Blog

Crypto Investing Strategies for Beginners

image

No one could deny that Bitcoin blew up our views on money many years ago, and thanks to it, the economy has dramatically changed and it’s almost impossible to imagine the world without cryptocurrency now. But if we are talking about currencies, bitcoin (or BTC, an acronym for bitcoin) isn’t the only one, there are tones of altcoins in the crypto universe. How to use those coins and tokens? How to make a profit and start earning with crypto? Is it as complicated and impossible as it seems at first sight? Let’s explore the whole thing together and maybe that will be the beginning of your bright investing future!

Mining

Maybe the oldest way to earn some crypto with not leaving your house. Everything you need is just a computer, mining software, and a wallet. But with time passing by, a question — “Is it still profitable to mine?” everywhere appears. 

So, let’s get to the essentials step by step,  —

  • Get a high-performance computer;
  • Set up a mining application such as Claymore, Ethminer, or alike that give a miner more control and flexibility in choosing pools and coins to mine;
  • Choose a wallet for bitcoin (BTC) and other cryptocurrencies;
  • Join a mining pool to maximize your profit. Such pools are groups of miners who combine their resources to increase their mining power. 

There is nothing difficult in mining, but if you want to earn a decent amount of money, you have to take into consideration that you need to have really powerful equipment and pay electricity bills. 

 

Staking

Staking is the act of sharing your crypto assets to participate in the operation of a blockchain. Users receive regular rewards like interest payments as a reward for locking up holdings. Staking works on blockchains that operate a proof-of-stake (POS) consensus mechanism. It’s important to understand that it’s a different approach than proof-of-work (POW), which is could be quite an intensive and expensive mechanism. 

POW is mostly highly secure and effective, but there are some concerns about its energy usage. Moreover, POW blockchains have scalability and throughput issues that mean Bitcoin can only process fewer transactions per second, while POS platforms can manage hundreds of thousands per second.

You can stake on an exchange, on a wallet, a Staking-as-a-Service platform, on a DeFi staking platform, but let’s observe those options to get a better picture. 

  • An exchange 

You define the amount of coins you’d like to stake, and the exchange will find an appropriate validating node for you. The exchange acts as an intermediary between the staking side and the validating one. Exchange staking often involves simply leaving assets that you’re going to stake in the trading account’s wallet. When you use an exchange, you don’t keep the keys to your cryptocurrency — you have to trust the exchange to do that instead of you. 

Such exchanges as Binance, Coinbase, Kraken, eToro could be quite helpful once you made a decision to get some income by staking. 

  • A wallet/a staking pool

A staking pool gathers many different investors who get together and pool their stakes. Staking pools, as a rule, are private organizations that are difficult to enter. That’s why to become a member of the pool can be obtained by paying a membership fee and having a minimum balance staked.  

  • A staking-as-a-Service platform (SaaS)

Maybe that is the most suitable option for a beginner or a person who doesn’t want to study the issue of how to start staking. Such stakeholders simply entrust the task to a staking service provider. The service provider makes sensible investments on a behalf of the holder. 

These services make the staking process easier but on the other hand, they create a centralized system, with large organizations with a definite power and influence. 

  • A DeFi staking platform

DeFi allows you to stake using  “smart contracts.” DeFi uses a blockchain to make it possible to trade different kinds of financial products.

  • “smart contracts”programs stored on a blockchain that start working once pre-agreed conditions are met.

DeFi staking gives investors passive income without collaboration with organizations that aren’t transparent enough and can be corrupted. DeFi staking is considered to be cheaper, too, since there are no intermediaries. 

These are the most prominent DeFi platforms to look at — Kraken, Gemini, Crypto.com, BlockFi, TradeStation

Such currencies as Tezos, Cosmos, Polkadot, Solana, and Ethereum 2.0 use the POS method. 

NB!  Ethereum is a POW blockchain, but it is still possible to stake its native asset ether. ETH is going to move to a POS method of mining to become more eco-friendly and save energy. 

 

Yield farming

Another option to earn coins and tokens is through a process called yield farming or liquidity farming. 

This scheme allows an investor to stake their coins by posting them into a lending protocol within a decentralized app or dApp. After that, other investors can borrow the coins through the dApp to use for speculation, where they try to get a profit. 

Investors who lock up their coins on the yield-farming protocol earn interest and more cryptocurrencies. If the price of those extra coins goes up, the investor's returns rise does the same. Above all, the process provides liquidity for freshly launched blockchain apps that are looking for long-term growth. 

UniSwap, Aave, Curve Finance, Instadapp could be taken into account if you are interested in yield farming option. 

 

Crypto stocks 

Coinbase Global (COIN) is one of the most influential and popular trading exchanges, made its first IPO in April 2021. The platform is popular for purchasing all main cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Cardano (ADA), and it allows users to trade 50+ altcoins.

Coinbase earns a small transaction fee every time someone places an order to buy or sell a cryptocurrency. But the company is more than just a place where you can trade. It also supports a debit card that allows users to spend digital money from their crypto wallet. It also set up a cloud platform for companies using and storing cryptocurrencies.

Exchange-Traded Products (ETP) are securities that track underlying securities and financial instruments. ETPs trade reminds stocks because their prices can fluctuate every day. As for the prices of ETPs, they are obtained from the underlying investments that they track.

These are exchanges with ETPs opportunities — OTC Markets, Nasdaq Nordic, CME Group, Swiss SIX Exchange, and Grayscale

 

Good tips to keep in mind

Once you’ve answered yourself why and where you want to buy crypto you need to think about some essential things such as:

  • Security 

It’s crucial to choose a difficult password/passphrase and use two-factor authentication (2FA), but don’t forget to read this article on how to protect your holdings. 

  • Coin’s utility

Choose not the hypest coin or token, but that one you studied thoroughly and find all possible information on different cryptocurrencies. That would be great to have a look at CoinMarketCap, as well. 

  • A successful strategy to stick to 

They say it’s better to buy and forget, rather than checking on your holding every single minute. So, don’t be that devoted to day trading, strive for wider perspectives. Yes, it could be slow, but always remember about the marshmallow test. 

It’s also quite wise to invest only that amount of money you can lose without regretting it. Stay rational. 

 

Closing thoughts

As the crypto field is growing day by day, there will be even more opportunities to earn through time. The question is about the responsibility and awareness of an investor. To leave the decentralized economy purely decentralized, future and current investors have to think thoroughly, be initiative, and always do their own research. Otherwise, all the attempts to become a crypto investor will lead to middlemen and intermediaries based online. 

All the options for investing in crypto and making a profit are quite nice and even simple, but whatever you choose — do research by yourself and decide which one is right for you.

Related Articles