Strategies of Cryptocurrency Finance

After the global financial crisis in 2008, Satoshi Nakamoto invented a virtual currency called Bitcoin to solve the world’s economic problems.

The hype of cryptocurrency reached its pinnacle when Bitcoin hit $19,000 at the end of 2017. That was when most people found out about Bitcoin and other cryptocurrencies.

Since then, Bitcoin and other cryptocurrencies lost more than 80% percent of their value. Many pundits claimed that cryptocurrencies were a Ponzi scheme and a bubble that would burst.

So far, the bubble hasn’t burst, and most cryptocurrencies have regained a large share of the market. 

As talks of worldwide adoption of cryptocurrencies brews, most people are curious about what they are--and about their benefits.

How To Make Money From Cryptocurrencies

Long-Term Investing

Although cryptocurrencies are meant to be used as a virtual currency in exchange for goods and services, investors can buy cryptocurrencies and keep it in their virtual wallets. 

Exchanges such as Coinbase, Binance, and Uphold permit individuals or companies to purchase cryptocurrencies by depositing flat currency into their virtual wallet and exchanging it for cryptocurrency. 

After the purchase, the investor can keep the coins in their virtual wallet or take it off the exchange by transferring the cryptocurrency to a hardware wallet such as the Ledger Nano S.

Investors in cryptocurrencies should not be surprised to see high volatility in the price since the cryptocurrency market is unregulated and manipulated by whales--investors who own the majority of the cryptocurrencies and have the ability to impact the market.

Most investors who purchase company shares on the stock market, usually, receive a 10-20% annual return in a booming market.

Investors who purchased Bitcoin in January 2017 would have paid around $1,000 for one coin and could have sold it for $19,000 by the end of the year. That is a return of 1900% in twelve months. 

Trading

Much like the foreign exchange and stock markets, brokers allow individuals to trade cryptocurrencies. A trader would register with a brokerage and deposit money into their account to buy or sell a cryptocurrency against fiat currency.

Traders in forex and stock markets use technical and fundamental analysis to determine the direction of the price. Fundamental changes in an economy have a great impact on currencies and are monitored. The problem with cryptocurrency trading is that technical analysis does not hold much weight due to market manipulation.

Retail investors, otherwise known as individuals who trade, are incapable of manipulating the market due to the foreign exchange market comprising of $5 trillion daily transactions. 

Bottom line:

Cryptocurrency traders struggle to use fundamentals to analyze the market.

Whales, individuals who own the majority of the coins, can increase or decrease the price of the coins by market strategies such as pump and dump. 

Although traders use chart patterns such as the double bottoms and triangle breakouts as they would in forex and stock markets, whales can manipulate the market any time, thereby undermining the credibility of chart patterns.

Mining

If one does not want to risk their money in investing or trading cryptocurrency, another option to earn it is by mining.

Here’s the truth…

This doesn’t involve putting on a hard hat and grabbing a pickaxe. 

Cryptocurrencies operate on blockchain, a system that records transactions across several computers linked in a peer-to-peer network.

When a person makes a purchase or sells with Bitcoin, that transaction is recorded on the blockchain. With fiat currency, banks record transactions made in-store or online. In the cryptocurrency sphere, miners are responsible for keeping transactions on the blockchain. (1)

Miners earn Bitcoins by verifying transactions. That sounds easier than in practice. Miners have to verify 1 megabyte worth of transactions and must solve a complex computational math problem known as proof of work. 

The miner’s job is to come up with a 64-digit hexadecimal number called a hash, which is less than or equal to the target hash. The chances of a computer producing a hash below the target are 1 in 6 trillion. The more miners compete for a solution, the more complex the problem becomes. If that wasn’t difficult enough, miners also have to be the first to produce the hash to earn Bitcoin.

Bitcoin mining also requires the miner to invest in mining hardware Application Specified Integrated Circuits (ASIC). (2) 

The damage: 

The cost of a good ASIC is around $3,000. 

Miners will also have to install software to perform the transactions. Software such as CGMiner, MultiMiner and BFGMiner are available as a free download.

Don’t be surprised if your electricity bill skyrockets since Bitcoin mining consumes a tremendous amount of electricity.

Interest 

Investing in cryptocurrency does not mean that the investor has to rely on the price to increase in order to earn profits.

Investors who want to make money from cryptocurrency can send their coins to exchanges to earn interest.

A popular cryptocurrency exchange Uphold offers investors 5% interest for their cryptocurrencies if they keep them on the exchange. Uphold also allows investors to earn up to 10% interest when they loan certain digital assets to CRED.

That requires investors to hand over a certain amount of cryptocurrencies for a fixed period. After the agreed period lapses, the lender will earn interest and receive their initial investment.

Different Cryptocurrencies

Coinmarketcap, a platform that tracks capitalization of cryptocurrencies, has more than 2,000 listed digital assets.

Considering there are so many coins on the market, how does a novice know which one to invest in? A Bitcoin billionaire said that one should start from the top and work their way down.

The top three coins on the cryptocurrency market are Bitcoin, Ethereum, and Ripple.

While most pundits in the crypto community view Bitcoin as a store of value such as gold, many want Ripple to be adopted as an official coin that banks will use for cross-border transactions.

How To Use Cryptocurrencies

The cryptocurrency market is in its fledgling stages, meaning that most people don’t use it for its intended purpose: 

To conduct cross-border transactions.

Most people in the crypto community have purchased digital assets to make profits of it as an investment tool. They buy low and wait for the price to surge so that they can sell.

Why not use cryptocurrencies to purchase goods and services? 

Well, you can. And you should. 

The most notable purchases using Bitcoins include supercars such as Lamborghinis and mansions in California. 

How is cryptocurrency different from fiat currency? 

Imagine a world where you can send a letter, and it arrives across the world in seconds. That’s called e-mail.

If we can send letters across the globe in seconds, why can’t we do that with money? The standard process of sending money across borders requires a person to use institutions such as SWIFT or Western Union. 

That includes filling out forms, paying high fees and waiting hours, even days, for the transaction to reflect. 

Cryptocurrencies have solved all those problems. 

To send money across the world, one can circumvent third parties such as Western Union and conduct the transaction from the comfort of their homes. Not only will they not have to fill out forms, but they will pay a fraction of the fees and will conclude the transaction in seconds. 

How?

Register an account with an exchange. 

Then fund your account with the fiat currency of your choice. Exchange your fiat currency with a cryptocurrency by buying it on the exchange. Once you’ve converted fiat into cryptocurrency, send it to a wallet anywhere in the world. The beneficiary will receive the cryptocurrency in a few seconds or hours, depending on the coin, and can convert it into local fiat currency by selling the cryptocurrency on their exchange.

No more waiting in lines or filling out forms, not to mention presenting documentation to confirm your identity and waiting days for the money to reflect in the beneficiary’s account.

If cryptocurrencies are so wonderful, why isn’t there worldwide adoption? 

The biggest problem in the cryptocurrency market is regulation. Investors don’t want to invest in an unregulated asset class.

Although the New York Stock Exchange and NASDAQ plan to add a Bitcoin Exchange Traded Fund (ETF), they are waiting for the Securities and Exchange Commission (SEC) to regulate the cryptocurrency market.

Billionaires such as Mike Novogratz and Tim Draper have invested in Bitcoin. Wall Street is waiting for regulations before it dips its fingers in the cryptocurrency pie.

The cryptocurrency market capitalization peaked at the end of 2017 when it reached almost $900 billion before plummeting to around $200 billion. Cryptocurrency pundits expect the market to receive a multi-trillion dollar injection once Wallstreet gets onboard.  

Will that happen? 

Nobody can predict the future. That hasn’t prevented the mainstream media from proclaiming cryptocurrencies dead every time the market crashes. According to the mainstream media, Bitcoin has died more than 350 times.

Regardless of how much value cryptocurrencies lose, the main ones have never dropped to 0. Ponzi schemes and bubbles such as Enron and Bernie Madoff lost all of their value once exposed. 

At the time of writing, the price of one Bitcoin is $10,600. How many public companies can say that the price of their company share is anywhere near that?  

Facebook’s share price is $204, while Google’s price is $1,145. Those are some of the biggest companies in the world, with worldwide adoption. 

A survey revealed that only 8% percent of American have invested in cryptocurrency. (3)

With Bitcoin reaching a high of $19,000 with only 8% of Americans invested in the digital asset market, what price will it reach when there’s worldwide adoption?