Betting on the US presidential election, trading with a hundredfold increase in risk and reward, and participation in the ICO. The mo...
Betting on the US presidential election, trading with a hundredfold increase in risk and reward, and participation in the ICO. The most highly profitable and dangerous ways to make money on cryptocurrency. Writes about this RBC Crypto.
The cryptocurrency market is considered a high-risk area. It is possible to make a fortune by trading bitcoin and other digital assets, although the chances of losing are much higher. Similar opportunities are provided by the stock market, as proved by the American trader Richard Dobats, his story was told by The New York Times .
The user traded stocks through the Robinhood app. He replenished his account with $ 15 thousand, taken on credit. By making deals with securities and options, the trader managed to increase the initial investment by more than 6600%, his balance rose above $ 1 million.
But recently the situation has changed. In March, the stock market saw a major drop fueled by the coronavirus pandemic. The leading US stock index, the S&P 500, fell more than 30%. Shares of large world companies were down 2, 3 or more times. This also affected Dobats. He lost all the money he earned. The loss was so great that the trader had to take out another $ 30,000 loan secured by real estate. Now his balance does not exceed $ 7 thousand.
Dobats' story shows that asset trading is extremely risky and can lead to a complete loss of capital, forcing you to apply for loans. But at the same time, trading provides the opportunity for multiple earnings. We will tell you about the most risky and profitable cryptocurrency schemes, how they work and why they should be abandoned.
100x risk and 100x profit
The cryptocurrency market has become famous for its high volatility. The price of coins can rise and fall by tens of percent every day. This opens up polygamy of earning opportunities, but for many traders this is not enough. Therefore, they are moving away from conventional digital asset trading in favor of derivatives.
Derivatives include special contracts - futures, which allow you to increase your working capital tenfold using a margin leverage. True, the risks will also increase by the corresponding amount. For example, users of the BitMEX platform have the opportunity to trade with up to 100x leverage.
This mechanism works as follows. Let's say you have 1 ruble. You can buy Bitcoin with it with 100x leverage. In this case, the exchange will give you BTC for 100 rubles, and it will take your initial capital of 1 ruble as collateral.
On the one hand, if you use 100x leverage, a 1% rise in the bitcoin rate will double your initial investment. On the other hand, if the price of the coin falls by 1%, your collateral will burn out. The exchange will return the cryptocurrency that it gave you for management, and will also take your ruble as compensation for the funds you lost due to an unsuccessful transaction.
Huge leverage is one of the most lucrative ways to make money trading cryptocurrency. Let's take an example: in March, the bitcoin rate fell to $ 3800. Let's say you bought bitcoin for 1 ruble with a leverage of 100x. In May, the price of the coin rose above $ 10,000. By closing your position at this level, you would increase your initial investment by about 160 times, turning 1 ruble into 160.
But the risks are colossal, and the more you take your shoulder, the higher the risks. For example, you are lucky enough to buy Bitcoin at this year's minimum price of $ 3800 with 100x leverage. If the price drops by 1%, to $ 3772, the platform will liquidate your position, that is, it will forcibly close it and take your collateral. In March, the trader of the BitMEX platform lost $ 71 million in one trade. It is also important to remember that the exchange charges an hourly commission for using leverage, usually with a floating interest rate.
Many trading platforms provide an opportunity to work with large leverage. The most popular are BitMEX, Binance Futures, OKEx Futures, Deribit, Bybit and others.
Betting on Trump and Biden
Not all traders trade with high leverage. Some and all avoid this feature. One of the reasons for this is the high risks. The other is a complex usage mechanism. Because of this, tokens have been invented that already include leverage.
For example, such coins were issued by the FTX derivative platform, for example, take the 3X Long Bitcoin token (BULL). Its rate depends on bitcoin. If the second rises in price by 1%, the first - by 3%. Conversely, BTC depreciates by 1%, BULL - by 3%. In other words, buying this coin is like buying BTC with 3x leverage.
FTX has more than a hundred tokens, the rate of which depends on popular cryptocurrencies with 0.5-3x leverage. But on this exchange there are also more non-standard and risky ways to make money. One of them is contracts that are tied to the US presidential elections. The platform has released several futures, each of which is tied to a specific candidate, such as Donald Trump.
How it works. The futures price for each candidate is fixed in the range from 0 to $ 1. For example, at the moment, a contract for Trump costs $ 0.4. In the event that the Americans decide to keep the incumbent president, at the same time the futures on him will be executed at a maximum price of $ 1. At the same time, the quotes of contracts of all other candidates will close at a price of $ 0. And vice versa - in case of victory of another participant in the re-election race. A commission is also charged for trading these contracts.
ICO and IEO
Another, no less risky and no less profitable way of making money on cryptocurrency is ICO and IEO. This is an initial public offering of tokens, which is essentially similar to an IPO - an initial public offering of shares. That is, the startup is selling its cryptocurrency to users even before it hits the exchanges.
After the initial offering phase has ended, the coin proceeds to the listing procedure. It must be added to the exchange. From this moment on, a user who bought a cryptocurrency during the ICO / IEO phase can exchange it for other digital assets or fiat money.
A cryptocurrency added to the exchange after the ICO can show a multiple rise in price in the very first seconds or after several days. Such dynamics of nature for expected projects or in the case when the listing is carried out by well-known, respectable sites is a certain guarantor of confidence that the project is not fraudulent.
Take the Binance exchange as an example. In January last year, she launched the platform for IEO and since then has been periodically conducting IPOs of other projects. The first of these was the BitTorrent Token (BTT). Before listing on the exchange, it was sold at a price of $ 0.00012. Immediately after listing, its rate soared almost 5 times.
Then the growth continued, and by May the asset set a historical maximum value of $ 0.00186. Thus, investors who bought a token during IEO and fixed their profits at the maximum received about 1400% profit.
Risks. ICO and IEO are not a guaranteed way to make money. There are several reasons for this. First, it is not a fact that you will be able to take part in the token sale. For example, on the same Binance, you need to keep exchange tokens for this. They are issued lottery tickets. Perhaps the coin holders will get lucky and win the right to join the IEO. Perhaps out of luck. But one way or another, the user runs the risk of losing on the fact that the token of the trading platform will become cheaper.
Another risk is that the price of a cryptocurrency placed using IEO may fall below the level of the initial supply. This can happen immediately after adding to the exchange, or over time. For example, the Fetch.AI (FET) token added to Binance in this way is now worth $ 0.039. That's 55% below the IEO price last spring.
Most importantly, an ICO can be a fraudulent project. For example, according to 2018 data, more than 80% of tokens that passed the ICO procedure were never added to exchanges or were abandoned after that. This is less likely to happen in 2020 due to improved industry regulation. But it happens. For this reason, we recommend that you only participate in ICOs or IEOs, which are held by well-known, large platforms or exchanges. This does not guarantee, but increases the likelihood that the project will not turn out to be organized criminals.
