How I got into cryptocurrencies
Ter 2011 I wielded about 3500 Bitcoin which I purchased for $600. Today 3500 BTC is worth overheen $20 million dollars.
The day I very first heard about Bitcoin on Reddit, a friend had also called mij to tell mij about it. Wij spent most of our friendship talking about Ayn Zoom and programming, so when wij heard about a currency that wasgoed software and couldn’t be managed by governments wij were very interested. I purchased $600 worth of BTC and my friend and I planned on buying a mining equipment.
Being 22 years old ter Fresh York City is a financial fight. I didn’t have enough money to pay rent, and the value of my Bitcoin had dipped to $550. I sold it all and ditched my plans for a mining equipment. My financial situation needed to be stabilized before I could invest te assets based on my philosophical beliefs.
Bitcoin stayed ter the news overheen the years. The price went up and down, silk road happened, the legality of it wasgoed called into question, exchanges were hacked, and people gained and lost millions of dollars. Through it all, Bitcoin’s price kept rebounding, kept going up.
Ethereum klapper the toneel with the promise of using the blockchain for more than just currencies. You could build decentralized apps on top of Ethereum and even fresh currencies. Te the summer of 2016 I determined to buy ETH at around $9. The day after I purchased Ethereum something called the DAO hack happened and the price dropped 50%. Unlike ter 2011, I didn’t need the money I invested to voorkant any bills. I observed my Ethereum sway inbetween $Four and $20 for about 8 months. I wondered if I could take advantage of those swings by buying when the price wasgoed low, selling when it wasgoed high, and buying back ter when the price dipped again. Tho’ I didn’t take any act on the thought, the idea lingered te my head.
Te the same period I shut down my company, Bitfountain, after running it for Five years. Bootstrapping my own company talent mij an unprecedented amount of freedom. I lived te Four countries, traveled to many more, and only worked a few hours vanaf day. However, since the company had run its course, I needed a fresh source of income.
I applied for only one job spil a software engineer. It wasgoed the zuigeling of job people love – high salary, all the Silicon Valley benefits, friendly team, well funded company, challenging engineering problems. After three rounds of vraaggesprek they determined not to stir forward with mij.
I’m not going to lie and say I didn’t want the job anyway. I did want it. But I also feared losing my freedom. I’d be working more for less money and less plasticity than I had while running Bitfountain. Gone would be the days where I could spontaneously book a flight to India with no terugwedstrijd date. No more of the four hour lunch cracks that I’ve come to cherish overheen the years.
Going through the vraaggesprek process made the possibility of losing my freedom real. When they rejected mij I didn’t even think about applying for another job. I went into fright mode searching for a way I could make money on my own.
Check out this presentation I talent on why I trade.
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My very first month spil a cryptocurrency trader
At this point I still possessed Ethereum and the price wasgoed still swinging back and forward. Since I needed an income and didn’t want to get a job, it wasgoed time to attempt this trading idea. But I set a rigorous requirement that if I didn’t earn enough money to pay my rent after a month, I’d abandon trading.
It’s fourteen months straks and I’m still trading.
I signed up for two exchanges: GDAX and Poloniex. GDAX made sense because it is run by Coinbase, the company where I purchased and held Ethereum. I needed Poloniex spil well because there were many cryptocurrencies being traded there (Altcoins – cryptocurrerncies that are not BTC).
Those are the very first two exchanges that I used. Now I use others since each exchange has pros and cons. I wrote about the best cryptocurrency exchanges if you&rsquo,re interested te getting an overview of the possibilities.
A live crypto exchange is intimidating at very first glance. There are charts and numbers switching at the speed of glance.
I felt shocked but sat through the confusion to attempt and make sense of what I wasgoed looking at. Soon I could see where to place orders to buy and sell, and the charts commenced to make sense too.
I made $Five on a $100 investment ter my very first 45 minutes of trading. 5% profit. Bullish!
Spil the month went on I spent hours trading. I’d buy when the price looked like it wasgoed going up, and sell when it looked like it wasgoed going down. I didn’t use any technical indicators and I didn’t have a strategy. But it worked. I made enough to pay my rent, so the possibility of making a living from this wasgoed validated.
Albeit I profited, I wasn’t sure if I just had a fortunate month. I dreamed to formalize my trading skill so I could do more than buy low and sell high. There had to be a real strategy to this stuff. I read spil many books spil I could on trading stocks and foreign exchange markets. I made a lotsbestemming of mistakes. But eventually I found my rhythm and strategies.
Earning Bitcoin while my rent is paid ter US Dollars
This isn’t an introduction on how to trade cryptocurrency, but I need to give you some background on it before continuing on the topic of making a living day trading cryptocurrencies.
For myself, and most crypto traders, the aim is to increase the amount of Bitcoin wij own. I don’t care about the US dollar, at least not directly. When I look at the price of a cryptocurrency, I look at it te terms of BTC. For example, right now the price of 1 ETH (Ethereum) is 0.049 BTC. My trades are based on that price, not the fact that 1 ETH is $304.
The aim is to get more BTC.
Another thing I need to make clear is the type of trading I do – day trading. My base currency is Bitcoin, which I use to buy Altcoins like Ethereum, ZCash, Golem, etc. When I make a trade to buy an Altcoin with BTC, I could end up selling the Altcoin back for BTC within a matter of minutes or hours. All of my profits are converted back into BTC at the end of each trading day.
Again, even however I buy and sell several Altcoins, at the end of the day my televisiekanaal worth is ter Bitcoin. There are three reasons for this:
Many exchanges are cryptocurrency-only. They don’t permit you to trade with USD or another fiat.
I’m at the same time investing ter Bitcoin by holding my day trading profit ter BTC. I earn more USD when the price of Bitcoin goes up against the dollar.
I believe ter Bitcoin spil a store of value.
Why wasgoed it significant to clear this up? Because I’m earning Bitcoin but my rent is paid te USD! I need to sell BTC for USD to pay my bills. Several things were on my mind the very first time I had to do this.
What if I sell my BTC now and the price shoots up tomorrow? Won’t I be missing out on profit? Yes, but your bills will be paid.
If I don’t sell now and the price of BTC drops, I won’t be able to pay my rent. Sell now so you can pay your rent.
This is a conundrum that you’ll need to overeenkomst with spil an investor or day trader. You can always hold out for more, but at the same time you are venturing a loss. If you have bills, just sell the Bitcoin for fiat and don’t look back.
When do I sell Bitcoin for a Tesla Monster X
After a few months I got better at trading. I wasgoed earning more Bitcoin than I needed to voorkant my monthly expenses. At the end of the month I sold only what I needed, and kept the surplus of my nipt worth te Bitcoin. Around this time ter my trading career it wasgoed getting to the point where I could have bought a Tesla or waterput a down payment on a house by selling my Bitcoin.
Let’s say the price of Bitcoin has reached an all time high, spil it has done so many times ter 2018. Do you sell your Bitcoin to realize your profit ter USD?
I am faced with that decision every day now.
Taking the USD I’ve made to buy a huis is a solid decision. I can live a nice middle class lifestyle ter Los Angeles. Or I can drive a flashy car while I rent a crappy apartment ter Los Angeles. It all comes down to your values.
But that’s not the route I am taking.
The magic of compounding profit
This is going to shock some people but I’ll clear it up soon:
I don’t care much about Altcoin bull runs where the price dramatically increases 15-20% ter a few hours. Those aren’t the patterns I am looking for when I trade. Te fact, if i see a chart like this I almost always disregard it:
I aim for 1% profit every day.
Why would I disregard 20% gains and instead concentrate on 1% gains? There are two reasons.
The very first reason is that 1% is manageable. Most cryptocurrencies are moving up and down by 1% every hour. The wild bull runs are hard to find, hard to time decently, and effortless to go te the opposite direction where you lose a loterijlot.
If you learn certain patterns and indicators, it is possible to consistently achieve 1-2% gains. Those gains are only arousing if you understand how far they can get you.
That brings mij to the 2nd reason that I only aim for 1% vanaf day.
I’ll make much more money ter the long term. Let’s run the numbers. Say you embark your trading career with a $1,000 investment. If you trade every day using patterns and indicators that yield 1% profit vanaf day, you’ll earn $37,783 after one year.
After Two years you’ll earn $1,427,587.
How much do you need to work to earn 1% vanaf day?
Of course the numbers above assume you trade 365 days vanaf year. Not many people are willing to forego vacation and weekends to work spil a utter time crypto trader, even with numbers like that.
It makes a entire loterijlot more sense if you are only working 90 minutes vanaf day.
At this point I am actively trading for only 1 to Two hours every day.
Te the beginning when I wasgoed shooting for 20% gains on a trade and not knowing what to look for, I worked a lotsbestemming more. Not only that but I also let my emotions control my trades. For example, I once purchased Stratis after the price dropped massively. My assumption wasgoed that on such a acute decrease te price, it had to rebound eventually. I wasgoed wrong. The price kept diving. I had to hold the currency for Two weeks just to secure a 35% loss instead of an 85% loss. I wasgoed permanently tuned into that chart waiting for an chance to sell back to Bitcoin.
Now I have my strategy that I stick to without letting my emotions interfere. I have a set of coins that I like trading so I only look at those charts. I have patterns and indicators that I look for on those charts so I can quickly roll through them. Within minutes I can set my orders, set alerts on my desired entry and uitgang prices, and walk away from the rekentuig.
Don’t evade taxes. You might be trading on an exchange that doesn’t report to the IRS or you might want to take advantage of the lack of regulation te the space. Spil the market cap of crypto increases, be sure that the IRS is going to find out how to get their slice. And they will look into the past.
I am not a tax advisor. This is a ordinary overview of what I keep ter mind spil I trade. My registeraccountant treats my taxes, and I advise you to get an registeraccountant to do the same. Keep te mind that this is US-centric. You need to dual check if this is the case te your country.
The taxable event is when you sell your cryptocurrency for fiat. Te my case, it is when I sell BTC for USD. How much tax you pay depends on how long you were holding the cryptocurrency.
Crypto that you hold for less than a year
Let’s split this into Trio transaction types.
Buy crypto with fiat – no tax. When I buy Bitcoin or another Altcoin with USD, I do not pay tax on that transaction.
Sell crypto for fiat – pay ordinary income tax. When I sell Bitcoin for USD, I am taxed using the FIFO (very first te, very first out) method of accounting. For example, if I buy BTC with an initial investment of $1,000 and a week sell the BTC for $1800, I’ll pay taxes on the $800 profit.
Buy crypto with crypto – unclear, but does not seem to be a taxable event. This is where things get foggy. Consultatie your advisor, but spil far spil I know this is a like-kind exchange which is not taxable but voorwaarde be reported to the IRS. The exchange you use will output all of thesis transactions so you can palm them to your registeraccountant.
Update: The IRS has clarified that a crypto to crypto exchange is not a like-kind exchange. The profit made from each transaction is taxed. More informatie here.
Crypto that you hold for more than a year
If you are holding a currency for more than a year it is classified spil long term capital gains. Once you sell your Bitcoin or Altcoin for USD, you’ll be taxed at a rate of 15%.
This is another reason why I like keeping my televisiekanaal worth te Bitcoin. If I hold it for more than a year I only need to pay 15% tax whenever I determine to metselspecie it out to USD. That’s a much lower rate than normal income tax.
Other ways to make money with cryptocurrencies
I’m not going to go too deep into other ways you can earn money with cryptocurrencies because I don’t do them myself. At least not right now. Passive income is good. After you make an initial investment, you mostly sit back and observe the money roll ter. It’s like buying a huis and renting it out – there will be some maintenance issues but it’s mostly passive income.
Cryptocurrencies opoffering at least two routes for passive income.
Most cryptocurrencies are mined. You invest te a very strong laptop and the electric current to run it, and you are rewarded with crypto for contributing to the network spil a knot that confirms blockchain transactions.
Proof of stake
This is an alternative to mining that does not require vast amounts of electrical play. The idea is that you stake the cryptocurrency that you own overheen a wifi connection. That crypto that you stake is used to validate transactions on the blockchain, and you are rewarded more cryptocurrency for putting the currency you own te the pool.
Proof of stake is not widely used yet, but it is going to be introduced into Ethereum next year.
I’m not at all against mining or werkonderbreking spil a way to earn money te crypto. Ter fact, I intend on werkstaking Ethereum when it is possible. The reason I don’t pursue thesis routes right now is because day trading can opoffering a much higher comeback on investment if you are willing to learn and be disciplined.
I&rsquo,ve gotten fairly a few emails asking mij questions about how I day trade crypto. Here are some of the questions with my answers.
Your strategy is to increase the amount of BTC that you own. What happens if you become bearish on Bitcoin?
BTC is my base currency right now because I believe te it spil a store of value, and I believe that its value will keep enhancing against fiat currencies. However, if I zekering believing te the future growth of BTC, I can lightly sell it for USD and proceed my strategy of 1%/day growth with USD spil my base currency.
I am emotionally invested ter the success of Bitcoin and crypto te general. But spil far spil my day trading is worried, I&rsquo,m ready to druppel BTC at any uur because there is no slagroom for emotions te this spel.
Does it get firmer to day trade when you are using larger sums?
At very first I thought it would be firmer because te my head I&rsquo,d be taking Ten BTC positions and hoping there would be enough liquidity on the exchange to pack my orders. The solution is to only take large positions trading high volume coins, and to take several smaller positions on medium/low volume coins.
Now I take up to 8 positions te a trading day. I&rsquo,m not against taking more spil my principle investment grows.
Do you value technical analysis overheen fundamental analysis?
Yes. I go after the charts. Fundamental analysis could give mij a hint on which charts to look at, but at the end of the day my trades are based on technical indicators.
Do you use trading bots?
No. I don&rsquo,t know anyone who earns a living letting a bot make their trades. I&rsquo,m not against it if it works. Let mij know if you know of someone who does it.
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