How to earn with crypto

Have you been wondering how to earn with crypto? There are many real ways to make money with crypto that work.

I know that was a weird sentence,  but there are quite a few ways that claim to work and don’t. At least not for everyone who may get lured in.

Unfortunately, there are also many scams. And we can be sure that a lot of people are also making money referring new customers to scams as well as to legitimate programs.

There is also a lot of pumping and dumping going on. As we will see.

Buy and hold – or hodl

In the cryptocurrency world, buy and hold is called buy and hodl, as in Hold On for Dear Life. It started with a typo.

I would even guess that the originator of the typo is left-handed, and wanted to type

– I AM HOLDING – but typed

– I AM HODLING – instead.

In other words, a finger on his left hand typed the D before a finger on his right hand typed the L.

That’s my theory anyway. It happens to me all the time, but the other way around as I am right-handed.

Here is an authoritative article that gives some history of Bitcoin and Hodl.

Not so long ago I was having a message exchange in a Facebook group with someone who was probably trying to lure me into a crypto-investing scam. I said I had bought and held Bitcoin for nearly two years and done very well out of it.

My counterpart on the other side of the text messages thought buying and holding Bitcoin was a novel idea.

In fact, until fairly recently you used to be able to say that over any three-year period since 2014 or so, the Bitcoin price had at least doubled. That in itself was a good argument for a buy-and-hold strategy.

Bitcoin was launched in 2009, The price fluctuations over the first years after launch were alternately a wild ride or nothing happening. The market was very thin and it was really traded by an exclusive club of a handful of pioneers. Finally, in early 2017 the Bitcoin price broke through $1,000.

Here is the monthly price and volume candlestick chart for Bitcoin from October 2014 to June 2021.

¹⁾Source: Historical price data: Yahoo Finance, all charts, and calculations: Bad Investment Advice

As anyone who has watched Bitcoin prices knows, the Bitcoin price can go through some fairly wild swings in any 24-hour period. Buying and selling Bitcoin is a bit like trying to get on and off a rollercoaster without planting your face into the ground especially if you are sensitive to price, justifying the term Hold On for Dear Life.

For this reason, if we look at monthly closing prices, we can reasonably assume we would have been able to get in and out of the market at the prices quoted.

Let’s look at how the Bitcoin returns in percent over set periods of 12, 18, 24, 30, and 36-month periods, from October 2017 to July 2021. These are all annualized so they are directly comparable. Again, because we are looking at monthly closing prices it would be reasonable to assume we would have been able to get in and out of trades at these prices.

²⁾Source: Historical price data: Yahoo Finance, all charts, and calculations: Bad Investment Advice

It is actually hard to see on the chart because the performance has been so stellar. But in fact, only the 36-month period was consistently profitable. The lowest annualized return, if you had bought and held for a 36-month period, was still a positive 24% annually if you had bought in November 2017 and sold in November 2020.

As I said that was the lowest annualized return, i.e. the worse you would have done.

Looking at all other 36-month periods, you would have done better and often a lot better.

If you had bought and held for any other shorter period, and you were really unlucky with your timing then you could have lost money in annualized terms.

Of course, we are all familiar with that phrase, past performance is no guarantee nor an indicator of what can happen in the future.

So, looking to the future, and trying to answer the question – should I buy and hold, or hodl if you prefer, Bitcoin, now in 2021?

It is really a question of whether you think there is a long-term case for Bitcoin appreciating in value from here on and reaching or even exceeding the highs it reached in April 2021 of just under $65,000. Or perhaps it is going to wither and fizzle.

Or maybe you are like me and you can make the argument for either case, so you want to keep a little bit of speculative skin in the game, but not so much you wouldn’t mind losing it all.

Loan your cryptocurrencies to exchanges and investment pools

Loan your cryptocurrency to exchanges and investment pools for liquidity. You get between 4% Annual Percentage Yield or APY, and around 7% APY depending on how long you tie up your currency.

Many of the regular cryptocurrency exchanges will offer these kinds of arrangements. If you commit your cryptocurrencies to a pool you will earn interest. Some will even pay you interest on an account with immediate withdrawals. In most cases, you will earn higher APY if you block your funds for periods of one to six months.

There are many ways to loan or lend cryptocurrency to crypto exchanges, or new crypto projects. Effectively you lend your assets or your time to support a specific crypto ecosystem.

As you will quickly find, the world of cryptocurrencies has its own expanding vocabulary. Yield farming or liquidity mining in decentralized finance are ways to earn cryptocurrencies by loaning your crypto assets to provide liquidity.

Here is an article that explains some of the basics of cryptocurrencies.

Peer-to-peer lending

Peer-2-peer lending started in 2005 and has become increasingly popular both for investors and borrowers. There are many peer-2-peers lending sites that work with conventional fiat currencies, but some have set themselves up specifically using cryptocurrency as collateral.

While conventional peer-2-peer lending sites often have stringent requirements to approve borrowers, including credit history and minimum cashflows, borrowers on cryptocurrency platforms only have to put up their crypto as collateral to get a loan.

I guess the premise is that you might have some cryptocurrency that you bought a while back that has now appreciated in value. You want to hold onto it as you think its value is likely to increase even more over time. But you also need to borrow some cash and your credit history may not be great.

These cryptocurrency peer-2-peer lending sites will give you a loan for a percentage of the value of your cryptocurrency, without any credit history checks. However, some of these sites have gone out of business after the big 2022 bear market, so as always, buyer beware – high APY yields often mean high risk.

Trade cryptos

This is another way to try and earn money from cryptocurrencies – trade them. This can be scalping, day trading, swing trading, or holding for longer periods of a few days or weeks.

This is basically using technical analysis to spot trends and determine levels of support and resistance.

Technical analysis uses a number of analytical ways of looking at past prices and trading volume and tries to extrapolate where the price is likely to go in the immediate future.

Here is the first of two articles that look at many of the popular techniques used in technical analysis.

It is easy to get lost down rabbit holes of different technical analysis tools.

Personally, I think it’s better to keep things simple.

To look first at the price, then at a short-term moving average, a longer-term moving average, and the trading volume. I might occasionally look at the MACD or the RSI. But really I think the best is to look for levels of support and resistance and use Fibonacci extensions from major price points.

Develop a system that uses set trade entry, take profit exit, and stop-loss strategies and stick to it.

But that is just my approach.

I also think it makes sense to be aware of the news. Cryptocurrencies are prone to occasional threats of government regulation or being talked up or talked down by celebrities. That kind of breaking news event can disrupt trends you might think you see in which case it might be best to sit on the sidelines for a while.

Private pre-launch sales

The internet is awash with cryptocurrency groups on social media hyping each other with the latest hot coin or token release. It is fairly easy to find these social media groups.

In fact, it is more likely they will find you.

Before you know it you will start receiving messages about new coin pre-launch sales of either new cryptocurrencies, tokens, or projects. Some of these are valid, some have made money and anyone lucky enough to get in early may also have made a lot of money.

But many went nowhere.

Just know that whoever is sending you messages and trying to get you to invest is going to be receiving a referral payment. So their motivation is not necessarily that the project will be profitable or that you will make money from it. They are already getting a piece of the action whether it’s the next best thing or a thinly disguised pyramid scheme.

Work for a crypto company

Many of the companies in the cryptocurrency and blockchain world are young and growing and many of these use remote freelancers to perform all kinds of work, from proofreading, or coding to graphic design.

At the other end of the spectrum, you can earn cryptocurrency by just following some new project on social media, sharing posts, and downloading an app. These are often referred to as microtasks.

You can even get paid in cryptocurrencies for watching videos or ads or taking surveys. Setting up a faucet for a specific cryptocurrency is a way of doing this. The rate of pay is quite low though, I would not recommend it.

Operate a crypto node

Years ago this was very popular among the pioneer crypto-nerds and was integral to the whole concept of distributed ledgers using blockchain technology.

For blockchain technology, to work you need a network of nodes, preferably dispersed geographically around the world. Each node was calculating or mining a specific blockchain and sharing the results with all the other nodes on that network. Each node that contributed to the process is rewarded with a small amount of the currency.

Then big business stepped in. Blockchains became ever longer and more and more calculation was needed to mine the transactions. This led to the use of faster computers and even the creation of chipsets and computing devices specifically designed and optimized for mining cryptocurrencies at the lowest possible cost.

For the older cryptocurrencies, like Bitcoin, credit for mining is now so low that it barely pays for the electricity needed to do the calculations. That is one reason why blockchain mining companies have had to develop low-cost ways to do it and even then they will often locate themselves close to sources of cheap electricity such as hydroelectric plants.

It is actually more complicated than what I’ve explained above. Some nodes store the entire blockchain, other nodes distribute the blockchain and smaller nodes are just mining parts of the blockchain.

Mining cryptocurrencies

You don’t have to run a full node to mine cryptocurrencies.

A popular way to mine cryptocurrencies today is to join a mining network or a mining pool.

When you join a mining pool you are contributing your processing power to mine the currency. You will receive a share of the mined currency in proportion to your processing power contribution.

Staking cryptocurrencies

Staking cryptocurrencies is another way to earn. Each blockchain uses its own algorithms to record new transactions and maintain its own blockchain.

Bitcoin uses mining to incorporate new transactions into the Bitcoin blockchain. Miners are rewarded for their contribution by providing proof of work or PoW.

Later cryptocurrencies, use staking as a means to incorporate new transactions into the blockchain. People who already own the currency agree to stake it or lock it up. They then act as validators of transactions and ensure the integrity of the blockchain.

For locking up their cryptocurrency, they are rewarded through a system of proof of stake, or PoS.

Staking to validate transactions requires considerably less computation than mining. For this reason, Ethereum has announced it is moving to a Proof of Stake system.

Referrals

Nearly all cryptocurrency projects, platforms, and companies, right from the back bedroom startup on a shoestring to serious companies with venture capital and dozens of employees have referral programs.

If you get your family, friends, acquaintances, enemies, or anybody really to sign up/open an account/send money, chances are you can capture some of that with a referral bonus, or commission.

Unfortunately, crypto scams also have referral programs. I wouldn’t be surprised if a lot of people are making money off of crypto in this way.

How much money is being made off of scams in cryptocurrencies I couldn’t say, I am sure it is significant. Now there is an interesting research project.

Spot the scams

If it sounds too good to be true. It probably is. Not true that is!

The ingenuity of scammers knows no bounds. Every financial or market innovation will spawn scams. Many of these use techniques that have been around for centuries, often with a new twist to make them work in the cryptocurrency sphere.

Pump and dump

Pump and dump schemes have been with us probably since markets were created.

Pump and dump just means hyping up the price of something, that actually you already own. Broadcasting the massive profit potential of this new, stock, cryptocurrency, token whatever.

The idea is to create enough buying frenzy to drive i.e. pump the price up. When you judge the price has gone up enough, you sell, i.e. dump your shares, or currency or tokens, or whatever, and walk away.

Most financial markets make these kinds of schemes illegal. But you need the regulation in place for it to be illegal. One of the features of cryptocurrencies is that the regulators are still trying to catch up.

Flashy dashboards, big numbers, no or slow withdrawals

You will find numerous private platforms that claim to use AI algorithms to generate consistent daily profits without fail. Some claim you can earn 1% a day, while others start at 2% a day. They always build up to a higher percentage if you invest more. Often they claim you can earn 4% a day or 5% a day if you invest $10,000 or more.

These are all scams and run as Ponzi schemes.

Red flags

You just broke our rule, Sir!

Oh, which rule was that? The one I just told you about, Sir!

This is one of many tricks employed by fake investment schemes. They will try to create reasons for you to keep sending them money. Here are some red flags to look for.

• your account shows a dashboard with very large $$ numbers
• very strangely worded terms and conditions statements
• they claim that they trade Forex, binary options, commodities, and anything really
• they start giving you bonuses, then you find you have to “turnover” that bonus 50x or more to withdraw the interest or the bonus
• they claim to pay consistent, interest/profit/earnings of 1%, 2%, up to 5% a day, reinvesting every 7 or 10 days
• they make up rules that aren’t written
• if there is any problem with your account, on their platform, or whatever, the solution is always for you to send them more money
• they ignore any question you ask that they don’t want to answer
• they claim that their system is automatic, so they can’t process a deposit, or a withdrawal, or whatever if it doesn’t suit them
• the owners are anonymous or unreachable

The chances are that they will allow you to make one or two small withdrawals of profits after you have deposited funds with them to build confidence.

Just remember that $100 invested at 1% a day, compounded every 7 days, would return a total of $3,372 after a year. So a guaranteed return of 337%.

While $100 invested at 5% a day, compounded every 7 days, would return a total of $598 million after a year. Seems very likely, doesn’t it?

Fake ICOs

The dot-com boom of the late 90s and early 2000s produced a string of fake companies with basically no business plan or even business concept, just a domain name and maybe a website and an initial public share offering or IPO.

There have been some new cryptocurrency projects announced and investors piled in to buy pre-launch coins or tokens, and the founders just took all the money and walked away and didn’t even bother to launch the project.

These kinds of scams are often referred to as exit scams.

Risks

Cryptocurrencies are risky and not just the risks of being scammed. Cryptocurrencies are often volatile, exchanges are sometimes unregulated and some have failed. Things can go wrong even with legitimate cryptos.

If you are going to invest or get involved, it will pay to do your research and understand how the ecosystem of your crypto works.

Is there a conclusion?

Well yes, there is.

There are many legitimate, i.e. real ways to make money from cryptocurrencies. You can buy into the next big coin or token that is going to revolutionize decentralized finance. You can buy and hold, or hodl, one of the big coins and hope the price will appreciate. And remember, the experience will often feel like you are Holding On for Dear Life – especially if you are addicted to watching the price fluctuations every day. You can loan your cryptocurrency and get paid. You can work on a crypto project and get paid.

You can also lose a lot of money if you sign up for scams or just failed projects.

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Questions and answers

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Q. How do you get paid on Crypto?

A. The best way to earn money with cryptocurrencies is to buy and hold for a few years. Many people who bought Bitcoin in early 2018 have achieved annualized returns of over 200% over the subsequent three years.

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Q. Can you make money making your own Cryptocurrency?

A. Yes, if you can master the technology and are able to persuade others to buy. Dogecoin is a great example of a cryptocurrency that was started as a joke by software developers who were poking fun at the craze for new cryptocurrencies. If you can come up with a new application involving crypto transactions that nobody else has thought of, and if you can rally enough supporters, maybe you could repeat the Dogecoin phenomenon.

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Q. How do you earn the most money with Cryptocurrencies?

A. Find a cryptocurrency that will likely appreciate in value and buy and hold for a few years.

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Single-page summary

Here is a single-page PDF summary of how to earn with crypto.

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Disclaimer: I am not a financial professional. All the information on this website and in this article is for information purposes only and should not be taken as personalized investment advice, good or bad. You should check with your financial advisor before making any investment decisions to ensure they are suitable for you.

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