There are many things you can try to make money online. For example, you can start playing at a Ice Casino website right now and try your luck at any of the hundreds of games. But if you want a strategy that does not involve any games, you can try investing in cryptocurrencies like thousands of others. There are multiple ways to monetize crypto investments, and taking advantage of price fluctuations is just one of them. Below, we explain how this technique works and provide examples of how you can use it.
The Volatility of Cryptocurrencies
Let’s start by explaining the concept of price fluctuations because learning why they occur will allow you to use investment techniques more efficiently. Even those who are not interested in cryptos know that the value of digital currencies like Bitcoin is very volatile. Large ups and downs can occur within seconds. 1 BTC worth $10,000 today could drop to $5,000 tomorrow – such a drop means you will lose half of your investment. But likewise, the price can rise to $20,000 in a short period of time. In that case, you’ll have doubled your investment. We can also say that similar price changes occur within minutes, even if they are not that radical. So, what is the reason for this volatility?
Many factors determine the pricing of a commodity. Supply/demand is foremost, but regulations, hype, and investor decisions are also extremely influential. All this applies to cryptocurrencies as well. Bitcoin and altcoins are more fragile than other commodities, meaning they are more affected by price-determining factors. Even the emergence of rumors that a government will regulate cryptos can radically change the price. Likewise, even factors you wouldn’t normally think would be relevant will affect the pricing. For instance, electricity is required to produce Bitcoin, and changes in energy costs can increase or decrease BTC prices, too. In short, for a crypto trader to make money on price fluctuations, they must first learn to analyze the factors that cause these fluctuations. We recommend that you never forget this when applying the following techniques.
The Simple Way of Making Money Using Price Fluctuations
There are multiple techniques you can use to monetize price volatility, but some are simpler than others. If you know how to do a proper risk analysis and use your capital wisely, you can use a “cost averaging” technique. It is a fairly simple strategy and mostly requires nothing but HODL (*). Let’s explain with an example:
- Our goal with this technique is not to change the amount we use for the investment, regardless of the current price.
- On the first day, we start by buying BTC worth 600 USD. At this moment, the value of BTC is 10 USD, so we have 60 BTC.
- Let’s imagine that the next day, the value of BTC drops to 5 USD. We will buy 600 USD worth of BTC again. However, this time we will be able to get 120 BTC.
- On the third day, let’s assume that the BTC value has risen to 15 USD. Today, we will keep buying 600 USD worth of BTC, and this time, we will get 40 BTC.
- On the fourth day, let’s say the BTC cost is back to 10 USD. Let’s analyze what we’ve done so far. So, we have invested a total of 1,800 USD, meaning we have 220 BTC on hand. If we sell them all on the fourth day, we will get $2,200 (220 x 10). It means we made a profit of 400 USD (2,200 – 1,800).
Of course, price changes in real life will not be that simple, but you understand what you need to do. People continue to buy crypto with the same investment amount every day and sell them as soon as they reach the desired profit rate.
(*) This is a misspelling of the word “hold,” but this misspelling has become popular among crypto traders. It simply means buying a commodity and continuing to buy it regardless of price changes. The investor continues to do this until they reach the desired profit level, and as soon as this happens, they sell everything and start doing the same for some other commodity.
More Complex Ways of Trading
Many other techniques are used to make profits on price changes. They have pretty cool names, such as arbitraging, quantitative, swing, and derivative trading. However, almost all of these techniques are developed for making second-to-second trades and will not be practical to the casual trader. Unless you spend hours in front of a trading terminal using bots developed for this job, such strategies can only provide instant benefits and almost always result in losses in the long run. Stick to simpler techniques! They can be much more beneficial than you think.
