How To Make Money With Bitcoin
Here’s a rundown of the best options, with varying degrees of difficulty, risk and reward.
Bitcoin has been an incredible investment for many people. But investing in the crypto itself is just one of the many different ways you can make money with Bitcoin.
Although, as we’ll discuss in this article, it’s probably still the best way.
The Basics Of Bitcoin
If you’re new to the concept of Bitcoin, here’s a quick rundown:
- Bitcoin was created in 2009 by someone who called himself Satoshi Nakamoto, although the creator’s true identity is unknown.
- Unlike traditional money, Bitcoin isn’t controlled by one central authority — it’s managed by its users across the world.
- The blockchain was a key innovation that occurred along with Bitcoin. The blockchain makes it possible for a group and its members to collectively manage and verify transactions, without having to trust (and thus pay) a third party like a bank.
- Blockchains make it possible for Bitcoin to exist and are the foundation upon which all cryptocurrencies are built.
Bitcoin has performed extremely well since it was created in 2009, as it’s appreciated over 200% per year since then. At the same time, it’s still considered an extremely risky asset and it regularly declines by 50% or more, even during bull markets — like the one in 2021, shown in the chart below.
How To Make Money With Bitcoin
If you’re interested in making money with Bitcoin, here are some of the different strategies available.
#1. Invest In Bitcoin
The simplest way to make money with Bitcoin is to invest in it.
You can purchase Bitcoin on exchanges like Coinbase and Gemini. From there, simply buy and hold it.
If you’re concerned about massive price swings, consider dollar-cost averaging into Bitcoin. This is where you buy a fixed dollar amount of Bitcoin on a set schedule. For example, you can purchase $50 worth of Bitcoin every week, regardless of the price.
This eliminates trying to market-time your buys, and makes it easier for you to stick to a plan. That’s especially true if you automate the process, which both Coinbase and Gemini allow for.
While the act of buying Bitcoin and setting up an automatic investment is easy, holding Bitcoin is more difficult. The internet is filled with stories of people who bought Bitcoin in the $1,000 range, only to sell it once it doubled in price. While they made double their money, they missed out on the massive run-up afterward.
In addition, there’s no shortage of people who purchased Bitcoin at the top and then panic sold at the first big decline, losing more than 50% of their investment.
That’s why a good rule of thumb with crypto is to invest only an amount of money that wouldn’t cause serious financial setbacks. You need to understand that your investment may decline in value, significantly and rapidly, and you must be both able and willing to hold your positions for as long as it takes to recover those losses.
While Bitcoin can be purchased with dollars, there are other ways to acquire Bitcoin.
- Bitcoin cashback credit cards. Both Gemini and BlockFi have credit cards, where instead of your typical credit card points, you earn bitcoin on your purchases. Gemini’s card pays 3% on dining, 2% on groceries, and 1% on everything else. BlockFi’s card pays 1.5% on everything.
- Get paid in Bitcoin. Many jobs within the crypto industry, as well as outside it, will pay some or all of your salary in Bitcoin. Braintrust is one network that’s trying to replace sites like Upwork and Fiverr. While popular freelance sites often take up to 20% of a freelancer’s fee, Braintrusts allows freelancers to keep 100% of what they earn. While you can’t get paid in Bitcoin (yet), freelancers are able to earn Braintrust’s governance token (BTRST), which is now listed on Coinbase. In other words, working on the platform allows you to become a part-owner of the platform.
- Get rewarded in Bitcoin. Just as you can get free money signing up for websites, shopping online, and referring friends and family to new products and services, there are a variety of ways to get rewarded in Bitcoin for completing certain tasks online. Check out our list of ways to earn free Bitcoin to learn more.
#2. Day Trade Bitcoin
For those not interested in buying and holding Bitcoin long-term, another option is to day trade it. Similar to day trading stocks, this involves trading on short-term price fluctuations in an effort to profit.
Of course, this comes with many risks. Bitcoin has been around for over a decade, leading a lot of professional and very experienced traders into the space.
To provide some context on how difficult day trading is, a study of 1,600 Brazilian day traders found only 1.1% earned more than minimum wage.
The study says:
“We show that it is virtually impossible for individuals to day trade for a living, contrary to what course providers claim. We observe all individuals who began to day trade between 2013 and 2015 in the Brazilian equity futures market, the third in terms of volume in the world. We find that 97% of all individuals who persisted for more than 300 days lost money. Only 1.1% earned more than the Brazilian minimum wage and only 0.5% earned more than the initial salary of a bank teller — all with great risk.”
If you’re on financial social media, it can seem littered with people who successfully day trade for a living. And, yes it’s true that a few people do succeed. But it’s important to realize that these people are the exception, not the norm. And, for every one of them making noise, there are 199 that failed. Those are not the odds you want on your side.
What is survivorship bias? A core concept in behavioral economics is survivorship bias. In short, survivorship bias is the logical error of concentrating on successes and ignoring failures. It’s important to be mindful of survivorship bias in day trading, and in investing in general, because in the age of social media, successes are much more visible than failures. As such, we tend to believe success is disproportionately likely. That’s why it’s important to look at the full data set, not just the winners.
#3. Lend Your Bitcoin
If you currently own Bitcoin, you can earn interest by lending it.
While that may sound complicated, crypto lending works similarly to how traditional banks work: when you make a cash deposit, the bank pays you interest on that deposit. On the back-end, the bank generates revenue by lending out your cash at a higher interest rate.
Interest rates for lending Bitcoin are much higher than the rates you’d get for depositing and holding cash. That’s because there’s currently higher demand to borrow Bitcoin than U.S. dollars.
Keep in mind, however, that you can’t liquidate the Bitcoin in your account as easily as you can liquidate money in a savings account; there are usually rules about how long you have to keep your Bitcoin locked up to participate in crypto lending programs.
What Type Of Banks Facilitate Bitcoin Lending?
It’s certainly not the traditional banks, which means they’re not backed by FDIC insurance. However, there are some large financial institutions within the U.S. that do allow you to deposit Bitcoin and other cryptocurrencies to earn interest.
For example, Gemini holds over $30 Billion in assets. Their Gemini Earn product currently pays an interest rate of up to 1.01% on BTC.
November 2022 update: Gemini Earn has paused withdrawals. We recommend holding off on any deposits for the foreseeable future.
You can earn more by lending crypto other than by lending Bitcoin. For example, holding USDC — which is a stablecoin that’s pegged to the price of the U.S. dollar and backed by cash and short-duration U.S. Treasurys — currently pays up to 7.99% interest on Gemini.
#4. Bitcoin Mining
The Bitcoin network is a decentralized peer-to-peer network of computers that all have a copy of the public ledger. This means each computer has an up-to-date record of all transactions, which includes where your money comes and goes.
In order to keep everyone in sync and maintain the blockchain, Bitcoin miners run software that validates and relays transactions, which confirms they’ve happened. For their work, miners are rewarded in Bitcoin.
In the early days of Bitcoin, it was feasible to be a Bitcoin miner with an at-home setup. But today, mining Bitcoin has become an enterprise-level game where thousands of dollars in equipment and energy are required.
One alternative to doing it yourself is to join a bitcoin mining pool, such as SlushPool, where a group of individuals band together to mine.
That said, there are still opportunities mining cryptocurrency other than Bitcoin.
One such opportunity is Helium, a decentralized provider of wireless internet throughout the world. Backed by both Google Ventures and A16Z, how it works is that you purchase and install a Helium-supported hotspot device in your home; this device then gives others access to Helium’s network (as well as yourself). As a miner, you’re rewarded with HNT.
The HNT token has a current market value of 3.5 billion dollars.
Chia is another project that promotes individual crypto mining. In fact, the ability to mine Chia within one’s own home caused China to experience a shortage of hard drives.
Chia’s market cap is over $290 million.
Can You Get Free Bitcoin?
Yes, although the amount you can get is usually relatively low.
A few of the ways are:
- Coinbase Earn: Get free crypto for taking short “lessons” that teach you about various crypto topics.
- Bitcoin reward apps: StormX and a few other apps give you rebates, in the form of Bitcoin, on purchases at select retailers. (Read our StormX review to learn more.)
- Bitcoin faucets: These are essentially online rewards sites where you earn free crypto for completing microtasks.
Learn more about these and other options in our article on how to get free Bitcoin.
Final Thoughts On Making Money With Bitcoin
One interesting aspect of Bitcoin is that its uses are limited. Yes, it’s proven itself to be a store of value, which is no small accomplishment. However, what can be done on the Bitcoin blockchain is limited compared to blockchains like Eteruerm.
This is why you see a lot of innovation and other ways to make money on Etererum, such as yield farming, staking and digital real estate investing. These strategies are not available with Bitcoin’s blockchain.
At the same time, there are still many great opportunities to make money with Bitcoin. While becoming a Bitcoin miner is probably not cost-efficient, lending and earning interest on your Bitcoin may be a good hedge against rising inflation.
And, if you’re like many people (myself included), having a small amount of Bitcoin gets you interested in, and paying attention to, all the innovation happening inside the crypto industry.