How to Profit from Cryptocurrency21st April 2019
This free guide looks at some strategies to help you profit from investing in cryptocurrency
Cryptocurrency is one of the most risky yet rewarding investments in our current era.
All kinds of people having made huge amounts of money by investing into cryptocurrency, from tech nerds to average Joes.
This has lead to people looking for information about cryptocurrency investing, so I made this guide.
It does not take a paid group or being a genius to profit from investing in cryptocurrency. FREE resources like this guide should be more than enough.
When I say “profit from cryptocurrency”. I don’t mean you will become a millionaire overnight by investing $100 and going to sleep. That is not how investing works.
Real investing is persistent and it takes having knowledge about the projects you invest in. You need to know if a cryptocurrency is actually needed for the problem it is intending to solve.
This guide will look at:
- Different types of 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 10 years ago, the second best time is today
- If you can afford one, I recommend a hardware wallet to store multiple cryptocurrencies offline: Check out some hardware wallets here.
The “safe” strategy
Bitcoin is not the only cryptocurrency:
Cryptocurrencies other than Bitcoin are referred to as Altcoins (alternative coins). These altcoins either serve a similar purpose as Bitcoin or a whole different purpose altogether.
When investing in cryptocurrency, you might want to start with “Blue Chip” cryptocurrencies. These are 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. 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 thus making the investments safer in my opinion.
Blue Chip cryptocurrencies include.
Above $2 Billion Market Cap:
- BTC — Bitcoin — First decentralized cryptocurrency.
- ETH — Ethereum — Smart Contract & Dapp Development Platform.
- XRP — Ripple— Ultra-Fast and ultra-cheap international payments for banks.
- BCH — Bitcoin Cash — Bitcoin fork, slightly faster than Bitcoin.
- LTC — Litecoin — Bitcoin fork, faster and cheaper transactions.
- EOS — Development platform & DAPP framework, uses DPoS.
- BNB — Binance Coin — Exchange coin by Binance exchange, will be used in their upcoming DEX.
- XLM — Stellar — Ultra-Fast International Payments & Development Platform, Ripple & Ethereum-like cryptocurrency.
Above $30 Million Market Cap ($500 Million +):
- ADA — Cardano — Development platform, all code is peer reviewed by scientists.
- TRX — TRON — Blockchain-based entertainment content sharing platform.
- XMR — Monero — Privacy based cryptocurrency, most popular privacy coin.
- NEM — Enterprise level development platform.
- Dash — Privacy based Bitcoin fork.
- XTZ — Tezos — Development platform, uses DPoS.
- MIOTA — IOTA — IoT Payments, Zero Fees.
Most altcoins can be bought using Bitcoin (BTC) or Ethereum (ETH), however more and more exchanges are starting to sell altcoins directly for cash, for example:
Bitcoin, Ethereum, Ripple, Bitcoin Cash, Dash, Bitcoin Gold and Stellar can be bought directly from CEX for users everywhere.
Bitcoin, NEM, NEO, Cardano, Ripple, Litecoin, IOTA and more can be bought directly from BitPanda if you live anywhere in Europe.
For most of the other cryptocurrencies which cannot be bought directly, they can be bought from Binance using Bitcoin (BTC) or Ethereum (ETH).
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 of a cryptocurrency will be in the future, so if you feel confident about the cryptocurrency you have chosen, buy a small amount to get you started and set your foundations.
As long as you have picked a good coin, 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”
This a famous saying by Warren Buffet which urges people to buy when other people are selling (cause the price to go down) and be cautious when everyone is buying (causing the price to rise).
Usually a price drop is followed by a rebound that causes a price increase, so investors can use the downturn to buy cryptocurrency at a lower price.
On the other hand an upturn is usually followed by a correction that causes a big price drop. This is natural since investors are likely to sell once the price of a cryptocurrency has increased, they are simply taking profits.
It is best not to think too much into this since it can get very technical and in my opinion if you have invested into a good cryptocurrency, any time is a good time to buy.
Another good piece of advice is to be patient, if you buy a coin when the price is high and it starts to decline, just wait for the price to recover.
You don’t want to buy a cryptocurrency when the price is rising and then sell when it drops, that can be very stressful once the price starts to recover again and leave you like this:
Another great time to buy is when a coin is in accumulation, this is when the coin has been slowly but very steadily rising over an extended period of time
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 more further down).
Buy Low, Sell High
Ideally you want to invest into a cryptocurrency when it is nice and cheap, then sell it after the price has risen substantially.
For example if you bought 300,000 Stratis at $0.01 on August 12th 2016 you would now have $300,000 at it’s current price of $1.10.
If you sold during Janurary 2018 you would be a millionaire, having have gained over $4.2 million from an initial $3,000 investment at the price of $14 per coin at the time.
If you are not an early investor and missed out on the bottom prices you can still buy during the occasional dips, however just because you didn’t buy a coin at it’s lowest price that does not mean you are late. Many projects take years to reach their full potential due to development and user adoption which naturally takes time.
Again patience will help you more than hurt you as long as you have invested in a cryptocurrency.
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 investors are “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 in.
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 originated from a spelling mistake a Bitcoin investor made on the bitcointalk forums. Later on people started using HODL to mean Hold On For Dear Life.
Many cryptocurrency investors claim that they have made more money from holding onto an investment long term instead of trading, whilst others claim to have made more profits trading. If you are new I recommend holding instead and leaving trading to the professionals or more experienced.
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 drops
- Strong Hands — Investors who hold on to coins not matter how low the price drops
- Bloodbath — When a large number of coins drop massively in price
- Moon — A massive price price increase
- Shakeout — When a cryptocurrency’s price drops so low, causing many worried investors sell at a loss.
- Whale — An investor who owns a lot of cryptocurrency, due to the massive amounts of cryptocurrency they hold, it is believed that they can influence the price of a coin through buy walls, sell walls and selling off large amounts of coins.
- Buy walls — When the buy orders for a particular coin are much higher than the sell orders. It is rumoured that whales can use buy orders in an attempt to try raise the price of a coin.
- Sell walls — When the sell orders are much higher than the buy orders. It is rumoured that whales can use sell walls to suppress the price of a cryptocurrency (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. Negative news that is being spread about a cryptocurrency. FUD can cause investors to doubt their investments and sell thier or prevent other investors from buying into a coin.
- Pump & Dump — A scheme where groups buy into a cryptocurrency when it’s 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 are 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.
- Bloody Monday — A term coined by Crypto Twitter for when the price of most altcoins drop every Monday according to them.
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 (10x-100x) you can take profits into Bitcoin or Fiat and buy more of the same coin when the price drops.
• To diversify into traditional investments such as gold/silver, stocks, index funds, mutual funds, REIT’s etc.
If you want to take profit on a cryptocurrency I would recommend cashing out no more than 50% if you believe the cryptocurrency’s 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.
For example, you buy a $5,000 worth of cryptocurrency at $0.50, when the price reaches $5 you have made a 10x gain leaving you with $50,000.
Now you sell $10,000 (20%) and keep the remaining $40,000 (80%). During a bull market, 10x gains are not uncommon and are in fact expected.
This can be very effective just before a bear market where the prices of most cryptocurrencies will drop as investors sell off their tokens, allowing you to buy them back at a cheaper price.
What causes a coins price to increase?
One reason for a high increase in a cryptocurrencies price is its supply of tokens, naturally if something has a scarce supply and high demand its value will increase.
Other factors that can cause a cryptocurrencies price to increase include:
- New developments and announcements, if a cryptocurrency has a large community, a simple announcement or new feature can cause a huge wave of buying behaviour which increases the coins price.
- Cryptocurrency developers hitting roadmap deadlines and targets, this can cause investors to buy into a cryptocurrency more due to increased confidence.
- Cryptocurrencies on small exchanges getting added onto larger and more popular exchanges (increases user adoption)
- Pump and dump groups, usually with really small and shady cryptocurrencies which are easier to manipulate.
- Hype, people with a large following and influence can urge people to invest into a cryptocurrency, John McAfee is one example.
- Real world use and adoption of a cryptocurrency, reducing supply and increasing demand
You can use a cryptocurrency’s supply and market capitalization to accurately calculate the price using this formula:
Marketcap/Circulating Supply = Price
For example Bitcoins current market cap is $93,779,421,380 USD and the circulating supply is 17,654,937 BTC, so:
$93,779,421,380/17,654,937 BTC = $5311.79 the price of Bitcoin on the 20th of April 2019.
You can also use a cryptocurrencies marketcap to make a price prediction.
Let’s say you came across someone who predicted Bitcoin to have a market cap of $1 Trillion by 2020, then again you would calculate it like this:
$1,000,000,000,000/17,654,937 = $56,641.38 predicted price by 2020.
However bare in mind that a cryptocurrency’s circulating supply could increase by then which would affect the predicted price but not by a large amount in most cases.
You can find out a coins supply and marketcap on coinmarketcap.com.
Tracking Cryptocurrency 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.
My three favourites are Blockfolio, Coinfolio and CoinCap.
You can also set up price alerts which send you push notifications whenever the price drops or rises above a certain level.
Even though I have all three installed, I personally prefer Blockfolio due to its “Signal” feature, it’s a cool feature which sends me notifications containing news from the developers of a cryptocurrency I am tracking.
I haven’t used Coinfolio much so I cannot comment too much on it’s features but CoinCap has a beautiful pie chart that shows all your current cryptocurrency investments.
If you had to pick two you should definitely go with Blockfolio + CoinCap hands down.
Looking for new investment opportunities
Finally let’s look at how to scout for new investment opportunities in the cryptocurrency space.
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.
Search Bitcointalk for information regarding that coin and find the slack, telegram and discord channel invites.
Important information to consider:
• Does the cryptocurrency or platform behind it have a real use case? What is the cryptocurrency’s purpose?
• What does the “coin” represent? Ownership? Currency? Is it a Token?
• Did the cryptocurrency have a premine? If so, why?
• Is the cryptocurrency’s ecosystem 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 are the people behind the cryptocurrency and what are their credentials?
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 more as 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 tweet their activities and opinions including:
- Price predictions for particular cryptocurrencies
- Cryptocurrencies they are trading as well as thier buying and selling targets
Be very careful when taking advice from tipsters since 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, #cryptotwitter) or price tickers ($btc, $eth, $bnb $xrp etc.) I won’t post any recommendations at this point since I believe every investor should choose whose advice to follow themselves.
- For a safer approach, invest in “blue chip” cryptocurrencies.
- Once you have chosen a cryptocurrency to invest in, buy some coins to set your foundations.
- Buy consistently and for the long term to maximise your profits.
- Buy more cryptocurrency when the price falls to increase your profit potential.
- Cashout 20–30% when taking profits if you are holding a cryptocurrency for the long term and aim for a 10x-100x return.
- Use an app like Blockfolio, Coinfolio or CoinCap to monitor price movements and track profits.
- Use Bitcointalk to discover new cryptocurrencies and engage in discussion with developers and fellow investors.
CEX — Cryptocurrency exchange that allows users to buy Bitcoin, Ethereum, Ripple and other altcoins directly with cash from any country in the world. Sign up to CEX
BitPanda — European cryptocurrency exchange with the largest number of altcoins that can be purchased directly with cash.
Currently only European based users can buy cryptocurrency at this time but worldwide support may available in the future. Check out BitPanda
Binance — Cryptocurrency exchange where users can buy most altcoins using Bitcoin or Ethereum. Sign up to Binance
Ledger Wallets — Hardware wallets (aka cold wallets) where you can store most cryptocurrencies securely offline for additional safety. Buy Ledger Wallets
This wraps up the “How to Profit from 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.
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