The cryptocurrency industry is one of the fastest-growing industries across the globe. Over the past quarter, the total market capitalization of the field surpassed $2 trillion - with Bitcoin (BTC) becoming the first trillion-dollar cryptocurrency asset.
Early adopters of cryptocurrency such as Vitalik Buterin, Changpeng Zhao, and the Winklevoss twins, were able to make a fortune from buying and holding the assets - the price of Bitcoin and altcoins has been exploding through the roof over the past decade. Looking backward, it might seem like all the amazing opportunities are a thing of the past , but the reality is, the industry is still very young; there still are a number of actual ways to stack up dollars in the upcoming years, probably decades.
The booming growth of the crypto industry has raised multiple potential opportunities to earn income in the field including trading, staking, saving, referral programs and the ever-growing decentralized finance market, popular as DeFi.
At the heart of making money in the field is crypto trading, which is seen by most newcomers and investors as the surest way to make money. Whether it’s a “buy and HODL” strategy or “day trading”, investors have made thousands and millions from trading crypto assets and financial instruments.
Having mentioned the fast growth of cryptocurrencies in the past decade and various ways of making money in the space, this next section focuses on crypto trading - available markets and instruments.
Spot Trading is the most common way to invest in cryptocurrencies. Technically, a spot trade (also known as spot transaction) refers to purchasing cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), or any other cryptocurrency for instant delivery on a specific spot date or time.
This means you purchase crypto and hold it until the value increases from the buying price. You can buy crypto using fiat currencies such as USD, GBP and EUR, other cryptocurrencies, or stablecoins such as Tether (USDT) or Circle’s USDC.
Most centralized crypto exchanges such as Binance and Coinbase offer crypto spot trading services.
Margin trading of cryptocurrencies refers to buying crypto assets with leverage. It means that an exchange allows you to put up a marginal amount of your funds to trade a far larger amount - some exchanges offer leverage up to 125X your initial capital or even higher. However trading with 100X leverage is already extremely risky and anything above that is virtually a sure way to lose your money. But that’s a topic for a different article.
Margin is apt for traders who wish to cash in on the short-term price movements and do not have enough cash in hand or prefer not to use it. This type of trading helps them amplify their returns through leverage. Assuming a trader has an initial cap of $100, this could be leveraged by 100X for them to trade with a position of $10,000. In such a scenario, they are better placed to make more returns if the market goes in their favor.
However, margin trading has its own risks including magnifying losses, liquidation, and a minimum margin account balance. To mitigate some of the risks you need to invest wisely, borrow less than the provided amount, and borrow only for short-term durations. The good news though, that you can not lose more than you actually have in cash, since most modern exchanges like Drixx, will liquidate your position as a means of protection - so that you can’t go overdraft so to speak.
A derivative is a financial contract between two or more parties based on the future price of an underlying asset_. _Bitcoin and crypto derivatives have grown explosively in the past few years as more investors look for new financial instruments to trade. Understood as a security that derives its value from an underlying asset (such as cryptocurrencies), the derivative contracts can be signed by two or more parties who wish to buy or sell a particular asset.
The value of the contract is determined by the changes or fluctuations in the price of the crypto asset it derives its value from. There are four major types of derivative products including futures, forwards, swaps and options. You can read about them more in depth here, but in short:
Futures and forwards represent an obligation for the buyer or seller of the contract to purchase or sell an asset at a pre-determined price on a specific date in the future. Swaps are derivative contracts that are often used between two parties to exchange one type of cash flow for another.
Finally, options differ from futures in that they are derivative contracts that grant the buyer and seller the right (but not obligation) to purchase or sell the underlying asset at a certain price in the future.
Bitcoin derivatives are offered by both traditional exchanges such as Chicago Mercantile Exchange (CME) and Bakkt. Drixx, as one of the leading crypto derivatives, offers Bitcoin and Ethereum derivative contracts, with up to 100X leverage.
Another rising niche is peer-to-peer crypto trading that entails two individuals directly exchanging cash for crypto assets. The P2P services are offered by third-party platforms such as LocalBitcoins, Paxful, and Binance, which provide an escrow to maintain trust between the counterparty traders.
In the month of March 2021, the total P2P trading volume on LocalBitcoins and Paxful reached $86 million, data on Usefultulips.com shows.
The crypto market experiences wild price swings which give investors a better opportunity to make money off their investments in comparison to the traditional financial markets.
Unlike the traditional financial system, cryptocurrencies can be traded 24/7 from practically anywhere in the world - as long as you have access to the internet of course - since there is no centralized governance of the market and it is truly global and borderless. It can be said that crypto is the first, one of a kind financial market that simply never sleeps.
Most centralized exchanges offer leveraged trading meaning you can borrow additional funds to trade – Drixx offers up to 100X the amount of money you have. In other words, you could gain a large exposure to a cryptocurrency market while only tying up a relatively small amount of your capital.
Liquidity is the measure of how quickly and easily a cryptocurrency can be converted into cash, without impacting the market price. Over the past few years, cryptocurrency liquidity has improved significantly, however, the $263 billion traded daily in this field is way short of the trillions of dollars traded in equity, forex, and gold markets.
The cryptocurrency industry is prone to hacks and security breaches which have resulted in the loss of billions over the last few years. With the inception of DeFi, given its decentralized nature, hacks have advanced to whole new levels. Among the most common hacks/breaches are ‘rug pulls’ - this is a scenario where malicious players create/mint new tokens and lure unsuspecting investors to provide liquidity. Once they have provided the liquidity in form of ETH or other valuable crypto assets, they are given the newly minted coins which they expect to be valuable, due to the buzz the creators generated around it.
However, that is not the case since the malicious players (usually anonymous), never intended to contribute to the project, as the real project was to take investors' money and run away with it. So, they withdraw liquidity and disappear, leaving investors with worthless tokens that cannot be traded.
This is a decentralized form of exit scams, so to speak.
That’s why it is always a good idea to do your own research on any new project - the team members should not be anonymous and have a clean track record, diligently working on the project’s long term success.
Also, it is important to make sure you are interacting with the correct contract, because wherever there is a great project, there are scammers creating duplicate contracts, duplicate social media channels and what not.
Then the fraudsters find a way to make inexperienced crypto investors think they are interacting with the original project (the one that excited them in the first place), but in reality end up purchasing fake tokens which have no market value and can not be sold anywhere. When the investors realize the mistake, it is usually already too late and their investment is lost forever, serving as a reminder and a sobering life lesson for the future.
Due to the decentralized nature of crypto, most of the assets might not be affected by political and economic pressures to the same extent as traditional currencies.
However, like every other financial market, crypto is also affected by macroeconomic factors such as regulation, political environment and economic pressures - and ultimately, by human emotions.
Here are some of the other factors that affect cryptocurrencies and their respective markets:
Total supply - This the number of coins set to be released, burned, or lost in the ecosystem.
Market Cap - The total valuation of all the coins in existence, as per their prevailing market prices.
Liquidity - How easy it is to buy and sell a cryptocurrency asset without massively affecting the price.
Utility and integration - How useful the cryptocurrency is and the extent to which it integrates into existing infrastructure, such as e-commerce payment systems.
Key development events - This ranges from technological upgrades, regulatory updates, security breaches, and research.
Media influence - The higher the number of times a coin is mentioned in the mainstream media, the higher the probability its price will keep rising.
You can either trade on a centralized exchange or a decentralized exchange, popularly known as DEXes.
Centralized exchanges: These are third-party online platforms used to buy and sell cryptocurrencies. They are the most common way to trade cryptocurrencies. Binance, Huobi, Drixx, and OKEx are an example of a centralized exchange.
Decentralized exchanges: These are alternative exchanges that cut out the middleman completely. DEXes function as peer-to-peer exchanges with the transactions done entirely based on smart contracts and atomic swaps to create a “trustless” environment. Examples include Uniswap, Sushiswap, and Pancakeswap.
Though it might be still a young market, cryptocurrencies are taking a significant position in the global financial markets scene. More players ranging from institutions to retail are joining this market to capitalize on available opportunities. It may take a while before things become fully regulated across the globe - however, it seems that the demand is not slowing any time soon. The cryptocurrency market is now positioning itself as part of an evolving financial ecosystem.