5 Ways People Are Trying To Get Rich Off Crypto

The purpose of this article is purely to raise awareness about the different activities happening in the digital asset space. Please do your own research before devoting any funds to any of these activities and be extremely cautious if/ when navigating this space. With that out of the way, let's take a look at how people are trying to get rich off crypto!

Level 1: DCA & HODL

The simplest strategy that people adopt to get started in cryptocurrency is to simply set up an account with a reputable cryptocurrency exchange and start purchasing a fixed amount of Bitcoin (BTC) or Ethereum (ETH) every month consistently for an extended period. This is also known as Dollar Cost Averaging (DCA). HODL (misspelling of hold that became a meme) is a common term used to describe this buy-and-hold strategy in the context of Bitcoin and other cryptocurrencies.

If you have brought $100 in BTC consistently every month on the same day starting in Nov 2018, your portfolio would have increased in value by 5 times, 3 times if you started in 2019, and 1.5 times if you started in 2020.

Level 2: "Earn" Programs & Staking

To further maximise returns on the cryptocurrency that is being held, many opt to allocate those cryptocurrencies into "fixed deposits" or "high yield savings account" like programs.

In a nutshell, you would go into a contractual agreement to hold your digital assets with a provider. Interest rates vary from asset to asset and how long you pledge to hold them. Pledging to hold an asset for a fixed period is also known as staking.

For example, as of the time of writing, for Crypto.com Earn, you can earn up to 6.5% p.a. on your Bitcoin (paid in Bitcoin) if you stake it for 3 months, 4.5% p.a. if you stake for 1 month and 2% p.a. if you opt to have the flexibility to withdraw at any time.

These programs are usually run by the cryptocurrency exchanges themselves and remain relatively accessible.

Other examples of this program include Gemini Earn, Celsius Network and BlockFi. Check out Seedly's own comparison list!

One noteworthy point here is staking programs extend to stablecoins, which are digital assets that are pegged to fiat. Stablecoin staking programs can yield interest rates as high as 12% p.a.

Level 3: Buying & Flipping NFTs

To begin dabbling in NFTs, one would need to take the first step by creating their own personal blockchain wallet. One can purchase NFTs on NFT markets like Ethereum's Opensea, Solana's Solanart and Zilliqa's Zilswap ARK.

Just like resellers on Carousell reselling rare sneakers, one would attempt to turn a profit by procuring an NFT at a low price and reselling it at a higher price to a buyer.

Instead of reselling NFTs, one can also start by creating their very own NFTs on any of the aforementioned platforms, all you need is a digital file (can be an image, audio clip, video clip, and even an augmented reality file) and a wallet and you can become an NFT creator. NFTs are commonly sold in an auction style, where the highest bidder wins.

Similar to Gachapon or capsule machines, NFTs are sometimes sold at random, where a series of NFTs (such as bears, apes, foxes) are sold at a fixed price during a period and are only revealed once sales are complete.

Level 4: Play to Earn

To give NFTs even more value, blockchain-enabled games like Axie Infinity give additional utility to NFTs. To get started in the game, players need to purchase Axies that players can breed and earn cryptocurrencies by playing the game. The Axies themselves are actually NFTs. Check out Seedly's own review of it.

Level 5: DeFi Liquidity Provision & Lending Protocols

For the advanced users who already know how to set up their own wallets and connect them to decentralised finance platforms, they can participate in liquidity provision & lending/borrowing activities to turn a profit.

A simple way to understand liquidity provision is to compare it with becoming a money changer.

To be a money changer, you would need an equivalent amount of two assets. For example, the US dollar and the Singapore dollar. People can come to your store and exchange SGD for USD and vice-versa. At the end of the day, you still retain the same value but you get a little more due to the fees you collect from conducting these activities. This is known as providing liquidity or market-making.

To become a liquidity provider for digital assets, a user would need to have two assets, say USDC (US dollar stablecoin) and XSGD (Singapore dollar stablecoin) in their personal blockchain wallet.

They can then connect their blockchain wallet to a decentralised exchange (web-based app) such as Uniswap or DFX Finance and provide liquidity with XSGD and USDC. For providing liquidity on stablecoins, users can earn returns as high as 50% as of the time of writing.

To understand why returns are so high in crypto, we need to understand how lending protocols work. An example of a lending protocol would be Aave. A user can connect their blockchain wallet to the web-based platform to participate in the lending or borrowing of digital assets. The lending rate is always higher than the borrowing rate. To put it simply, a Bitcoin holder who does not want to sell his Bitcoin can take a loan in stablecoin by pledging his Bitcoin as collateral.

But why would he do this? The likely reason is that he's trying to buy more Bitcoin of course! By doing so, he is actually taking up what's called a leveraged position. He is borrowing money to invest because he believes the returns will be more than enough to pay off his loans.

Due to the huge demand for borrowing, returns are abnormally high as compared to traditional financial products. This is also how the platforms & exchanges are able to pay such a lucrative rate to lenders as compared to traditional finance.

Bonus: Becoming Validators & Mining

One final way people try to earn crypto is by "mining". Essentially, one would set up a machine to lend computing power to the blockchains to validate transactions on the blockchain. In return, you receive cryptocurrencies in exchange for doing so.

Concluding Thoughts

I hope this article has been helpful in demystifying the digital asset space! If you've already known all the above concepts, then #gm, #wagmi and drop me a gm and let me know what you're #apeing in!

Disclaimer

The views, thoughts, and opinions expressed in the text is solely for educational purposes and belong solely to the author, and not the author’s employer, organization, committee or other group or individual.