Making money with Bitcoin (BTC) has become increasingly difficult in 2022. Prices have fallen following a crypto crash. Free Bitcoin promises are often scams. Bitcoin mining, once accessible to individual investors, is now so competitive that it is rarely a profitable business for those with small setups.
However, it is still possible to make money with Bitcoin. You can trade it, loan it, own it or earn it. Returns are not guaranteed on this volatile asset; just as you can make money when the price goes up, you can also lose money if the price goes down. But Bitcoin’s growth since its launch has some crypto investors optimistic about its future: in 2010, 1 Bitcoin was worth around 9 cents, and now each coin is worth somewhere around $19,000.
Come back: Depends on investment size and price changes. During its last bull run in 2021, Bitcoin prices more than doubled.
Buy and hold Bitcoin as a long-term investment – or, as some crypto enthusiasts call it, HODLing – can be an inexpensive way to make money in the long run, as long as its price when you finally sell it is higher than the price you bought it for. Historically, the price of Bitcoin has reached $65,000 per coin, so it is reasonable to imagine that it could reach a similar figure in the future.
Bitcoin was originally designed as a cryptocurrency that could be used for day-to-day transactions, but as its value grew, many investors began to view Bitcoin as a long-term investment. As with any investment, holding longer means you will have to endure ups and downs in price without being tempted to buy or sell. If you choose to buy and hold Bitcoin, you need to make sure that you are not overexposed to any particular asset and that you are not investing money that you cannot afford to lose. A guideline is to invest no more than 10% of your portfolio in risky assets like Bitcoin.
Using a Credit Card with Bitcoin Rewards
Come back: Generally 5% or less per dollar spent on certain categories and 1% on all other purchases.
There are many crypto credit cards that will allow you to earn cryptocurrency rewards. Similar to traditional cash-back programs, you can earn a small percentage of purchases you make with the card, which can be paid for in Bitcoin or other cryptocurrencies. Some offer sign-up bonuses that allow you to earn additional rewards if you meet certain criteria.
Keep in mind that your crypto rewards may be reduced by transaction fees or a spread added by the provider. A spread is the difference between the market price and the rate provided by a certain platform; When a crypto credit card issuer has one that applies to rewards, it means you will get a slightly less favorable exchange rate when you earn and sell those crypto rewards.
If you already own Bitcoin, you can earn interest on your assets by lending to other investors or institutions. Platforms like Gemini and Cake DeFi allow users to lend fractional shares of Bitcoin with interest rates as high as 5% APY.
However, each platform has stipulations for loans. For example, with Gemini Earn, Gemini’s interest earning program, and Cake DeFi, you could lose some or all of your investment if the borrower you lend defaults.
Crypto lending is also a relatively new category and carries a high level of risk and uncertainty. Notably, several platforms stopped offering lending services this year:
Celsius, one of the largest crypto lending platforms, froze withdrawals in June 2022 following a crypto crash and subsequently filed for bankruptcy.
BlockFi stopped offering its lending product pursuant to an order from the U.S. Securities and Exchange Commission, which accused the company of failing to record bids and sales for its retail crypto lending product.
Nexo, a crypto platform that offered a lending product, is being sued by multiple states for deceptive marketing and has voluntarily stopped offering its product to new customers in the United States.
Accept payments or tips in Bitcoin
Come back: Depends on Bitcoin payout amount and price movement.
If you accept payments or tips for side gigs or business, consider giving people the option to pay in bitcoin. You can do this with platforms with processing services such as Coinbase or BitPay.
Setup is relatively straightforward, although navigating the tax implications and risks associated with accepting bitcoin payments can be more complicated. Coinbase’s self-managed account can be set up immediately. BitPay takes a few days to be approved but allows you to accept multiple cryptocurrencies.
Something to keep in mind: if your goal is to gain exposure to Bitcoin, be sure to use a service that allows you to accept funds in Bitcoin. Although BitPay and Coinbase offer you the option of receiving funds this way, some processors only allow you to accept funds in fiat currency.
Bitcoin day trading
Come back: Depends on investment size, trades and price changes.
It is technically possible to make money by buying and selling Bitcoin in short windows, entering and exiting positions as the market changes. But like day-trading with stocks, you are much more likely to lose money this way.
Day traders use macro and microeconomic data, market trends dating back to the beginning of the stock market, and other tools at their disposal in order to make educated guesses on which stocks to buy or sell. And yet, these active traders struggle to match the returns that can come from buying and holding, say, low-cost funds that track a broad market index.
Investors have far less data on how Bitcoin behaves under certain economic conditions, so predicting its price movements can be even more difficult. For example, at the beginning of 2022, the price of 1 Bitcoin was above $47,000, and in September it is currently trading at just over $19,000 per coin. Additionally, trading cryptocurrency on a regular basis can quickly become a nightmare during tax season. You will need to be diligent about keeping records of what you have bought and sold and the different price points involved. If you plan to become a frequent cryptocurrency trader, it’s a good idea to speak with your accountant and make sure you know what to keep before you start.
Some volatility is needed to make money from day trading; prices must go up or down for a trader to make a profit. But Bitcoin and crypto are more volatile than other assets, making an already deceptively difficult notion like “buy low and sell high” even more difficult. If you intend to try, start small and be careful.
What about bitcoin mining?
Bitcoin mining can be a lucrative way to make money with bitcoin, but not for individual investors. Due to the computing power required, the initial and ongoing costs can far exceed the mining rewards earned.
Bitcoin’s blockchain operates using a proof-of-work consensus mechanism, which means that miners perform the essential task of validating transactions in order to maintain network security. New blocks of transactions are added to the ledger once every 10 minutes, and the miner who validates a new block is rewarded with 6.25 Bitcoins, or around $122,000 based on recent prices. Miners also earn transaction fees paid by users who want their transactions to clear faster, which can add around $4,000 to the reward for each block.
But to stand a chance of earning a bitcoin reward for validating a block of transactions, you’ll need a powerful computer called an ASIC (or application-specific integrated circuit), and those can cost upwards of $10,000. $. You’ll also have to spend thousands of dollars on electricity to compete with other miners, and earnings aren’t guaranteed.
There are mining pools, where investors can pool compute resources and share rewards for mining Bitcoin. But the configuration is not simpler. Pools charge fees to their users, and the larger the pool, the smaller the reward will be.
Neither the author nor the publisher held a position in the aforementioned investments at the time of publication.