How to make money from P2P cryptocurrency trading

A peer-to-peer marketplace such as LocalCoinSwap (While there are several, I use this example due to their largest offering of coins to trade, currently at 16 and counting — and the unique ownership model of LCS holders receiving 100% of all profits) provides a framework for individuals or business to trade Bitcoin and other cryptocurrencies among each other.

In layman’s terms

LocalCoinSwap is functioning as a “marketplace” (literal) where anyone can open a “shop” or a trading business. Let me provide an analogy to clarify further. Imagine a big warehouse that allows a merchant to take a spot / shop / kiosk to offer their assets to visitors. This is completely free, however the merchant will have to give 1% commission on every sale he or she makes to the “facilitator” in this case LocalCoinSwap for providing the infrastructure; an escrow model to remove the risk of non-payment; driving visitors to the merchant; etc.

How to start your own “shop” / business in P2P trading

This is quite straightforward — the key to success is to

=> Specialize & Develop your niche!!!

Open an account on LocalCoinSwap

Chose your positions — would you like to focus on selling, buying or both?;

Chose the cryptocurrencies you want to trade (you can start with one, but soon you will see that it is very easy to scale to other coins and tokens);

Select the region (city or country) you would like target;

Select the fiat currency (normal, real world currency) you want to receive (if you are a seller) or send (if you are a buyer). In short, you chose the currency you have access to or want to trade in such as USD, EUR, YEN, and many more. Currently LocalCoinSwap offers almost 200 fiat options.

Chose your payment method

If you are a buyer, you indicate a method you prefer to use to send money (fiat currency) in return for getting cryptocurrency

If you are a seller, you indicate a method you prefer to receive money (fiat currency) in return for sending cryptocurrency.

Currently LocalCoinSwap offers a wide variety of payment methods:

MoneyGram, Local Bank transfer, Cash Deposit, Cash in person, Western Union, Credit Card, SWIFT, international transfer, SEPA transfer, PayPal, Payoneer, TransferWise, AdvCash, Itunes Gift Card, Amazon Gift Card, Skrill, Alipay, WeChat Pay, Venmo, Alfa cash-in, Cardless Cash, M-PESA, QIWI, Yandex.Money, WebMoney Interac e-Transfer, PayTM, IMPS, UPI, Efecty, PayNow, Square Cash App, ePayments, M-PESA, privat24

Set your trade limits

The minimum trade indicates the lowest amount you are willing to trade (below that you consider it not to be worth your time and effort).

The maximum trade indicates the maximum amount you are willing to trade (taking into account your total capital availability and other personal factors)

That’s all a nice overview, but the burning question in your mind should be:

How to make money from peer-to-peer trading?!

Now we are reaching the juicy part. P2P trading offers an incredible opportunity to generate revenue. However, if one would research this question and topic, it becomes clear that there is not a lot of specific information out there to get you started. So let’s try to remedy that to some extent here. Please note that this topic is very broad and the intention here is to provide adequate information to get any interested party started. An in-depth overview would in the least require a book (equivalent).

Before going into details, I would like to present another analogy to provide some insight and understanding of “merchant economics”.

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An analogous example — Amazon Merchant

It is 2013, I am tired of my day-job and am very excited to be my own boss. However, I don’t have huge amounts of capital and none of my friends share my entrepreneurial spirit. So I decide to become a digital merchant on a platform such as AMAZON.

=> MOVE TOWARDS INDEPENDENCE

As an engineer, I have a good understanding of the product development cycle and basic economics. Thus I select an asset (or product, or service) — a friend of mine actually went through this process and is selling salt and pepper grinders on amazon.

=> SELECTING (AN) ASSET(S)

I found a good factory that can produce my customized product; there are shipping costs in bulk; I will have to advertise and spend time, money and energy on that; and have to ship and follow up with my customers. Total Cost = X

In short I have to decide on a price (I want to make profit — but I want to stay competitive). Price = X + %(margin)

=> PRICING STRATEGY

Now that I have set up my business — besides operations, there is one thing left to do:

=> PROMOTE

As a side-note, I make money because I: make it easy and simple to Find the asset; easy to buy the asset; easy to receive the asset. This value addition (or making things easier for people) is what justifies my margin.

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Coming back to being a cryptocurrency merchant — the process is very similar if not the same:

  • Move towards independence — I decide to become a cryptocurrency merchant;
  • Selecting (an) asset(s) — I decide to trade BitCoin; Ethereum and Monero.
  • Similar to the above analogy, I select this assets because I have access to them (I can buy them at a market-price from an exchange I am registered on). I also really like these assets and their underlying projects. In short my affinity for these assets implies more insights and understanding.
  • Pricing strategy! in Cryptocurrency trading this step is key and I have several options

A fixed price strategy is very simple, but at times can backfire due to the very volatile market conditions. However I like to keep things simple and am convinced I can find customers for my offer. I buy cryptocurrency at a certain price — and offer to sell it at a higher price.

The basic margin pricing is the most common and straightforward. Here the merchant indicates that whatever the market-price of that cryptocurrency is, add 2–3–5% on top of it. I can even add 10% as margin, however I want to stay competitive so I chose my price as X+3%

More advanced merchants might opt for a more complex pricing formula. However, in this answer this falls somewhat outside the scope.

IS THIS ALL?!

Yes and No. The above offers a details and as practical as possible overview of How to start a successful P2P cryptocurrency trading business.

However, for real insight we have to consider a few scenarios or case-studies.

Case Study (1.1)

=> Asset: Monero — XMR I really like this coin as it is privacy oriented

=> I have access to buy Monero from various exchanges, so I decide to become a seller (i.e. I receive money for sending Monero)

=> I used to live in Kenya and know several people who are interested in Cryptocurrencies — so I decide to focus on that region (to start with)

=> Since I used to live in Kenya, I still have an active Bank account— and select that as my preferred method to receive Kenyan Shilling through Bank Transfer for selling Monero

=> Since I am interested in developing my Merchant profile, I chose 1 Monero (90 USD equivalent) as minimum limit — and 100 Monero as maximum limit.

=> My pricing strategy is simple — I opt for a basic margin price model. Meaning that I offer to sell Monero for market price +3%

At current market rate of 90 USD/Monero

my current offer would be around 93 USD/Monero

I can sleep easy as I know that my price always adjusts with the changing market price.

=> I promote my offer on all the social media; hold regular webinars to explain the value of investing and Monero; and inform all my contacts about the opportunity

=> I am serious about my business and treat my customers with respect; respond fast to questions; and make sure my feedback rating is as high as possible

Case Study (1.2)

I conducted several trades and am ready to diversify and expand

=> Next to Monero I decide to start trading Dash and LiteCoin

=> I also decide to create offers/advertisements to buy coins from people -3% of marketprice. So next to advertisements to Sell (+3%) I create to Buy (-3%) advertisements

=> In terms of regions, I decide to expand into Europe — since I have a European Bank account; and Transferwise enabling me to send and receive EURO for cryptocurrencies

=> I start promoting my whole portfolio of offers through social media and my developed network

So what is the step-by-step Recipe?!

  1. Initial investment — I buy 50 Monero (worth 4500 USD) for selling and I keep 4500 USD in cash ready for buying;
  2. I create advertisements +3% for selling advertisements and -3% for buying advertisements;
  3. Every time somebody engages in a trade with me -
  4. => I sell Monero (+3%) on LocalCoinSwap — and right after go buy monero from a centralised exchange (leaving me with 3% profit)
  5. => I buy Monero (-3%) on LocalCoinSwap — and right after sell it on centralized exchange (again leaving me with 3% profit)

Here one can further optimize their business — or rather minimize or remove the price risk completely. The below is one of my personal arbitrage trading strategies and works like a charm in P2P trading. As a price risk management expert, I find it of utmost important to remove as much risk as possible from my revenue-model. That being said, this strategy does require some preparation and process flow development.

First, let’s identify any presence of risk in the above descriptions. Since I have a price strategy of 3% margin, my risk profile is limited to the small time frame between

=> the transaction on LocalCoinSwap (I sell Monero — receive USD)

=> opposite transaction on an exchange (I use USD to buy Monero)

Specifically, this means the price risk is localized in time between Receiving USD into my account — transferring USD to exchange where I buy Monero — I buy Monero

Often this time frame is limited to a few hours (depending on transaction speed of different providers). However, since cryptocurrency markets are relatively volatile, it is possible that the market will move against me in that time frame, eradicating my profits (or sometimes could increase my profits). Since I don’t like to gamble, and want a steady revenue stream I decide to minimize and eliminate the above described price risk.

In order to hedge myself (as a seller of Monero) — I always maintain two positions.

at Time-(0)

A) I keep 50 Monero on LocalCoinSwap — and

b) I keep 4500 USD ready on an exchange

at Time-(1)

A) Somebody bought my 50 Monero — sending me 4500USD+3% to my account

B) I use 4500 USD ready (that is waiting on the exchange) to buy 50 Monero

at Time-(2)

(A) I send 4500 USD to the exchange (preparing myself for the next cycle) — I keep 3% profits as revenue on my account

(B) I send 50 Monero to LocalCoinSwap and am ready to sell again

I am very keen to hear others’ strategy — so do feel free to comment and share with all if you have bright ideas.

How much opportunity, for how many merchants/traders?

Cryptocurrencies are still relatively new assets and there is a huge growth potential. However, let us focus on what is present today — refraining from any future predictions of growth.

Bitcoin is the most know cryptocurrency and already has a pretty solid market saturation of traders. However there is still plenty of room for more. Let me give an illustration with numbers.

Currently LocalCoinSwap has

  • 16 coins and tokens listed (more being added every month);
  • Traders can chose to specialize in Buying or Selling (2) said coins and tokens;
  • 36 payment options as mentioned above — and more being added regularly;
  • Around 200 fiat currencies
  • There are 4 416 cities in the world with a population larger than 150 000

That means that there are 16 x 2 x 36 x 200 x 4 416 = 1 017 446 400

+ 1 BILLION “niche market slices”

Plenty opportunity for all…

So pick your Niche and start Trading!

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Feel free to ask follow up questions via comments and do express your thoughts, ideas, or interesting strategies.