How to Profit in Cryptocurrency

There are many ways to profit by investing in cryptocurrency, buying and holding is the easiest startegy but what if you do not know which coins to invest in or when to buy?

This guide will show you how to profit from cryptocurrency by informing you about:

• Different cryptocurrencies
• When to buy and when to sell
• Terms used by cryptocurrency investors
• How to take profits from your investments
• What causes the price of a cryptocurrency to increase
• How to track a cryptocurrencies price
• How to scout for new opportunities

Before we start, always remember:

• Only invest what you can afford to lose
• Invest according to your risk tolerance
• Always do your own additional research
• The best time to buy bitcoin was 9 years ago, the second best time is today
• Use a hardware wallet to keep your cryptocurrencies safe: Check out some hardware wallets here.

The “safe” strategy

First you might want to start with “Blue Chip” cryptocurrencies, these are the cryptocurrencies with a market cap of over $2 Billion.

Some sources claim that cryptocurrencies with a market cap greater than $30m qualify as blue chip cryptocurrencies so if you want a broader perspective you can go to the coinmarketcap website and look at the cryptocurrencies with market caps above $30m.

I prefer to stick with the $2 Billion qualifier since that sets the bar higher therefore making the investments safer in my opinion.

Blue Chip cryptocurrencies include:

• Bitcoin
• Ethereum
• Ripple
• Bitcoin Cash
• Litecoin
• Stellar Lumens XLM
• NEM
• Dash
• Ethereum Classic
• IOTA

Bitcoin is not the only cryptocurrency:

Cryptocurrencies apart from Bitcoin are known as Altcoins (alternative coins), some altcoins can be bought directly using cash whilst others can only be bought with Bitcoin or Ethereum:

Bitcoin, Ethereum, Ripple, Bitcoin Cash, Dash, Bitcoin Gold and Stellar Lumens XLM can be bought using cash from CEX: Check out CEX here.

Bitcoin, NEM, NEO, Cardano, Ripple, Litecoin, IOTA and more can be bought using cash from BitPanda if you live anywhere in Europe.

If you want to buy any other cryptocurrency, you can find hundreds of them on Binance, however since it is a crypto-to-crypto exchange you will need Bitcoin (BTC) or Ethereum (ETH) to buy altcoins.

When is the right time to buy?

I like to follow two rules regarding this.

Rule 1: Get your foot in the door now

No one can tell for sure what the price will be in the future so if you feel confident about the coin you have chosen then buy a small amount to set your foundations.

As long as you have picked a good coin then it is better to get in now and hold for the long term, if you try to time the market, you risk the chances of buying the coin at a higher price later.

Don’t be this guy:

Rule 2: “Be Fearful When Others Are Greedy and Be Greedy When Others Are Fearful”

If you want to wait for a better price you should buy a coin when it is being “dumped” (investors are selling which causes the price to go down), if you have picked a good coin you do not need to worry, the price will soon recover and could even go beyond the current All Time High (ATH).

You can even setup automatic buy orders on an exchange if you anticipate further price drops, you can also add the coin to a price tracking app like Blockfolio and setup price alerts (this will be described in detail further down).

Buy Low, Sell High

Ideally you want to get in early on a coin when it is nice and cheap and sell it after the price has gone up substantially, for example if you bought 300,000 Stratis at $0.01 on August 12th 2016 you would now be a millionaire, having have gained over $4.1m from an initial $3,000 investment at the current price of $13.90 per coin.

If you are not an early adopter and missed out on the bottom prices you can still buy the occasional dips.

Let’s go back to Rule 2: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. This refers to waiting when everyone else is buying and buying when everyone else is selling.

When everyone else is greedy and buying, this causes the price of the coin to keep rising and you risk overpaying for the coin, especially if there is a later price correction (a temporary price reduction).

If you are seeing a pump without any solid reasoning behind it (no new developments, no partnerships, no important news or updates) then you could be better off waiting for the price to dip again before buying.

HODLING

Yes, you read that right, hodling. This is the practice of holding on to a long term investment without giving in to the urge to sell, it is actually a meme that came from a spelling mistake a Bitcoin investor made on the bitcointalk forums. Later on people started to use HODL to mean Hold On For Dear Life.

If you plan to join the legion of cryptocurrency hodlers then here are some useful terms you should know:

• Sats — Short for Satoshis, a division of Bitcoin, 1 Satoshi = 0.00000001 Bitcoin.

• Fiat — Fiat currency, your standard currencies such as USD, GBP, EURO, CNY etc.

• ATH — All Time High, the peak of a coins price.

• Bull Market — a market in which coin prices are rising, encouraging buying

• Bear Market — a market in which coin prices are falling, encouraging selling.

• Feeling Bullish — Feeling positive that an investment will grow in value

• Feeling Bearish — Feeling that an investment will lose its value

• Weak Hands — People who buy a coin then sell as soon as the price dips

• Strong Hands — Investors who hold on to coins not matter how low the price dips.

• Bloodbath — When a large number of coins lose a lot of their value.

• Moon — A swift and very high price increase.

• Shakeout — When a coin price dips so low and many worried investors sell at a loss, this can also be caused by a “whale” artificially reducing the price.

• Whale — A very large coin holder, they can influence the price of a coin through buy walls, sell walls and selling off coins.

• Buy walls — When the buy orders for a particular coin are much higher than the sell orders. Sometimes whales can use buy orders in an attempt to raise the price of a coin.

• Sell walls — When the sell orders are much higher than the buy orders. Sometimes a whale can use sell walls to suppress the price of a currency (usually so they can accumulate more for themselves). Example imagine a coin costs $4 and has 5m total supply and there is a sell order for 1m coins at $4.2 each, the price will not likely go above that price.]

• FUD — Fear, Uncertainty, Doubt. People who spread bad news about a coin to cause investors to doubt their investments and sell or to prevent other investors from buying into a coin. FUD can be spread by investors seeking to accumulate more coins.

• Pump & Dump — A scheme where groups buy into a coin cheap and spread hype causing unsuspecting investors to buy in, which then causes the price to “pump” up, then the new investors are “dumped” on by the early investors as they take their profits. After a dump the price goes down and the duped investors are known as “bag holders”.

• Bag Holder — An investor who is holding onto a possible bad investment also known as being “left holding the bag”, they could be the victim of a pump & dump scheme or they simply bought into a poor coin at its ATH then is left to hold the coin as its price drops.

• FOMO — Fear Of Missing Out, when investors frantically buy into a coin to avoid missing out on the price increases, this usually happens during a pump.

• New Blood/Fresh Meat — Another word for noobs or new investors.

• DYOR — Do Your Own Research

• Premine — A premine is where a developer allocates a certain amount of coins to a particular address before releasing the source code to the open community. Usually when this happens the developers have reserved a certain amount of coins for themselves for a particular reason.

Many cryptocurrency investors claim that they have made more money from holding onto an investment long term instead of trading and I would also advise everyone to hold and only trade if you have previous experience, trading is not for noobs.

Taking Profits

Just because you are a holder that does not mean you cannot take profit from your investments.

Why would you want to take profit?

• To secure your profits in another form such as Fiat currency.

• You can take profits in Bitcoin and then use the Bitcoins to buy into new cryptos or increase your holdings in current altcoins.

• If your investment has pumped a lot (3x-10x) you can take profits into Bitcoin or Fiat and buy more of the same coin when the price inevitability dips.

• To diversify into traditional investments such as gold/silver, stocks, index funds, mutual funds, REIT’s etc.

If you want to take profit on an investment I would recommend cashing out no more than 50% if you believe the coins value will continue to increase in the future.

Let’s call this the “Rake” method, you take out a certain percentage of profits every time your investment reaches an all-time high, this can be very effective just before a bear market where the prices of most coins will drop as investors sell off their coins, allowing you to buy them cheaper.

What causes a coins price to increase?

• New developments and announcements

• Hitting roadmap deadlines and targets

• Coins getting added to bigger exchanges like Bittrex & Poloniex

• News & hype

• Pump & Dump groups

• Real world application of the coin, thus causing scarcity and increasing demand

• Low supply & high demand

One reason for a high increase in a coins price is the supply of the coin, naturally if something has a limited supply and high demand its value will increase since it is not easily accessible.

You can use this fact to your advantage by investing in coins with a total or circulating supply lower than 100m coins but preferably less than 50m coins.

You can also use the coins supply and market capitalization to accurately calculate the price using this formula:

Marketcap/Circulating Supply = Price

For example Bitcoins current market cap is $169,535,816,975 and the circulating supply is 16,906,750 BTC, so:

$169,535,816,975/16,906,750 = $10,027.70 the price on the 8th of February 2018.

Let’s say you came across someone who predicted Bitcoin to have a market cap of $1 Trillion by 2019, then again you would calculate it like this:

$1,000,000,000,000/16,903,612 = $ 59,158.95 predicted price by 2019.

You can find out a coins supply and marketcap on coinmarketcap.com.

On the other hand just because a coin has a low supply that does not automatically make it a guaranteed jackpot, you should read the whitepaper, search Bitcointalk for information regarding that coin and find the slack, telegram and discord channel invites.

Important information to consider:
• Does the coin or platform behind it have a real use case? What is the coins purpose?

• What does the “coin” represent? Ownership? Currency? Is it a Token?

• Was there a premine? If so, why?

• Is the coin being actively developed? (Engage with the developers on slack and find out)

• Reasons behind the circulating and total supply (ask around on slack or bitcointalk)

• Who is behind the coin?

Tracking Prices/Profits

There are a number of apps you can use to watch the price of your favourite coins and also check how much profit you have made form your investments.

Here are my 3 favourites.

• Blockfolio

• Coinfolio

• CoinCap

You can also set up price alerts which send you push notifications whenever the price drops or rises above a certain level.

Scouting for new opportunities

Finally let’s look at how to scout for new investment opportunities.

Bitcointalk is an online forum where cryptocurrency investors can get together and discuss cryptocurrency, blockchain technology, new coins and ICO’s etc.

Developers also use the forum to announce the coins that they have been working on, if you do not know what new coins to look for simply type “ANN” in the forums search bar or paste this into your search browser: “site:bitcointalk.org: ann”.

Bitcointalk is also a good source to find invite links to slack, telegram and discord channels which also provide a wealth of quality information and direct updates from the developers themselves.

(Low — Medium risk) Reddit — Check the Cryptocurrency sub-reddit: https://www.reddit.com/r/CryptoCurrency/ to find general discussions on altcoins as well as Bitcoin itself.

You will find a lot of opinions on Reddit so I class this as low to medium risk, always do your own research and if you discover a coin on reddit, look for it on Bitcointalk.org and look for the coins official sub-reddit for more refined information.

(Medium — High risk) Follow tipsters on twitter: This one is more risky than the previous options since this involves trusting online Twitter accounts and many are anonymous. Tipsters are investors or traders who post price predictions for particular coins as well as announcing opportunities to buy in early before a coins value increases.

Be careful when taking advice because there are active pump and dump groups on twitter and always remember the motto: Do Your Own Research. If you want to find tipsters use hashtags (#crypto, #bitcoin) or price tickers ($btc, $eth, $xvg $xrp etc.). I won’t post any recommendations at this point since I believe every investor should choose whose advice to follow themselves.

This wraps up the “How to Profit in Cryptocurrency” guide, I hope you found this guide helpful, feel free to follow me on Medium for more guides, you can also keep up with me on Twitter.