Is It Too Late to Make Money from Bitcoin this Year?
Investing in Bitcoin, a new peer to peer, decentralized digital currency, made a lot of people a hell of a lot of money in 2013. The price of a the coins rocketed from $60 to over $1000 in just a few months, although it has now fallen back down into the $900-range. Some of the people in these overnight success-stories didn't even need to buy their Bitcoins, because the coins can be 'mined' using the processing power of their own computers.
The days of becoming a Bitcoin millionaire virtually overnight with little-to-no investment have certainly passed, but that doesn't mean there isn't still money to be made.
Investing in Bitcoin is a pretty risky business, so you should only use a relatively small amount of capital that you can afford to lose entirely if things go badly. But these high risks could also come with high rewards.
You can still make money from mining coins, from buying and holding them, or from trading them on the financial markets.
Challenges Facing Bitcoin Markets
- In 2014, Mt. Gox, the most popular Bitcoin exchange, filed for bankruptcy after being hacked, losing around 850,000 coins. Since then, the market has more or less recovered, but the future of Bitcoin will depend on ensuring investors' trust and security.
- Cryptocurrency is still largely unregulated. If governments or regulatory bodies change this, they could make a big dent in the current values. We've seen this happen before, when the price dropped overnight after the Chinese government introduced trading restrictions in 2013, and could easily happen again, multiple times or on a larger scale.
- Although it has been enthusiastically adopted by geeks and speculators, the general public is yet to buy into cryptocurrency on a large scale. The ecosystem of apps and services surrounding the currency will have to demonstrate some movement towards making it more user-friendly for the not-so-technically-adept to justify its valuation.
- There is now a wide range of alternative digital currencies that compete with Bitcoin. None have proved to be a major challenge so far, but it could be in the future.
- A lot of hackers are interested in Bitcoin. Wallet-stealing is already something of a threat for owners of the currency, and the possibility of something called a '51% attack' in which members of powerful mining pool successfully 'double-spend' their coins cannot be totally discounted. A major security breach or widespread virus targeting people's digital wallets would dent confidence and send the price tumbling.
Opporutunities and Potential in 2015
- In order to engage the general public and transition from niche interest to mass usage, there needs to be a killer app. A user-friendly means of trading coins would increase demand and send the price of the coins rocketing, potentially increasing their value even more dramatically than we saw in 2013.
- Mainstream investors have shown a lot of interest in Bitcoin, but most have held back due to the market's high volatility. Any stabilization of the price, if combined with continued incremental improvements in services, could trigger an increase in investors buying into the currency, driving up the price.
- If major Internet retailers were to start accepting the currency as payments, they would drive increased adoption and investor confidence. We could easily see some dramatic overnight price surges on the back of such retailer announcements. Overstock started accepting Bitcoin in 2014, and there was indeed a small surge as a result. Bigger retailers like eBay are now considering it as a payment option, which would have a much more dramatic effect.
- Emerging markets such as India, Turkey and others are feeling the pinch as the US cuts its stimulus measures, leading to capital outflows from emerging markets as banks have less to invest, especially as home markets are starting to look more profitable. One of the major risks to emerging economies as a result is inflation (currency devaluation). This is already happening, and if it continues, those countries' wealthy citizens will want to unload local currency. For them, the deflationary nature of Bitcoin may make it seem like an attractive alternative.
Cloud Mining and Hashing
Although buying and running your own mining hardware for coins is both expensive and fraught with technical difficulties, it is still possible for ordinary people to make money by mining.
One easy way to mine is to hire space on a specialist mining computer—or a whole machine—in the same way that you would hire a server for website hosting. By doing this, you can estimate your profits using one of the many mining-profit calculators available online. Some firms claim, based on past results, that you can break even on your initial investment in three months using this method.
A slightly different take on the cloud mining concept is provided by CEX, which is basically a trading platform for miners and investors to buy and sell shares in mining hardware. In addition to generating income from the computing power that you control, you can also choose to offer your shares for sale at any time. This is a good option if you want to invest in Bitcoin mining but would like to retain the possibility of liquidating your assets whenever you like.
While there is a good chance you can make a profit over the cost of the hosting, success is not guaranteed. Your profits will depend on both the value of the coins themselves and on the changes in mining difficulty over time.
Like any currency, stock or other financial product, money can be made by judiciously buying and selling bitcoins. You can try doing this yourself, but you need to have incredible insight into the market to have any success. Just like those other financial products, however, some traders have created automated systems to buy and sell bitcoins based on a mathematical algorithm.
Buy and Hold Bitcoin
Many people who owned bitcoins made a large profit last year simply by holding coins in their wallets. This is still the easiest way to invest in the cryptocurrency phenomenon.
As I mentioned in the first section, there are many opportunities for growth and price surges in the coming year. This means that there's still a possibility that the coins will keep in increasing in value as fast as they have been up until now, if not faster. If that happens, then simply buying and holding would prove to be a very profitable investment opportunity. Of course, there is also a very real possibility that the price could crash and you could lose most of your money.
If you don't mind holding your money on an exchange rather than in a wallet on your own computer, then hold your coins in an account on a site such as Bter, which pays a small amount of interest on all deposits.
Bitcoin Exchanges and Arbitrage Funds
In my opinion, one of the most promising opportunities Bitcoin this year is arbitrage. The concept is simple. Arbitrage is when you take advantage of a disparity in prices between different markets to buy at one price and instantly sell at a profit in another market.
As Bitcoin's popularity grows, so to does the number of exchanges. Prior to February 2014, when it suspended trading following a possible hack and insolvency, Mt. Gox in Tokyo had a near-monopoly on Bitcoin exchange. The market has more or less recovered, and the new exchanges that emerged in Mt. Gox's wake have had to prioritize investor trust and security.
Some popular exchanges are:
- Bitcoin Source
The divergence of prices between different exchanges means that you can get involved in arbitrage yourself just by having accounts on multiple platforms, with a balance in multiple currencies in each one. When the opportunity—a difference in prices—arises you can simple buy and sell immediately without having to transfer funds between accounts.
The risk in doing this, of course, is that the price will change between when you buy and when you sell. This makes arbitrage highly dependent on the speed at which you are able to make transactions. This type of trading also requires you to sit in front of a screen watching price feeds constantly, waiting for the right moment.
Most currency investments are made in the hope that the value will increase over time. However, if you are one of the substantial number of people who believe that Bitcoin is over-valued and pumped up by speculators, then you can try your hand at short selling Bitcoins. Short selling allows you to profit from drops in the value of a commodity in the same way that you would profit from rising prices if you bought it.
The mechanisms of short selling vary somewhat by marketplace and local regulations, but it's normally conducted the same way. Usually, the speculator borrows stock or currency from a broker and sells it on the market with the hope that the price will go down after he or she sells the borrowed shares. If the price does go down after a certain amount of time, the investor buys the amount of shares owed to the broker at the lower price and returns them. The investor's profit is the difference between the amount the borrowed shares sold for and the price of buying them at the diminished price point.
Some Bitcoin platforms allow short selling, usually by allowing you to "borrow" the currency from other clients on a peer-to-peer network or to borrow against the platform itself. These include:
Some traditional trading platforms, such as Plus500, have a short selling mechanism. If you own bitcoins then you can also use this platform to hedge against loss during times of particular risk.
Bitcoin is ideally suited for the 'retail trader' trading on their own at home, rather than professionally for a major financial institution. A decentralized system does't bear an advantage for institutions who can use their money and influence to get closest to the center of power in a centralized system.
If you are clever then you can make money buying and selling Bitcoin depending on whether you think the price will rise or fall. You can also trade Bitcoin against other cryptocurrencies. Popular alternatives to Bitcoin include:
Bitcoin and You
Linkkoin on November 26, 2018:
Right now we have great chance to buy Bitcoin cheap, before it skyrockets again - we have same market as in 2014-2015. Best hodlers who invested in BTC during this period, had almost 10000% RoI rate.
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JOE BARNS on February 11, 2018:
NO MATTER HOW I WORD IT I NEVER CAN GET A STRAIGHT ANWSER. I YOU BUY LOW AND THE PRICES GO UP IN YOUR ACCOUNT. CANYOU GET AMERICAN MONEY TO THEIR BANK.NO ONE WILL OR ANSWER THIS
Jason Greene from Joshua Tree on December 13, 2017:
I wish I got into bitcoin back in 2014, would be years ahead of the curve right now!
Mike Janssens from Belgium on December 12, 2016:
Great article. Thanks!
Felix J Hernandez from All over the USA on July 13, 2016:
I have 3 bitcoins and I bought them years ago at $28. I do not intend to spend or sell until it's so worth it. I love this ideal but there are too many coins now and it's getting confusing. Thank for the insight.
ALAL MAHMUD on February 12, 2016:
Very good suggestion
Shaloo Walia from India on January 03, 2016:
very informative hub!
biblicaliving from U.S.A. on December 12, 2015:
Bitcoin has it's place in an investment portfolio. I think one of the biggest mistakes people make is thinking it will over take the USD in the short to mid-term and/or make them rich over night. It is not a low-risk buy and forget about it investment. If your mindful however, you can make a profit.
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victor on April 23, 2015:
Every time you buy bitcoin, the price goes up and if you sell it for fiat currency like usd, the price drops. Yhe other favtor is demand of transfer between accounts.
Jack Burden from Columbus, OH on April 09, 2015:
Interesting hub. I'm afraid I'm still a bit lost on the details. Is Bitcoin a fiat currency - i.e. it has value because people say it has value? If so, what prevents rampant inflation?
Kimberly Vaughn from Midwest on March 16, 2015:
Excellent hub! I knew almost nothing about Bitcoin before reading your article. Now I feel much more informed!
zome on March 09, 2015:
Retitled article from Jan. 2014...Every tip is outdated and thus misleading, very risky advice.
moviesreviews on February 13, 2015:
What do you think is the best way to make money online?
moviesreviews on February 06, 2015:
Wow! I had no idea there was still some great money to be made even in 2015. This is a great way to add a second income stream to the portfolio.
Randy Horizon from Philadelphia on January 27, 2015:
Been interested in bitcoins for a while, but don't know much about them. Informative hub. Thanks
peachy from Home Sweet Home on October 03, 2014:
never heard of it but nice to know there is such income
Dean Walsh (author) from Birmingham, England on September 18, 2014:
Thank you Jyoti!
Jyoti Kothari from Jaipur on September 18, 2014:
It is difficult for common people to understand Bitcoin. One has to first invest time in learning bitcoins and then investing hard earned moo
Well attempted article. Thanks, rated up and useful.
Michael on September 11, 2014:
No scalability; Bitcoin/Litecoin and clone Alt Currency branches support architecture is fundamentally flawed. The block discovery difficulty and hash rate power/costs to mine coins has increased to the point that you need a small server farm to achieve a small amount of profit. Recent cloud farming services have moved in because they can operate more efficiently to keep mining profitable.
Lack of scalability (en.bitcoin.it/wiki/Scalability) and future network support is Bitcoin’s and other clones “albatross around their neck.” As of Sep 11, 2014, 13,250,900 out of the total possible 21 million Bitcoin’s are in circulation. Bitcoin’s support network is rapidly approaching a point where large scale mining will no longer be profitable. You don’t need to be an economist to realize that when doing something is not profitable, people stop doing it.
After coin mining is no longer profitable, the support networks processing power will shrink and verifying huge block chains will take longer, making it unusable as a functional daily currency. Bitcoin could eventually become the sole digital currency (gold standard) that others are valued against. Observing current markets, it’s well on it’s way.
NXT’s nxt.org support architecture makes more sense, it’s eco-friendly and processing power is scaleable to achieve fast block processing times. Trust, transaction speed and security are ultimately the deciding factors that will make any digital currency viable. Depending on peoples acceptance, it’s marketplace could eventually be a serious competitor to PayPal and eBay, due to lower transaction fees.
Dean Walsh (author) from Birmingham, England on September 05, 2014:
Yes, you can write articles for Hubpages! But if you are looking for ways to make lots of money fast without a job then you are out of luck - anyone who promises you that will be either scamming you or trying to get you to scam other people for them.
John on September 05, 2014:
Hello, I really wish to know something, is there any other ways to make money online which is trusted. I will be happy if I get the answer because I am in a big trouble and really need to earn money.
Dean Walsh (author) from Birmingham, England on August 16, 2014:
I'm pretty confident that it will rise again. I have no idea when though.
VIJJJU from india on August 16, 2014:
But previous who buy the bitcoin before 2014 were got proft in early in 2014 because in 2014 the bitcoin has raised to like more than $1000 but coming months the bitcoin is dropping, Presently it is at $520 Lets hope it will raise again.
Dean Walsh (author) from Birmingham, England on May 16, 2014:
Thanks Mel, whether mining is profitable depends a lot on the price of Bitcoin, which has gone down recently making it difficult to profit - but its already starting to climb back up and hopefully will go further. If he wants to mine he might also consider mining a good quality alt coin which is more likely to be profitable now - but then things might switch over in the future.
Mel Carriere from Snowbound and down in Northern Colorado on May 15, 2014:
My son is a big follower of digital currencies and would like to mine as well, but in his opinion the days of Bit Coin are over. I am going to refer him to your fantastic hub. Awesome write up and very informative!
Dean Walsh (author) from Birmingham, England on January 17, 2014:
Nice article, it explains the benefits of Ripple vs Bitcoin very well.
Brendan Skousen from Chandler, Arizona on January 16, 2014:
Check out this article about Ripple.