How Does Crypto Make You Money: A Beginner’s Guide

Published: 20th June, 2024 | Last Updated: 18th June, 2024

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

This comprehensive guide explains how you can make money with crypto. In the guide, I will walk you through 10 strategies you can use to earn an income through crypto. 

How To Make Money In Crypto At a Glance 

infographic explaining how does crypto make you money
  1. Long-term investing: set aside 5% and wait 20 years
  2. Trading: buy low, sell high
  3. Lending: earn an interest rate
  4. Yield farm on a decentralized exchange: earn a yield
  5. Staking: earn passive income
  6. Stablecoins: earn 4-5%
  7. Mining for the tech hobbyists.
  8. DePIN: help a crypto project by providing resources in exchange for tokens
  9. Play to earn for gamers 
  10. Crypto faucets to complete tedious tasks for pocket money

Crypto Is Money?

Before we dive in, I want to explain that crypto can be converted into fiat currency, such as dollars, euros, etc, on crypto exchanges. In the early days of crypto, people would meet in parking lots to exchange their Bitcoins for cash.

Soon after, cryptocurrency exchanges emerged, allowing customers to deposit cash on their platforms and buy crypto at the press of a button. Nowadays, such exchanges are very liquid and can handle billions of dollars in trading volume daily. 

See here if you want to understand the difference between Bitcoin and crypto.

The 10 Ways To Make Money In Crypto

Making Money In Crypto

1. Long-Term Investment

One of the most conservative strategies to make money in crypto is to place 2-5% of your total wealth into Bitcoin and Ethereum with a long-term time horizon. These two currencies account for 66% of the total crypto market capitalization. 

You want to hold Bitcoin because it is considered a modern store of value equivalent to gold. There can only ever be 21 million bitcoins, and no central authority controls it. 

If Bitcoin were to replace gold as a store of value, then the price of one Bitcoin would be $700,000. Many people believe Bitcoin will reach $1 million. 

Similarly, Ethereum is the largest smart contract blockchain, which means people can build apps on top of it. Think of it as iOS or Android but for blockchains.

Ethereum accounts for 60% of the total value locked onto such apps in the form of staking, lending, etc. It does not compete against Bitcoin for the store of value narrative.

Instead, it’s a decentralized computing platform with a first-mover advantage in building network effects.

I’m building on Ethereum; you are building on Ethereum; we’re all building on Ethereum. Ethereum’s contenders, such as Solana, Cardano, and Polkadot, claim to be faster and better.

Still, Ethereum’s network effects give it a strategic moat that is hard to break.

Ethereum TVL
60% of the total value locked acros blockchains is on Ethereum

It’s like Google+ trying to compete against Facebook after Facebook had dominated the market. Or like Bing trying to take market share from Google. 

Long term strategy

There is no guarantee that these technologies will be the most important digital currencies in the future.

But it would be naive to sit back and watch the rise in value only to have your kids ask you why you did not invest in them when you had the chance.

5% is a good number to aim for.

You won’t be in dire straights if it doesn’t work out.

If it does, you may see your wealth increasing by a nice multiple over time. 

This is also the less stressful way to invest in crypto. The alternative is to take a more active stance.

2. Cryptocurrency Trading

Another way to make money in crypto is to buy low and sell high. This is much harder than you think. Cryptocurrency markets are inherently volatile. You might buy an asset one day only to find it has dropped by 20% the next day. 

There are two strategies you can follow when trading. 

2.1 Active trading

By active trading, I mean you are buying and selling frequently by looking at technical indicators and patterns. This is not complete mumbo jumbo, but there is a learning curve during which you will make a lot of mistakes.

It involves taking long and short positions depending on which direction you believe the market price of an asset is moving.

The best resource for learning how to do this is Glenn Goodman’s Crypto Trader.

I don’t recommend this strategy for beginners, and it is one that I also personally avoid.

People who take this activity to the extreme are known as day traders.

However, day trading can be expensive as you can rake up a lot of transaction fees, which will offset any earnings you make. 

2.2 Less active trading

We’re in the middle of a bull run at the time of writing.

Over the next few months, the market sentiment is that crypto will rise.

This is because it’s an election year in the US.

After all, bitcoin and Ethereum ETFs have been approved, and ETF inflows are growing.

In addition, we’ve just had a Bitcoin halving and Blackrock is tokenizing real-world assets.

The stock market is also going up.

There is a risk to appetite in the market.

Raoul Pal of Real Vision Capital says that you can’t mess this up if you invest 90% of your portfolio in BTC, ETH, and SOL and the rest in some educated bets. 

Once the bull market reaches its peak, you will exit the market and sell it for fiat currency. 

How to tell when the market has peaked

  • You will know you are close to the peak when you start getting greedy and investing more money. 
  • There is a complete sense of euphoria in the market
  • Some of the more serious voices in this space start calling the top
  • Technical indicators such as those recommended by Glassnode will also give you a sense of when the market has topped. 

If trading sounds too stressful, there are a few more hands off approaches to earning income. 

3. Crypto Lending

The crypto industry has developed its own alternative financial rails infrastructure called Decentralized Finance.

Remember how I said people could build apps on top of Ethereum, Solana, etc?

One of the most popular types of apps is a lending app. Anyone who wants to borrow can use their digital assets as collateral and take out a loan.

For example, I place 2 ETH in a digital vault and receive 1 ETH as a loan.

If I don’t pay back or if the value of ETH starts to drop, the app can sell my collateral to recover the loan.

This means there is a very low risk of a default.

On the other hand, lenders can supply the ETH to lend, on top of which they receive a yield. 

Popular platforms where you can lend your crypto are Compound, Aave, Nexo, WeHodl, and more.

Some are decentralized, and some are centralized. The centralized ones are more risky as they tend to mismanage their collateral and go bust occasionally. 

4. Liquidity Pools

Illustration of Crypto Liquidity Pools

Another type of app that leverages blockchain technology is a Decentralized crypto exchange.

You may have heard of Uniswap, SushiSwap, Pancake Swap, etc.

As a trader, you can hook up your crypto wallet to one of the exchanges and start trading.

Liquidity providers offer liquidity for these platforms. For example, a trader might want to trade ETH for USDT.

As a liquidity provider, you can offer up USDT and ETH in equal value, and the trader can swap one for the other.

In return for offering up your capital in this way, you are rewarded with a cut in the fees.

On uniswap, the fee is 0.3%.

The risk with this strategy is that the price of the assets changes, and you end up with more of the less valuable assets over time. This risk is known as impermanent loss.

You can read up on DEXs and understand liquidity pools better by reading my explanation of Uniswap

Collectively, participating in liquidity pools and crypto lending is known as yield farming. 

5. Staking

Most blockchains use a proof-of-stake (PoS) consensus mechanism to agree on valid transactions.

Let’s use Ethereum as an example.

On Ethereum, people who want to validate transactions need to stake ETH.

They do this because they get rewarded with newly minted ETH each time a new block of transactions is added to the blockchain. 

If they try to cheat, their ETH gets slashed. Their ETH is at stake.

The cool thing about this system is that validators can solicit ETH from the public and share the rewards with them.

As an ETH holder, you can delegate your ETH to them and earn a yield. At the time of writing, the APR is 3.5%

You can stake your crypto on many blockchains: Cosmos, Solana, Cardano, and Polkadot are just a few examples. 

Useful Tip: Many decentralized apps use the term “staking” more freely. They often set aside a portion of their token supply and reward you for locking it up with them. This removes supply from the market and keeps upward pressure on prices while they continue to develop their product. Some of these protocols offer extremely high yields of over 100%. Investing in such tokens is extremely risky as they often get hacked, or their value could plummet, leaving you stuck and locked up with many useless tokens. 

Holding crypto can be stressful in a volatile market.

However, if you are a stress bunny, you can invest in stable crypto assets instead to earn a yield. 

6. Stablecoins

A stablecoin is a digital currency whose value is tied to that of a fiat currency such as the US dollar.

The largest stablecoins are Tether’s USDT and Circle’s USDC.

Each of these is backed by reserves in the form of cash and treasuries. 

You can earn a return on your stablecoin by lending it or earning a yield in a liquidity pool.

These days, some protocols will optimize your yield by moving your crypto to the most lucrative strategy. The most popular protocol for this is Yearn Finance.

There are countless others, too. Some will even compound your rewards, i.e., re-investing your interest daily to maximize your gains. See beefy.com for an example. 

However, to avoid climbing that learning curve, you can now invest in a stablecoin, which shares its yield with you. 

How stablecoins generate yield

For example, Tether is one of the most profitable companies.

In the first quarter of 2024, it earned $ 4.5 B in profit.

And the company only has 100 employees. It is so profitable because it keeps the interest it earns from treasuries to itself.

However, nowadays, other stablecoin companies have caught on to the notion and are offering a yield on their stablecoin.

Notable examples are Ondo Finance and Ethena. 

7. Mining

Crypto Mining Facility

If you are technically minded, consider mining crypto yourself. This requires an upfront investment in mining equipment.

If you engage in proof-of-work mining, such as Bitcoin mining, it also requires access to cheap electricity. 

Miners are rewarded for solving a cryptographic puzzle and adding a new block to the blockchain.

If you decide to mine on your own, make sure you join a mining pool. This way, you can earn a smoother income as the chances of you adding a new block to the blockchain on your own are minuscule.

The easiest way to mine crypto coins is to send your mining rig to a hosting facility that can secure cheap electricity rates.

Check out my article on the best Bitcoin mining hosting facilities for more.

However, there are better ways to earn a yield in crypto than mining. The methods described previously are less hands-on and more hassle-free. 

8. DePIN

Decentralized Physical infrastructure refers to a sub-category of crypto protocols that crowdsource resources from the public and reward them with tokens.

Notable examples are 

  • Helium rewards you for placing a router-like device in your home to create a mobile network
  • Akash usually rewards you for providing server space and computing power. This is more aimed at companies rather than individuals.
  • Filecoin IPFS rewards you for providing unused hard drive space.

9. Play To Earn 

You can also earn virtual currency by playing games.

This is less lucrative than the other methods described here, but it is one way to earn some pocket money.

At the peak of the previous bull market in 2021, play-to-earn games such as Axie Infinity were extremely popular in SE Asia.

At the time, there were stories of families earning more by playing the game than they would have by going out and working. 

10. Faucets

A crypto faucet is a platform that rewards you in crypto tokens for doing simple tasks like watching an ad, commenting on a video, liking a post, or signing up for a course.

You will only earn a trickle of income this way, but if you are interested, you can check out the best crypto faucets here.

How To Earn Passive Income 

To engage in some of the above activities, you must understand how to use digital wallets. A cryptocurrency wallet is a software that allows you to interact with blockchains.

This is like an internet browser, but for blockchains, it is where you can send messages.

For example, I want to send Dorothy $100. You need to sign that transaction with your private keys to validate it.

This happens automatically by the wallet. 

Once you set up a wallet, you can hook it to an app to earn a yield. Most protocols will invite you to connect your wallet to the top right-hand corner of their website. 

uniswap connect wallet

Up next

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Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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