10 Proven Ways to Make Money from Crypto Trading

How exactly can you make money trading cryptocurrencies? Here are the proven ways to make money from Crypto trading.

1. Buy and Hold (HODLing)

One of the most straightforward crypto trading strategies is simply buying coins you believe have long-term potential and holding them for an extended period, even during market fluctuations. This buy-and-hold approach, often called “HODLing” in the crypto community, can be effective if you pick solid projects and have the patience to weather volatility. The key is for you to make your research to identify cryptocurrencies with real-world utility, strong fundamentals, and an active development team. Some popular long-term holds include Bitcoin, Ethereum, and established altcoins like Cardano or Polkadot. Once you’ve built a diversified portfolio of promising projects, the idea is to hold tight and resist the urge to trade based on short-term price action. Of course, even HODLing requires some strategic decision making. You’ll need to determine your entry and exit points based on your own analysis and risk tolerance. Many long-term investors use dollar-cost averaging, buying a fixed amount at regular intervals, to smooth out volatility. Storing your crypto safely, such as on a hardware wallet, is also crucial for this longer-term approach.

2. Day Trading

Day trading involves making multiple short-term trades in a single day, with the goal of profiting off small price movements. Successful day traders aim to end each trading session in the green, even if it’s just by a small amount.

Day trading requires focus, quick decision making, and strict risk management. You’ll need to watch the markets closely, spotting opportunities to buy low and sell high. Technical analysis tools like chart patterns, moving averages, and oscillators are a day trader’s best friend for identifying entry and exit points. Risk management is absolutely essential, as the fast pace of day trading can quickly accumulate losses if trades go south. Experienced day traders follow the one-percent rule, never risking more than 1% of their total trading capital on a single trade. Having a clear plan and sticking to it is also key.

Day trading is a full-time job for many but it absolutely requires a significant time investment to consistently turn a profit. Beginner traders should educate themselves extensively and start with a small amount of capital before getting started.

3. Swing Trading

Swing trading is a happy medium between the long-term approach of HODLing and the fast style of day trading. Swing traders usually hold positions for a few days to a few weeks, capturing larger price movements than day traders. The goal is to identify the trend, then catch the “swing” in the direction of that trend. For example, in a bull market, a swing trader would look to buy during dips and sell at the peak of the upswing. In a bear market, they might short-sell at the top and buy back in at the bottom.

Like day traders, swing traders rely heavily on technical analysis to time their entries and exits. However, they also pay attention to fundamental factors that could affect price over a longer timeframe, such as project news, partnerships, or overall market sentiment.

Swing trading can be a good fit for those who can dedicate a few hours per week to trading and analysis. It’s still important to manage risk carefully, as holding positions overnight or over a weekend exposes you to gaps in price that could go against you.

4. Arbitrage

Arbitrage involves profiting from price discrepancies across different markets. For example, if Bitcoin is trading at $50,000 on one exchange and $50,100 on another, an arbitrage trader would buy on the first exchange and immediately sell on the second, pocketing the $100 difference.

Arbitrage opportunities can arise due to market inefficiencies, differences in liquidity, or even just the time it takes for information to propagate across exchanges. They exist for only a short window, so arbitrage traders need to be quick on the trigger.

Automated trading bots are commonly used for arbitrage, as they can spot and act on opportunities much faster than a human. However, it’s very important to factor in transaction costs like trading fees and withdrawal limits, as these can quickly eat into profits.

Arbitrage is a relatively low-risk strategy, as trades are usually completed within minutes. However, it requires a significant upfront capital investment to make meaningful profits, as price discrepancies are often quite small.

Related: Top Decentralized Exchanges for Ethereum

5. Margin Trading

Margin trading involves borrowing funds from an exchange to trade larger positions than you could with just your own capital. This amplifies both the potential profits and potential losses of your trades.

For example, if you have $1,000 in your account and the exchange offers 10x leverage, you could open a position worth $10,000. If the trade goes in your favor by 10%, you’ve doubled your money. But if it goes against you by 10%, your entire account is wiped out.

Experienced traders can use margin to significantly increase their profits. Beginners should be extremely cautious, as the amplified risk can lead to rapid and catastrophic losses if trades don’t go as planned.

Proper risk management is absolutely critical when margin trading. This means using stop-losses, never risking too much on a single trade, and having a clear plan for every position. It’s also important to understand the specific margin rules and procedures of your exchange.

6. Futures Trading

Futures trading involves agreeing to buy or sell a cryptocurrency at a predetermined future price. Futures contracts allow traders to speculate on the direction of the market without actually owning the underlying asset.

For example, let’s say Bitcoin is currently trading at $50,000. You could buy a futures contract agreeing to purchase Bitcoin for $55,000 a month from now. If the price does indeed rise above $55,000, you’ll profit. If it falls below that price, you’ll take a loss. Like margin trading, futures offer the potential for high profits but also come with significant risk. Leverage is often involved, meaning small price movements can have an outsized effect on your position. Sudden market shifts can trigger liquidations, wiping out your account balance.

Futures traders need to have a solid grasp of market dynamics and risk management. Setting clear targets, cutting losses quickly, and avoiding overexposure to any one position are all crucial for long-term success.

Futures trading is not available on all exchanges and may be subject to different regulations depending on your jurisdiction. As with any trading strategy,

7. Portfolio Rebalancing

Portfolio rebalancing is a risk management strategy that involves periodically adjusting your crypto holdings to maintain a target allocation. The idea is to take profits from coins that have outperformed and reinvest them into coins that have underperformed, thereby “buy low and sell high” across your portfolio.

For example, let’s say your target portfolio allocation is 50% Bitcoin, 30% Ethereum, and 20% various altcoins. If a bull run causes Bitcoin to grow to 70% of your portfolio, you would sell some BTC and use the proceeds to buy more ETH and altcoins until you’re back at your target ratios.

Rebalancing helps manage risk by preventing overexposure to any one coin. It’s a way to systematically take profits while also ensuring you maintain a diversified portfolio. Many investors choose to rebalance on a set schedule, such as quarterly or yearly.

Of course, rebalancing involves making trades, which can incur fees and potentially trigger taxable events depending on your jurisdiction. It’s important to factor these costs into your strategy and not rebalance too frequently.

Related: Impacts of Cryptocurrency on the Global Job Market

8. Yield Farming

Yield farming, also known as liquidity mining, is a way to generate passive income on your crypto holdings. It involves lending your coins to decentralized finance (DeFi) protocols in exchange for interest payments or other rewards.

Here’s how it works: you deposit your coins into a liquidity pool, which is essentially a big pot of cryptocurrencies that DeFi platforms use to facilitate lending, borrowing, and trading. In return for providing this liquidity, you receive a portion of the platform’s transaction fees and/or governance tokens.

The annual percentage yields (APYs) from yield farming can be quite high, often in the double or even triple digits. However, you need to understand the risks. Smart contract vulnerabilities, platform failures, and impermanent loss due to token value fluctuation can all impact your returns.

Yield farming requires a certain level of technical know-how, as you’ll be interacting directly with DeFi protocols. Thoroughly researching platforms, understanding the mechanisms behind your chosen yield farm, and never investing more than you can afford to lose are all essential.

9. Staking

Staking is another way to earn passive income on your crypto holdings, particularly with coins that use the Proof-of-Stake (PoS) consensus mechanism. When you stake your coins, you’re essentially locking them up as collateral to validate transactions on the network. In return, you receive staking rewards, usually in the form of additional coins.

The more coins you stake and the longer you stake them, the higher your rewards usually are. Annual returns can range from a few percent to over 20%, depending on the specific coin and the staking platform.

Staking is generally considered less risky than yield farming, as you’re not exposing your coins to smart contract risk. However, it’s not entirely without risk. Staking locks up your coins for a period of time, during which you won’t be able to sell. If the coin’s value plummets during this period, your staking rewards may not make up for the loss.

It’s also important to stake with a reputable provider, as centralized staking platforms can be hacked or go out of business. Alternatively, you can stake directly from a wallet that you control, which comes with the responsibility of running a full node and meeting minimum technical requirements.

10. Airdrops and Bounties

Airdrops and bounties are ways to earn cryptocurrency without directly buying it. An airdrop is when a blockchain project distributes free tokens to the crypto community, usually to generate awareness and stimulate adoption. Bounties are rewards given for completing specific tasks, such as bug reporting, code development, or content creation.

To participate in airdrops, you often need to hold a certain cryptocurrency, be active on the project’s social channels, or complete other simple tasks. Airdropped tokens are usually deposited directly into your wallet.

Bounties are usually listed on a project’s website or bounty platform. They vary in complexity and payout based on the task and the project’s budget. While airdrops and bounties can be an easy way to earn free crypto, it’s important to be cautious. Some airdrops are scams designed to steal your personal information or trick you into giving away your private keys. Always do your due diligence on a project before participating.

Key Takeaways

1. There are numerous ways to make money with crypto, each with its own level of risk and potential reward. These include HODLing, day trading, swing trading, arbitrage, margin trading, futures trading, portfolio rebalancing, yield farming, staking, airdrops, bounties, crypto faucets, and mining.

2. HODLing and staking are generally considered lower risk strategies, as they involve holding coins for the long term and earning passive income. Day trading, margin trading, and futures trading are higher risk, as they involve making frequent trades with the potential for amplified losses.

3. Successful crypto trading requires significant education, skill, and risk management. It’s crucial to start small, learn continuously, and never invest more than you can afford to lose.

4. Diversification is key in the crypto market. Spreading your investments across different coins, strategies, and platforms can help balance risk and optimize returns.

5. Crypto earnings are usually subject to taxes, though regulations vary by jurisdiction. It’s important to research the specific rules in your area and keep detailed records of all your crypto transactions.

6. The crypto market is highly volatile and speculative. Risks include dramatic price swings, exchange hacks, scams, and regulatory changes. Thorough research and a cautious approach are essential.

7. While it’s possible to make significant profits with crypto, it’s not a get-rich-quick scheme. Building wealth requires patience, discipline, and continuous learning.

Frequently Asked Questions

1. What is the best way to make money with crypto? 

There’s no one “best” way to make money with crypto. It depends on your level of experience, risk tolerance, time commitment, and capital. HODLing and staking are generally considered lower risk, while day trading and margin trading are higher risk. Diversifying your strategies can help balance risk and reward.

2. How much money do I need to start trading crypto? 

You can start trading crypto with any amount, even just a few dollars. However, the less you invest, the smaller your potential returns. It’s generally recommended to start small and only invest what you’re comfortable losing while you learn the ropes.

3. Can I make a living trading crypto?

 While it’s possible to make a full-time income trading crypto, it’s not easy. It requires significant time, skill, discipline, and risk management. Many successful traders have years of experience. It’s important to have realistic expectations and not to quit your day job until you have a proven track record of profitable trading.

4. Do I have to pay taxes on my crypto earnings? 

In most jurisdictions, yes. Crypto earnings are usually subject to capital gains tax and/or income tax, depending on how you earned them (trading, staking, airdrops, etc.). Tax regulations vary by country, so it’s important to research the specific rules in your area and keep detailed records of all your crypto transactions.

5. What are the risks of investing in crypto? 

Crypto is a highly volatile and speculative market. Risks include dramatic price swings, exchange hacks, scams, regulatory changes, and the potential for coins to lose value or even become worthless. Never invest more than you can afford to lose, and always do your own research before buying any cryptocurrency. The key to successful crypto investing is education, risk management, and diversification. Start small, learn continuously, and don’t put all your eggs in one basket. With the right approach, crypto can be a rewarding addition to your investment portfolio.