Hard it may be for the average layman to comprehend how the market of digital currencies managed to achieve a capitalization in excess of $2 trillion in the beginning of 2022 and then plummeted to just over $864 billion at the time of writing before the onset of Christmas. The rapid development of the given market is potholed with periods of turbulent growth and sudden plunges into the depths of depression, which are best known as “crypto winters”. Such periods result in the rapid depreciation of cryptocurrencies, the shrinkage of trading volumes and the overall withdrawals of investors from projects and trading platforms.
The crypto winter is not just a period of overall market hibernation, but also a time of opportunity. Many traders see the lull in trading activity as a time to stock up on assets that have been falling in price. This very essence of trading activity is what allows traders of Bitcoin and other cryptocurrencies to make money in the long run. Indeed, it is extremely wrong to think of the cryptocurrency market as a quick way to make money. Instead, the digital economy market has to be viewed as a permanent and ongoing phenomenon that mimics the dynamics and behavior of the stock market. Without this reflection of cryptocurrency dynamics on the traditional financial market, it will be challenging to understand how the ways to make good money on digital assets can be effectively implemented.
Many mistakenly think that this market is a method of quick earnings, but that is far from the reality of things. The blockchain environment is often associated with the glitz and glamor of trading and the super-rich, but appearances can be deceiving. Those who are prone to succumb to the allure of Instagram photos and crypto millionaire hashtags of profiles will soon realize that most of the pompous charm and ambience of the decentralized market is feigned and any semblance of success in it will require a considerable amount of hard work, resilience and readiness to encounter both difficulties and losses.
In the given material, we will explore some of the real ways of raking in profits on the given venture while taking into account sound risk management approaches. This material should not be considered as a training guide for trading, but rather as a general introduction into the reality of cryptocurrency trading that everyone has to be ready for if they decide to invest their hard-earned fiat into digital coins for a chance of increasing their capital through the use of blockchain-based trading venues.
There are many ways of generating revenues within the given sector through coins that retain their value like stablecoins, and those that are prone to volatility like Bitcoin. The choice of making money depends largely on the risk appetite of the individual investor and cannot be generalized to encompass all types of investors entering or already operating on the market. As such, it is essential to understand that there are is no surefire way through which one can make money via cryptocurrencies and much will depend on instant reaction timing to market dynamics, the volatility factor, the risk involved, the strategy applied, and, unfortunately a certain element of luck that traders often call the luck factor.
The price of any coin can change without warning and without notice on a dime, making a market participant instantly rich or threadbare. Perhaps, this quality of digital assets if the main attribute that attracts many traders and would-be investors to blockchain space in an attempt at making fortunes by betting all on luck. However, risk averse investors will likely opt for the time-tried hold strategy that simply involves the wait and see approach.
The crypto winter is a perfect time for testing the reliability of the hold strategy. As asset prices fall, investors will find it difficult to resist the urge to stock up on assets that have depreciated in light of unfavorable market circumstances. The reasoning behind such a “hamster-ish” approach is the hope that the selected assets will start growing in price again once the crypto winter ends and is replaced by a bull run. It is unreasonable to think that a rebound in the market will not happen, since all markets are cyclical by nature and every single downtrend is succeeded by a gradual or sharp rise in the future. The hope that hold strategy adherents retain is that the bull run will result in a rise in prices, allowing them to wait for peak values before selling their accumulated assets to fix earnings.
The hold strategy is often called the mother of all strategies, since it involves the least risk and is the one that allows traders to diversify their portfolios. In addition, this strategy requires no effort on the part of the investors, except for sitting and waiting for prices to rise. However, the given strategy also has its shortcomings including the possibility of low yields. The popular proverb “nothing ventured nothing gained” is best applicable to the hold strategy, since low risk results in low earnings, as proven traditionally by all market operations.
For investors seeking higher risk approaches and higher yields, the decentralized finance, or DeFi market, provides ample opportunities, as it allows them to invest their assets into high-risk ventures, such as liquidity pools and staking platforms. The yields offered by such projects often reach values of as much as 20% annually, which gives reason to believe that the leverage they use for their internal investments is dubious and is likely very high-risk. As such, the investors who pool their assets into such ventures must be extremely cautious and wary of the fact that they can encounter the situation of asset loss, as was the case with the Terra/Luna ecosystem. The latter is a shining example of how DeFi can result in extremely painful losses for all involved.
Apart from relying on decentralized finance as a source of yields, market participants always have the option of resorting to trading, which has always remained an attractive means of making earnings on the volatile nature of exchange rates. In fact, without the factor of unpredictability, cryptocurrencies would have had little application apart from making transactions. The fact of the matter is that most crypto market participants are engaged in it solely for the volatility.
Trading is a high-risk endeavor that requires investors to apply extensive risk management strategies. Among the first of the latter is diversification, which requires traders to invest in a broad range of assets in order to minimize the potential of losses incurred from any of the cryptocurrencies they hold. The risk of loss is inevitable in cryptocurrency trading and all investors willing to try their hands at trading must be ready for the possibility of losing funds. Those who cannot tolerate the thought of losing funds have nothing to do in trading and had best resort to hold strategies.
Scalping is one of the most popular approaches in trading cryptocurrencies, requiring traders to place hundreds of orders simultaneously in order to connect minor profits from each trade. The practice is very similar to arbitrage trading, which involves the purchase and subsequent sale of assets from various platforms, leveraging the minor price changes on them. There are other trading practices as well, each with their own levels of risk involved.
NFTs, or Non-Fungible Tokens, can also be considered as a way of making money on cryptocurrencies, since they involve the purchase, holding, and subsequent sale of assets from various games, collections and even retailers. Such assets retain their value and can be sold for a profit on marketplaces like OpenSea. However, NFT trading will require the investors to spend a lot of time researching the market in order to identify assets with high potential of resale at a profit.
The market of digital currencies is not fit for anyone who does not have an appetite for risk and is not ready for living with losses. The volatility inherent to all cryptocurrencies opens up immense opportunities for profit-making through multiple strategies and approaches. The only thing market participants have to decide is which approach best suits their needs and expectations.