Profiting From Bitcoin: A Guide To Investing And Earning

Bitcoin is a cryptocurrency that has been the subject of mainstream debate for quite some time now. It was created back in 2009 by someone (or some group of people) known by the pseudonym of Satoshi Nakamoto. Bitcoin is one of the most widely used types of cryptocurrency and its value comes from its store of value and payment system and its finite supply.

There are several ways to make money by investing in Bitcoin, each with its own level of risk and complexity. Here are some of the most common methods:

- Buying and Holding Bitcoin: This is a long-term investment strategy where investors purchase Bitcoin and hold onto it for an extended period, hoping for its value to increase over time.

- Bitcoin Trading: This involves actively buying and selling Bitcoin within short windows to capitalise on price fluctuations. It can be risky and requires extensive research and market analysis.

- Accepting Payments in Bitcoin: Offering your skills or services in exchange for Bitcoin can be a way to earn the cryptocurrency directly.

- Bitcoin Mining: Mining involves using computer hardware to validate Bitcoin transactions and secure the network. Miners are rewarded with Bitcoin for their contributions.

- Investing in Bitcoin-Related Startups: Investing in blockchain-based startups or companies that deal with Bitcoin or blockchain development can be a way to bet on the growth of the industry.

- Bitcoin Lending: Crypto lending involves depositing your Bitcoin into lending pools on crypto lending platforms, where borrowers can use it and you can earn interest on your holdings.

- Bitcoin Affiliate Marketing: Joining an affiliate program for Bitcoin and promoting its products or services can earn you commissions on converted sales.

- Bitcoin Faucets: Faucets are reward distribution programs that give users small amounts of Bitcoin for completing tasks like watching videos or doing other simple activities.

It's important to note that investing in Bitcoin carries significant risks due to its highly volatile nature. Before investing, it's crucial to understand your risk tolerance, conduct thorough research, and diversify your investment portfolio.

Buy and hold Bitcoin

One way to make money with Bitcoin is to buy and hold it as a long-term investment. This strategy is also known as HODLing.

The price of Bitcoin has increased dramatically since its launch in 2010, when it was valued at $0.008 at one stage. In 2024, the price of one Bitcoin is around $72,000. This growth makes some crypto investors bullish about its future.

The buy-and-hold strategy is a low-effort approach that does not require perfect timing. It can be stressful at times, but it is less taxing than short-term trading strategies. It is perfect for investors and traders looking to make potentially large gains with minimal time expenditure.

If you choose to buy and hold Bitcoin, make sure you are not over-exposed to any one asset and that you are not investing money you cannot afford to lose. One guideline is to invest no more than 10% of your portfolio in risky assets like Bitcoin.

Step 1: Choose a Crypto-Trading Service or Venue

You can purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, and Crypto.com. These exchanges carry a variety of different fees and consumer protections, so do your research before choosing.

Step 2: Connect Your Exchange to a Payment Option

At most exchanges, you can connect your bank account directly or link it to a debit or credit card. Fees vary for deposits, and exchanges also charge fees per transaction.

Step 3: Place an Order

Almost all crypto exchanges offer market and limit orders, and some also provide stop-loss orders. Exchanges also offer ways to set up recurring investments, allowing clients to dollar-cost average into their investments of choice.

Step 4: Safe Storage

Keeping crypto outside the exchange and in a personal wallet ensures that investors have control over the private key to the funds.

There are two types of digital wallets: hot wallets and cold wallets.

• Hot wallets are apps on internet-connected devices such as computers, phones, or tablets. Transactions are generally faster with hot wallets, but they are more vulnerable to security breaches.
• Cold wallets are small, encrypted portable devices that are not connected to the internet. They are considered much more secure than hot wallets but require technical knowledge to set up.

Tips for Trading Cryptocurrencies

• Use larger time frames for technical analysis, such as daily, weekly, and monthly charts.
• If using stop losses, don't place them too close to your entry.
• Leverage should be minimised or not used at all.
• Take advantage of pullbacks to get a better entry price.
• Keep an eye on fundamental factors that may influence the long-term outlook of the cryptocurrencies you're trading.

Trade Bitcoin

Trading Bitcoin is one of the ways to make money from the cryptocurrency. However, it is a risky investment strategy that involves frequent buying and selling. It is far more likely that you will lose money with this method.

If you are thinking about trading Bitcoin, you will need to sign up with a cryptocurrency exchange such as Gemini, Kraken, Coinbase, Crypto.com, or Binance. These exchanges allow you to buy and sell hundreds of cryptocurrencies, including Bitcoin.

Once you have chosen an exchange, you will need to connect your bank account, debit card, or credit card. Credit cards are not recommended due to the high fees and interest rates associated with them.

After that, you can start trading. Almost all crypto exchanges offer market and limit orders, and some also provide stop-loss orders. Kraken, for example, offers market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders.

It is important to note that trading Bitcoin can create a complex tax situation. Additionally, Bitcoin's price is highly volatile, and it is challenging to find the "right time" to buy or sell.

If you are considering trading Bitcoin, it is crucial to do your research, understand the risks, and make sure you are using a secure and trusted platform.

Accept Bitcoin as payment for goods or services

If you are a business owner, accepting Bitcoin as a form of payment can be a great way to keep your business competitive, attract more customers, and lower your payment processing fees. Here are some tips on how to accept Bitcoin as payment for goods or services:

Understand Bitcoin Regulations in Your Area

Speak to an accountant to understand the tax implications of accepting Bitcoin or other cryptocurrencies. Regulations may vary by state and country, so it is important to be aware of the specific rules that apply to your business.

Set Up a Crypto Wallet or Gateway

You can choose to set up a crypto wallet or a payment gateway. A wallet will keep your money as cryptocurrency, while a payment gateway will allow you to exchange crypto for fiat currency, such as US dollars. Gateways offer more flexibility since you can keep your Bitcoin or convert it. However, a crypto payment gateway will typically charge a transaction fee (around 1%), while a wallet does not charge any fees for processing transactions.

Enable Bitcoin Payments on Your Checkout Process

Setting up Bitcoin payments on your online store could be as simple as downloading a plugin or app on your e-commerce platform. If this option is not available, you can integrate payments using HTML code from your wallet. Both BitPay and Coinbase provide this functionality.

Integrate Bitcoin Payments With Your Accounting Software

Ensure that your Bitcoin payments are recorded in the same platform as the rest of your business transactions. This can be easily set up by integrating Bitcoin transactions with your current accounting software.

Prepare for Crypto Volatility by Converting Bitcoin to Cash

The price of Bitcoin can be volatile, so if you plan to accept it as a form of payment, be prepared for fluctuations in price value. You can shield yourself from potential price drops by converting Bitcoin payments to cash immediately upon receipt.

Choose a Crypto Payment Processor

There are several companies that can help you accept Bitcoin and other cryptocurrency payments, including BitPay, Coinbase Commerce, PayPal, CoinPayments, GoCoin, and TripleA. These processors typically offer low transaction fees, often 1% or less, which can be lower than the fees for credit card payments.

Mine Bitcoin

Bitcoin mining can be a lucrative way to make money with Bitcoin, but not for individual investors. Because of the computing power required, the upfront and ongoing costs can far outweigh the mining rewards earned.

Bitcoin's blockchain operates using a proof-of-work consensus mechanism, which means that miners perform the essential task of validating transactions in order to keep the network secure. New blocks of transactions are added to the ledger every 10 minutes, and the miner who validates a new block is rewarded 6.25 Bitcoins. Miners also earn transaction fees paid by users who would like to have their transactions validated faster, which can add about $4,000 to the reward for each block.

However, to have a chance at earning a Bitcoin reward for validating a block of transactions, you'll need a powerful computer known as an ASIC (application-specific integrated circuit), which can cost over $10,000. You'll also need to spend thousands on electricity to compete with other miners, and earnings aren't guaranteed.

There are mining pools that exist, where investors can pool computational resources and share rewards for mining Bitcoin. But the setup isn’t any simpler. Pools charge fees for their users, and the larger the pool is, the smaller the reward will be.

Overall, Bitcoin mining requires a significant investment in time and resources, and even then, profits are not guaranteed due to the competitive and unpredictable nature of the process.

Invest in Bitcoin-related startups

Investing in Bitcoin-related startups can be a lucrative opportunity, as it allows you to get in on the ground floor of a company that could potentially disrupt the market. There are several ways to approach this strategy. One option is to identify and invest in early-stage startups that are building innovative products or services related to Bitcoin or blockchain technology. Another approach is to look for more established Bitcoin companies that are already generating revenue and showing strong growth potential.

Angel investing and venture capital are common ways to invest in startups. This typically involves providing capital to a young company in exchange for equity or a share of ownership in the business. The goal is that your investment will appreciate in value as the company grows and succeeds. It can be highly risky, but the potential rewards are also great. If you identify the next big Bitcoin exchange or blockchain technology provider, your investment could pay off handsomely.

To get started, you can look for Bitcoin or blockchain-focused accelerators and incubators that help early-stage startups get off the ground. These programs often provide funding and mentorship to participating companies, and they can be a great way to identify promising investment opportunities. Another approach is to network within the Bitcoin and blockchain community, attending industry events and conferences where you can meet entrepreneurs and other investors.

When evaluating potential investments, it's important to consider the team behind the startup, their experience and track record, and the problem they are trying to solve. Look for unique value propositions and business models that have the potential to disrupt the market. It's also crucial to understand the regulatory environment in which the startup operates, as this can impact their ability to scale and generate revenue.

Diversifying your investments across multiple startups is also a wise strategy, as it increases your chances of backing a successful company. You can invest directly in startups or through dedicated funds that pool investments from multiple investors. Remember that investing in startups is a long-term play, and it may take several years before you see a return on your investment, if at all. Due diligence and a careful assessment of the risks and opportunities are essential before committing any capital.

Frequently asked questions