How to REALLY Earn from Crypto? (Hint: It’s not from trading currencies)
Last year in November, cryptocurrency Bitcoin touched an all-time high of over $68,000. By the end of January, it was trading around $36,000, and industry watchers were already calling it the worst January for Bitcoin since 2018. Unlike other asset classes, cryptocurrencies are volatile in nature. But, as you might already know, India has been quick to adopt them.
So much so that it is the second-largest user of cryptocurrency globally. This, despite the fact that the Indian government has been hesitant in adopting the currency. Many Indians who have made money in cryptocurrency trading choose to remain anonymous, given the less than favourable view that the Reserve Bank of India has taken on digital currencies.
However, that hasn’t stopped people from investing in the many opportunities that crypto has to offer. Proof of its popularity is the rise of crypto stars such as Aditya Singh, who through trading in the crypto market paid off his family debt, and then took the concept to the masses, by offering trading explainers in Hindi.
Then there are people like this unnamed investor, who put in Rs 6.3 lakh in Bitcoin at the beginning of 2017 and earned almost a crore by the end of the same year.
Another set of people who made huge profits trading cryptocurrencies are those like Akshay Haldipur, who entered the cryptocurrency market early (around 2012). He had 77 Bitcoins as of 2017, as well as other cryptocurrencies like Ethereum, stablecoins, etc. Though he doesn’t talk about his overall riches from crypto, he still holds a substantial number of different types of coins, and now uses a strategy called scalping to make money.
While crypto and associated trading is on the rise, most crypto traders warn against relying solely on this as a full-time profession. Most work on their trade as investors, and adopt broadly similar strategies — having a diverse investment portfolio, investing in multiple cryptocurrencies, staking, putting money in NFTs, investing in DeFi and GameFi options, and so on. We’ll talk more about these soon.
Unlike stock trading, which has matured and been regulated over the years, cryptocurrencies are still evolving, and their very volatile nature calls for becoming an expert with time and patience and having a Plan B in case your crypto trading plans do not take off as expected.
Even though the Indian government in Budget 2022 has introduced a 30% tax on cryptocurrency, the truth remains that the potential to earn money and lose it all is equally probable.
So a good rule of the thumb towards gaining crypto-related riches is having enough in your bank account to see you through at least a couple of years of trading-related ups and downs. Also, if you are switching from a job that pays you a guaranteed amount of money every month, the shift from that steady income to having wide swings in your income on a daily basis is a huge shift.
Before jumping into the market, let’s understand how trading works in this space.
Crypto Trading — Where Do You Begin?
First things first. How much money do you need to start trading in cryptocurrencies? As a beginner, start small. Even Rs 100 is fine. Next, choose a crypto exchange. In India, WazirX, CoinDCX, Binance, Coinswitch Kuber are the popular ones.
Next, you will have to open a trading account, similar to a bank account, and put some money in it.
Then comes the most important decision — which cryptocurrency to invest in. While Bitcoin is undeniably the largest and most valuable, it is unlikely to yield the 10x- 30x returns that initial investors got. It is a finite currency, and mining and making money from its price movements is going to be significantly more difficult now.
The next most popular ones are Ethereum, Binance Coin, Tether, Solana, Cordano, and many others. How do you find out which ones are worth investing in? For a quick start, you can follow crypto influencers on Twitter, YouTube, or Instagram, but dig a little deeper, and you can find and get access to Telegram groups that are dedicated to disseminating information on investing in crypto and strategies associated with it.
Once you get better at investing in this digital asset, these Twitter influencers, crypto sites, and newsletters from serious investors can help to track and keep an eye on market sentiment.
Investing in cryptocurrency is significantly different from investing in stock markets. For starters, crypto exchanges are open round the clock, while stock markets are open for a fixed time during the day. Stock trading has matured over the years, and sees easily digestible movements most of the time, while crypto traders are used to wide swings. Think of double-digit differences in a matter of a few hours. It is also built on a new technology that takes even seasoned stock traders time to understand fully.
Sure, you can follow crypto influencers to gain insight, but to become a crypto trader in your own right, you will have to understand how crypto exchanges function.
Trading in the cryptocurrency market essentially means that either you are speculating on the price movements of the currency through a CFD (contract for differences) trading account, or you are buying and selling the underlying crypto coins.
A CFD allows a crypto trader to make predictions about the movement of the digital currency they want to invest in, with little to no initial investment. It is a concept based on speculation and hedging, borrowed from the trading of assets such as shares, forex, and commodities. The downside is that it is extremely risk-prone and unregulated.
Investing Strategies
If looking at investing in cryptocurrencies for the long haul, it is important to take the time to learn the underlying technology. A term you will often hear successful crypto traders use is investor psychology. This essentially refers to understanding the price movements of cryptocurrencies, which are dictated by investor behaviour.
In crypto trading, it is recommended to use a mix of fundamental analysis, which is making investment decisions based on economic, financial, and macro factors; and technical analysis, which involves watching statistics, trends, maths equations, charts, and graphs.
As an example, reading candlestick charts and moving averages, which give an idea of the price performance of a digital currency, are helpful for understanding trading trends. While these concepts are pretty universal, being able to read and understand them are especially useful tools in trading volatile cryptocurrencies.
The Elliott Wave Theory, which was coined by a day trader in the 1930s, takes human psychology and investor behaviour into account and works well in crypto trading too. It says that the market tends to behave like ‘fractals’ or mathematical structures that tend to repeat themselves infinitely.
Then there are concepts such as Fibonacci retracement levels, which help traders identify turning points in cryptocurrency prices.
Most importantly, no one, even in more mature and regulated trading of stocks, can learn the ropes overnight. Practice makes perfect, and that applies to any kind of investing. Crypto trade gurus will all tell you first to learn the ropes on demo accounts. Even experienced traders use these demo accounts to test new trading strategies.
Beyond Trading
The cryptocurrency ecosystem has many other components, and serious crypto investors look at several of these at a time to maximise their returns from the market. The following are some of these ways that provide different types of returns:
1. Mining cryptocurrencies
Cryptocurrency mining has sent many youngsters to Nehru Place, one of the largest electronics wholesale markets in India, in search of graphics cards called GPUs (Graphics Processing Unit) and ASIC (Application-Specific Integrated Circuit). These are the building blocks for setting up a mining operation. But what does mining cryptocurrency mean?
The flip side? You need anywhere between Rs 2–3 lakh to set up a decent mining operation, and you will rarely find a crypto trader depending solely on mining for bringing in the moolah. Becoming part of a crypto mining pool- a group of miners who work together, sharing their resources, to increase their mining power- helps cut down setup costs and members of a pool distribute the profit among themselves.
The tradeoff in expenditure vs earnings is often lucrative if you are patient. A crypto trader in Karnataka in 2021, for example, paid Rs 3,000 a month in electricity bill, against Rs 1,200 he was paying earlier and mined Ethereum. For a successfully mined block on the Ethereum blockchain, his reward was ETH 1, roughly estimated to be about Rs 2 lakh at the time.
Of course, this is not the norm, and hence the reason why most traders do not depend on mining as their sole investment strategy. High electricity cost is a constant expenditure to keep your GPUs and ASICs running since they guzzle energy to carry out the high complexity computations.
Crypto mining is also time and speed-sensitive, given that the number of popular coins like Bitcoin and Ethereum is finite, and the rewards keep getting halved for miners every few years. Serious miners often mine more than one cryptocurrency for better gains.
2. Crypto staking
Staking is considered a more “stable” way of getting (high) returns from the crypto investment market and is akin to loaning your cryptocurrency.
The underlying technology in staking is a bit different from that used in Bitcoin. It is called a proof-of-stake model, as opposed to a proof-of-work model used in Bitcoin.
It is a process that involves committing your crypto assets to support a blockchain network and confirm transactions. It can help you earn anywhere between 5–20% per annum in the crypto asset you stake. But people in the know will tell you that returns can also be as high as 40%.
The process involves a cryptocurrency holder to “stake” or lock their coins on the blockchain for a fixed amount of time.
The locked-up coins are then used to validate transactions without complex mathematical computations, thus requiring lesser processing power. This means no special equipment like GPU or ASICS is required.
The person who stakes their coin(s) gets a reward for the transactions verified. In absolute terms, these may be lesser than mining, but given there is no additional setup required is a big positive.
3. NFT flipping
Non-fungible tokens are all the rage, and crypto traders are finding huge profits and returns in NFT flipping.
The practice is similar to domain flipping which helps people make a profit by buying and selling domain names on the Internet. But a much easier way to understand it is how we have all flipped toys, coins, stamps, and other such items growing up. Essentially, the practice involves buying an NFT at a low price and selling it to interested buyers later at a much higher price.
But it takes practice and understanding to identify which NFT is likely to be valuable in the future. Most NFTs of value are those involving art, so you will have to follow the “story” of the NFTs you want to flip. There are online channels on Twitter, Discord, Telegram, Instagram, Reddit, and others where NFT projects post updates about their new tasks. Following and understanding which is going to be a powerful or profitable story is where the opportunity lies for a crypto trader.
Again, NFT flipping is an extremely volatile trading option, but given the huge returns it promises — from doubling your investment to 10x returns — crypto traders see it as a lucrative option.
4. DeFi
DeFi or decentralised finance is a financial technology being built on distributed ledgers similar to those used in cryptocurrencies.
Think of it as an alternative financial infrastructure that works similar to how loans and bond markets work, but without centralised institutions such as banks, brokers, or clearing firms. The underlying “paperwork” are smart contracts built on blockchains such as Ethereum, Solana, Avalanche, and others.
Open protocols and decentralised apps (dApps) are the building blocks of DeFi systems. Decentralised Autonomous Organisations (DAOs) manage dApps, and perform the functions that intermediaries would perform in the financial world, but without power resting in any one individual or corporate structure.
DeFi projects are a rising trend for crypto investments. Examples include Solana, Polygon, Avalanche, Cardano, Terra Luna. Some are blockchain-based cryptocurrency projects, which allow different ways of making money — for example, staking — enabling the use of crypto for trading real word money instruments, and so on.
The key is to identify promising DeFi projects and figure out the kind of investment you want to make in them. Options include innovative investments in NFTs, dabbling in crypto vs tangible value investing, and many others.
Apart from staking, decentralised exchanges such as Uniswap and SushiSwap allow swapping between crypto token pairs. By becoming a liquidity provider, someone who enables trade between these pairs of cryptocurrencies, one can earn a passive income.
The other two popular ways to earn passive income through DeFi are lending and yield farming.
While lending involves lending your crypto coins to a platform, locked in a smart contract, yield farming involves taking tokens earned by liquidity providers and locking them in another DeFi protocol called yield farms, and getting an assured interest.
5. GameFi
Playing virtual games to earn money, or adding gaming to finance (GameFi) is being seen as the next big avenue for making money.
Play-to-earn (P2E) games like Axie Infinity, Zedd Run, Gods Unchained are some of the most popular GameFi projects and allow players to play and earn in cryptos or through investments in NFTs.
GameFi tokens listed on the CoinEx exchange increased in value by up to 600 times in the first half of last year.
Unlike normal games, GameFi finances are transferable to the tangible world through cryptocurrency trades. This year, there is likely to be greater interest in P2E games, and the more popular these games become the higher their tradeable value.
The Final Word
Being in charge of your own time, while making money, is the dream most people live for. But when you take crypto trading as a career move, it is easier said than done. Managing your time effectively is a challenge, given that crypto exchanges function 24x7. It is natural to want to keep an eye out for any trade happening all the time and burn yourself out.
Planning for ups and downs in money flow will also require planning and discipline. That is why practice and comfort with trading are key. This will also help to plan your investments, costs, and expenses better.
Because of its unregulated nature, cryptocurrency trading is not covered by insurance. This means any kind of ransomware attack or cyberinfrastructure breakdown will not be covered, and you have to bear all the loss. There is, of course, no question of portfolio insurance, similar to what is available for stock trading.
Therefore, it would be prudent to arm yourself with knowledge, take all precautionary measures, and then jump on the crypto trading train. Simply put, look before you leap.
