Making Money with Bitcoin - A Guide

Are you looking for ways to earn passively with your bitcoins without getting into risky situations?

If yes, this is for you. This piece covers the major ways to make your bitcoins work for you with tips on how to start earning with these strategies.

1. Long-term Investment (HODL)

A long-term investment is when you buy and hold Bitcoin without selling until a designated time or market situation. This is commonly referred to as HODL in the crypto space.

HODL started as a misspelling of hold in 2013 on Bitcointalk by GameKyuubi. But it now stands as an acronym for "Hold on for dear life.” Which is a long-term investment in the crypto space that denotes a long-term approach to crypto investing.

"HOLDers" refer to Bitcoin investors who practice the HODL and refuse to sell their bitcoins. HODLers don't sell their crypto assets regardless of how volatile the market gets – they disregard even large price movements.

For some people, HODL represents a way to escape trading emotions like FOMO (Fear of Missing Out), FUD (Fear, Uncertainty, and Doubt), and greed. While crypto maximalists HODL because they believe that cryptocurrencies will eventually replace fiat currencies, and they are willing to wait.

Should You HODL your Bitcoin?

HODL has become the go-to strategy for people who don't have the skills for short-term traders like day trading, swing trading, and scalping.

If you're in such a situation, long-term trading is a better option for you. Focus on the long-term game and don't give into trading emotions.

HODL is frequently used by experienced investors during bear markets and volatile market conditions. To avoid big losses, you want to minimize trading during these periods, especially if you're not experienced.

To safely HODL your bitcoins, they must be secured to avoid losing your coins to hacking attacks. That brings up how and where you should store your bitcoins.

Where Should You Store Your bitcoins?

You store your bitcoins in your digital wallet (crypto wallet), which can be hardware-based (Cold wallet) or web-based (hot wallet).

Unlike stock investments, you can withdraw your bitcoins from exchanges and store them in an outside wallet. Every wallet contains a set of private keys without which you can't access your bitcoins. Except in the case of exchange wallets where you're not exactly in charge of your keys.

Bitcoin wallets are categorized mainly into:

• Hot Wallets
• Cold Wallets

Hot Wallet

Hot wallets are online wallets that run on internet-connected devices like computers, phones, or tablets. Hot wallets generate the private keys to your bitcoins and store them on these devices. So, you can lose your bitcoins if there is a hardware problem.

Hot wallets are also more prone to security attacks; without enough security layers, hackers can quickly gain access to your bitcoins.

However, hot wallets are easily accessible, and you can make transactions quickly. Exchange custodian wallets are also examples of hot wallets. But storing your bitcoins in an exchange wallet is not the same as keeping them in your personal wallet.

With exchange wallets, you're not the holder of the private keys to the bitcoin in the wallet. So, if the exchange's security gets compromised, you can lose your funds.

Cold Wallets

Cold wallets are the safest storage option for your bitcoins. Cold or offline wallets are not connected to the internet, so they can't be compromised easily.

Cold wallets store your public address and private keys on something not connected to the internet. There are two types of cold wallets:

• Paper wallet
• Hardware wallet

A paper wallet is a cold wallet that you generate off a website. It contains your private and public keys. You can only access your bitcoins with the keys on that paper.

Paper wallets are probably the most secure way to keep your bitcoins. Most people keep these papers in a safe place like a safe deposit box.

Hardware wallets are usually USB devices that store your private keys securely. But they typically have software that works with the wallets so you can view your portfolio without risking your private keys.

Hot Wallet Vs. Cold Wallet: Which to Store Your bitcoins When HODLing?

Cold wallets are the most secure way to store your bitcoins. Generally, hot wallets are not designed to hold a large volume of bitcoins.

So, if you want to keep a large amount of bitcoins, you should keep them in a cold wallet or a decentralized wallet. If you plan to make transactions often, hot wallets might be ideal because of the easy accessibility.

Eventually, you'll find out that the ideal situation is the combination of both cold wallets and hot wallets.

Decentralized Wallets

Decentralized wallets are just what they sound like – a wallet controlled by only you. Decentralized wallets are not managed by crypto or financial institutions. Instead, they exist only on your computer or hardware (cold wallet), removing the service of third parties from your transactions.

Decentralized wallets allow peer-to-peer transactions without the need for any regulatory bodies like an exchange. They are also known as online personal wallets. You're in complete control of your private keys, so it is safer than traditional hot wallets.

Cold wallets are also examples of decentralized wallets because only you have access to your wallets.

What is the Best Wallet For Storing Your bitcoins

Ultimately, the right wallet for your needs depends on several factors, including usability, security, and your level of expertise.

2. Bitcoin Trading

Bitcoin trading is one of the popular and active ways investors can profit with Bitcoin. Like Forex trading, Bitcoin trading involves studying the market, analyzing trade charts, and fundamental analysis – external factors to predict the Bitcoin price movement.

Unlike investing, trading is more of a short-term strategy for making a profit – utilizing short-term opportunities. When trading crypto, you're trying to accurately predict whether the price will rise or fall. You can then buy or sell (long or short) based on your predictions.

Furthermore, there are trading techniques you can use to trade the market depending on your experience and preference. Most traders combine these techniques with margin positions to increase their profitability.

However, this is quite risky, especially if you're a beginner. You can lose all your trading capital in a minute without proper risk management. I have covered these techniques below.

• Day Trading (Intraday Trading)

This trading form involves opening and closing positions on the same day. This also means that you won't have overnight market exposure and can avoid overnight funding charges.

As a day trader, you're interested in taking profit from short bursts of price movement within the day. This type of trading technique is great for volatile market movement.

• Trend Trading

You always take a position that matches the current market trend with trend trading. For example, you always open short positions during a bear market or go long in a bullish market.

• Scalping

Scalping is a short-term trading strategy that involves opening small and frequent positions (duration ranges between hours to few minutes) to take advantage of the market volatility. As a scalp trader, you use margin trading and try to reduce risk with a short-term position.

Scalp traders aim to open several positions during the day and make a substantial amount at the end of the day.

• Range Trading

As a range trader, you rely on experienced analysts to give you support and resistance levels. You then trade the market based on that information.

Tips For Trading Bitcoin

Here are some tips to help you maximize your trading experience:

• DYOR (Do Your Own Research)

Before you open any trading position, ensure you conduct your own research, even if you rely on an experienced analyst for trading calls.

Don't open positions based on the hype, especially with margin trading. There are two types of research you should do before trading:

1. Fundamental Research: Fundamental research is getting information about external factors that can affect the market. You want to trade the market with recent news. For example, China's ban on cryptocurrency mining in 2021 affected the Bitcoin price for a while. Be on the lookout for world news, policy changes, or financial information that can affect the market.

2. Technical Analysis: Technical analysis research uses the trading chart and price indicators like support and resistance levels, Moving Averages (MA 20 and MA 50), Volume, and RSI to predict price movement. Ensure that you're sure of what the market is saying before opening your position.

• Create a Good Trading Plan

Before trading, you must create a trading plan to avoid losing all your capital. Your trading plan should include a proper trading approach/strategy and risk management.

• Practice Proper Risk Management

Avoid trading the market without proper risk management because of the market volatility. The crypto market is generally volatile, so you don't want to trade without adequately managing your positions.

Risk management techniques like stop loss and position sizing help you to get out of bad trades without losing so much. Your stop-loss automatically closes your position in cases of sudden market movement.

This article gives an overview of formulating a trading plan and risk management.

• Avoid Trading emotions like FOMO, greed, and FUD

Trading emotions like fear, greed, FOMO (Fear of Missing Out), and FUD (Fear, Uncertainty, Doubt) can make open or close positions when you're not supposed to and disrupt your trading plan.

Keep your emotions in check when trading; you want to avoid influence from people or social media. Stick to your trading plan.

• Choose Your Trading Exchanges Wisely

The good thing about Bitcoin trading is that it is primarily unregulated, but that can also be bad for newbies. Exchanges can easily manipulate the market to liquidate most traders for their own gain. That is mainly because there are few operational compliances for crypto traders and exchanges. Ensure you research thoroughly before choosing

What to Consider Before Choosing a Crypto Exchange

This section covers what you should consider when choosing an exchange for trading

• Authenticity and Security

The first thing you want to do is ensure the authenticity of the exchange. Research and ensure it is a legitimate and secure platform to avoid falling into pump and dump schemes.

You also want to ensure your bitcoins are secure and not susceptible to hacking attacks. You can lose all your bitcoins if that happens.

• Fee Structure

The transaction fee structure differs depending on exchanges; some exchanges offer discounted fees on withdrawals and deposits. Take your time to research this; you want to ensure there are no hidden fees on transactions.

• User Interface and User Experience

You want to choose a platform that you can use intuitively. A clean and user-friendly interface makes it easier to trade efficiently.

You don't want a platform where you need to go through a learning curve before placing or closing a trade.

• Trading Platform: Centralized or Decentralized Exchange?

There are 2 major categories of exchanges: Decentralized Exchanges (DEXs) and centralized exchanges (CEXs).

Centralized exchanges are like third parties that monitor and secure transactions on behalf of users. Centralized exchanges also require that users verify their information before using their platform.

On the other hand, Decentralized exchanges don't require third-party intervention for securing transactions. Instead, they use smart contracts and blockchain to facilitate trading activities. Also, you get complete control over your bitcoins.

Get More With Decentralized Finance

Decentralized finance removes third parties' roles and gives you access to a faster and more secure way of earning with your bitcoins.

With smart contracts, DEXs and dApps can offer more innovative and safer ways of earning with crypto. The best part is that you get all control of your bitcoins – DeFi relies on the blockchain to achieve financial sovereignty.

Lending and staking are some of the best ways to earn passively with your bitcoin. This section will cover everything you need to know about lending and staking your coins.

Lending and Staking

DeFi Lending allows you to lend different borrowers your bitcoins for a fee or interest. It is an easily accessible service that allows you to lend out your coins at low risk and earn passively.

You only need to lock up your crypto in a lending pool that manages the funds. And you don't have to worry about losing your bitcoins. DeFi lending depends on smart contracts to secure and manage transactions.

On the other hand, staking involves committing your crypto assets to support the blockchain network and confirm transactions (Proof of Stake). You lock your bitcoin to become a transaction validator. Staking works like a fixed deposit in the traditional banking system.

Why Lend/Stake Your Bitcoin

Here are some great reasons you should consider lending and staking your Bitcoin:

• Earn Passively

With lending and staking, you can profit passively with bitcoins without doing much. You don't need much technical or trading expertise to lend or stake.

• Less Risk

Lending and staking are less risky compared to trading. You don't need to battle market volatility to earn.

• Permissionless

You don't need much to lend or stake your bitcoin – just a crypto wallet and some bitcoins. Anybody can lend or stake their coins regardless of their social status, age, or experience.

• Self-Custodial

The best part is that you're still in control of your assets when you lend or stake. You still have access to your private keys; the smart contract takes care of everything.

How to Stake or Lend Your Token

Here are the basic steps to follow when you want to lend or stake your assets:

• Pick a Platform

The first step is to pick a suitable DeFi platform that supports staking or lending. Before choosing your platform, ensure that it supports the bitcoin staking and lending you want to use.

• Determine How Much You Want to Stake or Lend

The next step is to determine how much you want to stake or lend. Determine what works for you; how many bitcoins can you afford to stake or lend. You can also buy bitcoins with the intention of staking or lending them.

• Lend or Stake Your Crypto Assets

Follow the instructions on the DeFi platform to lend or stake your assets. On most networks, you simply have to select the asset to stake or lend and choose the number of days. Select the number of days that suits your purpose. If you can afford to stake or lend for an extended period, do that. If not, stick to short-term periods.

What to Consider Before Picking Your Platform

Here are important factors you should keep in mind before choosing your platform

• Choose a Reputable Platform

To avoid falling into scams, you want to stick to popular and large lending or staking platforms. Avoid shady-looking platforms because of high yield or rewards; it might be a cover for exit and rug-pull scams.

• Read the Terms and Conditions

Ensure you read the terms and conditions governing the staking process well before staking. Go through any rules and be sure you can meet everything.

For example, some staking platforms require that you're connected to the internet 24/7 or wait for specific periods before you can unstake your tokens. Be sure there are no hidden rules or fees you're unaware of.

• Use Reliable Analytics to Get More Information about the Platform

The next step is to use reliable analytics tools like CoinMarketCap to get essential metrics about the platform.

• Check Reviews about the Platform Online

Lastly, check reviews about the platform online. Reddit, Telegram, and Twitter are great places to discover people's experiences with the platform/protocol. Dev users usually can spot signs of a shady deal and alert the community to them. Be on the lookout for red flags and warnings.

Lastly, don’t forget to stay safe however you decide to monetize your bitcoins. Be on the lookout for suspicious projects and activities that can compromise your assets.

If it is too good to be true, then it probably is. Learn more about Crypto scams, how to spot and avoid them in this piece.