marketplace like Paxful.
With p2p platforms, real money does not always have to be bank balance or cash, it can also be via online payment methods (Paypal). We, in Paxful facilitate buying and selling bitcoins with more than 300 types of payment methods including Amazon and Itunes gift cards, Google play gift card, skrill etc. By using escrow service, these platforms ensure the delivery of bitcoin to your wallet and there is no fraudulent activities and scams.
Let’s say you’ve bought your first bitcoin, which at this time of writing is a bit more than $3700. However, it was close to $20,000 in 2017. So how would you know if it’s a worthwhile investment? How can you even predict a trend in a volatile market like this? The truth is you can not. But if you are experienced enough, you can predict the trend with a great deal of accuracy by pattern recognition and intuition.
Bitcoin and other cryptocurrencies are governed by the laws of economics that drive everything–the supply and demand.
The generally limited supply of bitcoin – It is a fact that there exists a supply of only 21 million bitcoin that can be mined. As of now, only 20 percent of the original 21 million remains. That means 80 percent of the total supply of bitcoin has already been mined and are currently in circulation. This fact heavily controls the supply. As the supply decreases more and more, the higher the demand increases thus increasing price.
Miners supply and get paid; for basically risking their lives for the precious gold that lies in the cave. They are paid handsomely for the danger and the manual labor they have to do for gold. Same as mining bitcoins. Bitcoin miners solve complex mathematical puzzles and get paid.
The popularity of the currency – When bitcoin was first introduced, no one really knew what it was or what it could be. Over the past year, there have been dramatic turns with the way people viewed Bitcoin. All this talk of it helping people make “easy money” or it “being a bubble” have propelled bitcoin into a worldwide phenomenon. Obviously, the rise to stardom will have a direct effect on the price. As said earlier, the supply is limited and the price just keeps going up due to its popular demand.
Trust of the community – One reason that a lot of people are getting into bitcoin is that of the ever-growing community. The crypto community is a vital factor that causes price fluctuation. Over time, the community has become more trusted and in turn, makes bitcoin more powerful and popular than other altcoins. Any beginner can hop on the internet and learn through forums and online communities they find.
After the basic economics, let’s dive into the types of trading.
This type of trading requires the traders to exploit whatever short term movement there is and make multiple trades making small profits so that there is a cumulative profit at the end of the day.
If you scale day trading to a high number and relentlessly look to penny pinch every margin you can get, you’ll be doing what is called scalping. Dedicated scalpers may make well over 100 transactions everyday.
Bitcoin and other cryptocurrencies are characterized by the natural “swing” in price. The swing traders through their knowledge look to spot a significant price movement (price going up or price going down). The idea is to buy when the price is low, hold it long enough to see the price go up and then finally sell it for profit. However, the hold time is not as long as natural born Hodlers or Bagholders. It may be weeks or in some case a few months for swing traders to make money staying true to their strategy.
Peer to Peer Trading
Even if you do not have technical knowledge in training, you can still exploit the market gap in peer to peer platforms like Paxful and make lucrative profit margins.
Peer to peer bitcoin trading is the type of transaction made between willing BTC sellers and buyers with their preferred buying option without any financial intermediaries in between to verify the transaction.
We at Paxful facilitate Peer to Peer bitcoin trading with the help of our secure Escrow and our 24 * 7 support team which is there to help settle the disputes and weed out the scammers.
Paxful takes p2p finance to whole new level as we allow to buy and sell bitcoins with more than 300 different types of payment methods meaning through this platform, you can convert one form of payment (say Amazon gift card) to any other form of payment (say Google Play gift card) using bitcoin as intermediary.
Because there is difference in price and different markets have different supply and demand for different payment methods, you can even earn money using p2p trading if you play your cards right.
In Paxful, users can set their own price to sell so there exists a difference in payment methods, locations and price per bitcoin. A seasoned trader can exploit differences in these numbers and can make a good profit margin. But peer to peer is certainly one of the easiest way to buy bitcoin.
If you want to go old school and follow fiat exchanges, you should equip yourself with right amount of knowledge first. Knowledge of the subjects discussed below will give you a great edge while trading bitcoins and other cryptocurrencies.
Before you dive into the world of crypto trading, you should understand the following nuances.
Order book and Liquidity
Staggering numbers of buy and sell orders can be placed for a certain price of cryptocurrency at any given time. The order book is updated in real time so it is also a good indication of the reputation of the concerned coin.
Liquidity–as the term suggests is the ability of a crypto coin to be liquid i.e to just flow between traders quick enough to not be deterred by the change in price. There is usually a trade off between trade volume and liquidity. More trade volumes mean the currency will not be able to flow smoothly while a currency with lower trading volume may ensure greater degree of liquidity in trading. In addition to trade volume, there are several factors that affect the liquidity of a cryptocurrency.
A more liquid currency means that when trading parties exit the scene, it will not have any significant effect on the overall price of currencies. This means the currency is less prone to pump and dump scheme where scammers and ponzi traders can not coordinate to artificially manipulate the price of a coin (by buying at the same time to increase price and making large sales to reduce the price).
When you start trading, you’ll be often greeted with a depth chart from different exchanges which is a live chart that has a green line for buy orders and a red line for sell orders.
The video explains how you can read the depth chart.
You’d also want to focus on about Stop Loss
Stop loss are used to protect your portfolio by preserving gain and limiting any loss that may incur during the process. This will ensure that you would have sold your coins before it loses its value.
Beware, day trading requires a good knowledge of market and nuanced understanding of small investments to make good profit. The above terms should get you started but you should always study and keep updating your crypto knowledge to sustain in this business,
In conclusion, making money is possible through bitcoin, but it is nowhere near being easy. To make a lot of money, every move you make in the crypto-world has to be very strategic and well monitored. Before starting your investments, there are a lot of things you need to learn and consider. Every day, more and more people of different demographics are getting into the world of cryptocurrencies, and who knows if that will raise or stunt the value of bitcoin. Crypto-trading is spreading around the world, and I guess we’ll just have to see where it goes from here.