How to Make Money Trading Crypto

How to Make Money Trading Crypto

**Markshire Crypto does not give any financial advice. Always seek the counsel of a certified financial advisor and/or accountant before making any investment decisions.**

I do not like to gamble with my money. Have I made risky investments? Absolutely. Have I lost some money with some investments? Absolutely. Overall, have I done very well with my net-worth? Absolutely. Today I am here to talk about how to make money trading crypto, and increase your net worth. 

I prefer to make investments with math in my favour. I look at fundamentals and try my best to optimize my return. That being said, I also work a day job at a relatively secure, well-paying position with a defined benefit pension, solid 6-7 month emergency cash fund, strong budgeting skills, and I have some low-risk investments as well. 

Regardless, today I am here to discuss how to make money trading crypto. There are a select few techniques that I use that is also used in traditional trading:

You have likely heard of technical analysis, or “TA” as it is called in the industry. I do not know enough about TA to discuss it with confidence. Some people swear by it. I’m not sure how profitable it would be in the longer term, plus you must not only develop the skillset, but also the temperament to practice, follow and implement technical analysis. 

All of my investing methods are on a medium to long term (3 to >10 year) outlook. I do not believe in “get-rich-quick” and I think you’re foolish if you think its reasonably possible. Even buying 1,000 Bitcoin at $5/BTC, to truly become rich, you still needed to wait > 3 years. 

How to Make Money Trading Crypto by HODL-ing 

You’ve all heard of HODL – Hold On for Dear Life. A play on words for “hold” from the traditional investing industry. 

Practicing HODL is probably the easiest, most straightforward way to make money trading crypto. After all, you’re not really trading anyway. Take a lump sum of money, purchase your investment. And wait. Just hold onto it over time, through the ups and downs; highs and lows. Good market news and bad market news. You just sit on your investment for the long term. 

This is great if you do not have spare monthly income to invest on a regular basis. 

Ideally, in the medium to long term (3 to 10 years) your investment will yield a nice return for you. 

How to Make Money Trading Crypto by Dollar Cost Averaging 

Dollar cost averaging is probably the hybrid between easiest and most effective way to make money trading crypto. However, it requires a regular contribution of capital, aka some spare money at the end of every month (or whatever pre-determined time period). Which is a luxury most people do not actually have (then I refer you up to HODL). 

The concept of dollar cost averaging is simple. You pick a set dollar amount that is affordable to you, whether that is $20, $50, $100, $250, $500, $1,000, etc. 

Next, you choose a timeline that is appropriate for your budget and expenses. That can be once a week, every other week, every month, every quarter, or every 23 days if you prefer. Any regular time interval. 

I think a good amount is about $50-$500/month. But that is based off my own personal needs assessment. 

Consider your personal expenses and financial responsibilities. Keep in mind that you should never invest more than you are willing to lose in crypto. With the asymmetric risk-reward profile of most cryptocurrency, you don’t actually need to invest large sums of money to make some significant gains. 

Then you take your $100/month and invest it into the crypto of your choice (i.e. XRP or Bitcoin or Ethereum). You do this every month. For years. 

Years!? 

Yes. Dollar cost averaging needs time for it to pay off. Since you are putting relative small dollar amounts in, relatively frequently, it takes time to build a nest egg investment. 

Moreover, you will catch the highs and the lows of the crypto market. When the price of XRP or Bitcoin is high, your $100 will buy you less XRP or less BTC, forcing you to not over-pay for your crypto.

Then, when prices drop (as they always do), your $100 that month buys you more XRP or more BTC, forcing you to buy more when the price is lower. All without having to think, or spend more than your allotted $100/month. 

Over 3 years you will have invested $3600 into crypto, but its value would be significantly higher as the prices rise.

Lets say you started 36 months ago. You would have started investing in March 2016, when the price of Bitcoin was just above $400 and the price of XRP was $0.008. 

In one month you could buy 0.25 BTC for $100, or 12,500 XRP for $100. 

What I like about dollar cost averaging is that you are constantly adding to your investment. It ideally grows by its own capital appreciation, however, it also grows via your cash input every month. 

Dollar cost averaging requires solid control over your personal finances and monthly budget, financial discipline and consistent, regular investments being made. It is tough, but it works, over time, with a good asset (i.e. Bitcoin, XRP, Ethereum). 

How to Make Money Trading Crypto: Day Trading/Technical Analysis 

Alright, you’ve probably seen or heard of “technical analysis” or “day trading”. Often I am interrupted on YouTube for some obnoxious advertisement claiming that you’ll make thousands of dollars per week, or even per day, if you simply sign up to their program to learn how to day trade or learn technical analysis. 

You can already tell that I am not a fan of day trading/technical analysis. 

My rational is that no one can accurately predict (any) market swings over a short period of time (short being anywhere from an hour to a year) with true consistency. This means that if you have early success, sooner or later you will fail. The law of averages. 

Because that is my stance on day trading I really can’t comment further on it. I do not think that it works in the long term for the vast majority of people. And therefore I do not recommend it. 

Even if you wanted to day trade, day trading is a full time job with high stress and you must be watching the markets consistently. And since the crypto markets are open 24/7 I really do not advise day trading. You would likely have to sell out of your positions whenever you stopped “working” or otherwise create stop losses to prevent you from losing your money while you sleep or are on vacation. 

How to Making Money Trading Crypto: Rebalancing

Rebalancing crypto is not complicated in its theory, but in practice, it can become a little messy. However, it is a good mathematical, logical/rational way of making money trading crypto. (Unlike day trading). 

To begin, I’ll briefly explain rebalancing. It is common with index investing and refers to keeping your portfolio within a certain percentage balance. It is a form of capital allocation. Whenever the portfolio ventures outside your acceptable range, then you rebalance it. And you can re-assess the balance of your portfolio on a certain timeframe (i.e. once a week, once every other week, once a month, once a quarter, etc). 

For example, you may have a portfolio allocation of 40% cash, 60% Bitcoin. We’ll keep it simple like this for demonstration purposes. Let’s say you begin with a $5000 portfolio, you’d have $3000 in Bitcoin and $2000 in USD.

If the price of Bitcoin increases significantly, then its percentage in your portfolio increases. To fix this you would sell some Bitcoin to bring its percentage allocation back down to 60%. And vice versa, if the price of Bitcoin drops, then the percentage of Bitcoin in your portfolio will decrease (and your cash percentage will increase). You rebalance by using the cash to buy more Bitcoin. 

Three main advantages of the Rebalancing method:

  1. It forces you to sell high 
  2. It forces you to buy low 
  3. It keeps your portfolio “safer” in an uncertain and unpredictable market. 

Main Disadvantages of the Rebalancing method: 

It forces you to sell your asset periodically, especially if it is rising in price. In hindsight, if you knew that Bitcoin would appreciate from $1,000 in January 2017 to $19,000 in December 2017, you likely would not have sold any Bitcoin at $5,000, $8,000, $10,000 or $15,000 even. You would have held on and sold at the high. 

Similarly, in hindsight, you wouldn’t have bought back into Bitcoin in February 2018 when the price was between $7K and $9K USD if you knew that by December 2018 the price would plunge to a low near $3,400. 

However, you do not have a crystal ball. How could you have predicted that the price would jump from $8,500 to $19,000 in less than a year? And how were you to know how far the Bitcoin price would drop? It is an impossibility, so do not beat yourself up about it. 

While not ideal, the rebalancing method does protect your cryptocurrency portfolio and allows you to make money trading crypto relatively safely. It ensures that you take some profit when prices increase, and it ensures that you buy in more crypto when the prices have come down. And really, that is what everyone is trying to do anyway. The only downside is that this method cannot predict how high the highs will get or how low the lows will get. 

One other disadvantage to the rebalancing method is that you must be careful to keep track of your buys and sells. You must have detailed transaction records to the penny so that you can accurately report your income taxes and claim capital gains or losses. You do not want to run into legal or tax trouble. I recommend always keeping a store of cash aside to account for your taxes. 

Make Money Trading Crypto by Automating Rebalancing

While attempting to rebalance your own portfolio can be tough, especially for the mathematically challenged, developers have devised solutions. There are programs/applications that exist on certain platforms that allow you to automatically rebalance to your specified asset allocation. at your specified trade frequency (every hour, every day, every week, month etc). 

One that I am aware of is Samsa, built on the Level Exchange. I am aware that Samsa allows you to rebalance your crypto portfolio automatically, however, I am not too familiar with how it specifically works. So I will not endorse it directly here, but its an option if you really like the idea of rebalancing but do not want to do all that work on your own. 

Markshire Crypto Conclusion – How to Make Money Trading Crypto

Obviously, there is no real perfect way to make money trading crypto. But there are many successful ways. Keeping in mind that I am not a financial advisor and this post/website is for informational purposes only, I will elaborate on my favoured methods. 

I have no love for day trading or technical analysis. I like to keep a long-term outlook. I have a great real-life day job in healthcare that I am passionate about with good pay and a good pension. And so I do not need to add the stress, time and effort involved in day trading and following technical analysis. There is so much more risk in day trading. 

I’ve always been someone to follow the numbers/math, logical/rational reasoning. No one can accurately predict the daily or weekly swings of any market with regularity/over the long-term. Basically, you might make a bunch of money day-trading initially, but eventually, you will get burned and lose a lot of money. Every single one of my friends who day trade stocks have earned hundreds of thousands, but I am not exaggerating when I say that they all lost hundreds of thousands. I think they are overall in the profit zone, but why take that risk and stress when you have prefectly acceptable mathematically proven ways to earn profit?

Not to mention the nightmare of tax implications of day-trading crypto… keeping track of all those buys and sells, capitals and capital losses. NIGHTMARE. 

If you can’t tell, I favour the long-term, rational investing approach. Buy a strong asset and hold it for years. If the fundamentals are strong, the network has depth and breadth and it is solving real-world problems, then I don’t care if the price drops next month, because I know that in 3 to 10 years the price will be dramatically significantly higher. I will have peace of mind, and be able to live my day-to-day life without stressing about day trading. With fewer transactions, my tax implications are so much less as well. 

My favourite investing approach for crypto right now is a mix of HODL and Dollar Cost Averaging. Basically I periodically purchase medium sized chunks of crypto and then HODL it. This allows me to catch lows and highs, over months and years, but I’m also not selling so I do not have to stress about tax implications for the time being. 

I do not actively practice rebalancing; however, I definitely think that it is a great way to actively protect your portfolio while producing profits. I would take a minimalist approach to rebalancing, choosing infrequent rebalances and combining it with dollar cost averaging. 

In summary of my conclusion: 

  • HODL and Dollar Cost Averaging for LONG Term investing. 
    • Simplifies taxes (less selling when HODLing long term)
  • Buy strong assets that solve real-world problems, have strong fundamentals, and networks with both depth and breadth. Then hold them. 
  • Rebalancing Method is great for reducing risk and ensuring that you buy low and sell high. 
    • Always be mindful of tax implications with this method. 
    • Combine with regular inputs of cash (similar to dollar cost averaging) to reduce your sells and improve long term results. 

That being said, what is your favoured approach to make money trading crypto? Do you HODL? Do you dollar cost average? Do you rebalance? Do you day trade? The Markshire Crypto community and I would love to know and discuss in the comments below!

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Author: Markshire Crypto

Millennial cryptocurrency investor, writer and marketplace researcher. Founder of Markshire Crypto. Mark has been involved in the cryptocurrency industry since 2017, following the industry daily and creating content.

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