Navigating the Token Crypt: What Options Are Available For Investing Cryptocurrency?

By Dennis Müller, ArbiSmart business development executive

They say that passive income is the key to achieving financial stability and reducing stress in life, giving you that extra time to enjoy the finer things. One way to reach that goal is through financial investment, a common approach to earning a passive income, and in the growing digital era, cryptocurrency can offer some valuable opportunities. But investing in crypto isn’t always smooth sailing. Whether it’s $100 or $10,000, rough waters abound in an industry that’s still in its infancy, so being cautious and informed is always the best route traveled. With that in mind, let’s dive into some of the more known methods of crypto investment. 

Trading crypto

Like the trading of any commodity or stock, crypto is also available for trading, too, and can pay huge dividends. There are short and long term options here, depending on each investor’s preference.

Non-stable coins, which are plentiful in the crypto market, don’t have underlying assets to minimize market volatility. This means that the price fluctuates often. But market volatility is not necessarily a negative characteristic. It all depends on what, as an investor, you might be looking for. Quick returns on investment can bring about a big payday, since within a relatively short period of time, market speculation can drive the price way up. 

Long-term trading is also an option here, by holding onto crypto for a longer period of time, hoping for an even larger payday. Of course, there’s also the downside of volatility: The value of the asset can drop drastically in a short period of time, as we saw in late 2017 with the value of Bitcoin. So, at times, these speculative bubbles can be difficult to anticipate. 

Potential profits on trading can range from 10 to 1,000 percent, but it’s high-risk and high-reward, and the security isn’t always the most assuring. Depending on what exchange the investor uses, it could mean the difference between theft and a healthy dose of profits. Being new to the industry could pose an even higher risk, given the difficulty of navigating the lesser known trading platforms. However, crypto trading usually has low security risk in general. 

If you’re not a crypto veteran, then perhaps trading isn’t for you. With high risk, high reward, trading could be suitable to more experienced crypto users, and could function as a modest passive income, or maybe more depending on the eagerness of the investor.

Lending crypto

Bitcoin lending is sticking around in the cryptosphere and resurfacing at a hot type of investment, with platforms gaining a lot of traction and media attention. The idea here to lend crypto as one might do with fiat currencies. A borrower puts up his or her crypto as collateral, and the lender receives interest on the loan, just like a bank would, setting duration in the process as well.

Cryptocurrency lending sites are becoming a new way for investors, hedge funds, and even the “unbanked”-individuals who own assets not stored in legacy institutions-to leverage their finances into kickstarting a passive income. Potential profits are much smaller than trading, with a potential of 2-10 percent on investment, but the risk, of course, is considerably high. 

While there is a higher risk involved in lending, security also remains a bit of an issue. Like trading platforms, some platforms are more trustworthy, while others are at greater risk of manipulation or theft. It all depends on how well-researched and informed the investor is. Crypto lending, like trading, might be better suited to a crypto veteran who knows the ins and outs of the industry. However, starting with big platforms that invest in strong security protocols could be a safer start for someone new to crypto.

‘Staking’ crypto

You might have heard of lending crypto and trading, but have you heard of staking? No, it’s not exactly like holding a stake in the company, or “being a shareholder,” as the expression goes, but it runs along similar lines. Staking, formally known as “proof-of-stake,” is designed to combat the energy and time consumption and security problems posed by proof-of-work (PoW) mining methods, which involve solving complex mathematical equations to create new blockchain nodes. Proof-of-stake methods ensured that miners could not manipulate the system for their own financial gain, or be burdened with the energy costs of mining. 

This kind of investment has much lower security risks. There are platforms like Waves, which use a variant of PoS, called “delegated PoS,” available to turn this into investment opportunities. The idea is, for a person who owns cryptocurrency, to lend in order to expedite the node mining process. When a miner reaps the mining rewards, a portion is given to the lender. 

Potential profits are rather low, somewhere between 5 to 15 percent per year, with a relatively low risk for theft or fraud, but erring on the side of caution is always best. For those new to this industry, lending could be a gateway to learning more about blockchain and cryptocurrency work. 

Arbitrage trading crypto

Arbitrage might be one of the trickiest, but promising types of investment. The key here is speed and recognizing differences in price when they momentarily exist. This process can be quite tricky. While arbitrage on real estate, commodities, and stock is already practiced worldwide, crypto is still somewhat in the dark on this kind of investing. Due to different dynamics, time zones, volumes, and other factors, at any given point there are some differences between the prices for the same crypto coin on different markets. 

New platforms are surfacing that deal with this kind of investing, and they have developed algorithms that can find the best time and crypto to buy and sell in a short period of time. If an investor can stay sharp and closely follow the markets, potential profits can be as high 410 percent on successful maneuvers. Because the trades are executed here rather quickly, the risk of losing is rather low. Security, like the other platforms, remains in question, but many companies are working to improve credibility through improved security protocols and initiatives regularly. 

Considering platforms will often help investors find the best situations to execute arbitrage maneuvers, arbitrage could be well-suited to someone new to the industry who is looking for a pick-me-up investment and to learn the nuances. 

Although sailing on a yacht off of that dream get-rich-quick scheme might not suit the pursuit of crypto, a nice passive income here is attainable. The key, across all the different types of crypto investment, is to carefully research the platforms and understand what’s required before making any moves. If done correctly, the crypto world can be the investor’s for the taking.

About Dennis

Dennis, a graduate of Tallinn University in IT and technology governance, has 20 years of experience in business development, management, and innovation, specifically in the fintech sector. Dennis has worked to help startups develop themselves, helped larger companies grow, and has dealt with foreign investors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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