Published: 3 years ago

How to make some quick money with Bitcoin for fun

As I mentioned in my previous blog post, when I try to fully understand a new technology, I like to explore multiple aspects of it. Sometime I’m lucky and I end up making some money while learning (if only college was like that…). In this post I will show you how to easily make some extra money or increase your Bitcoin stash by spending only a few minutes a day and with a few mouse clicks. I promise to spill some of my numbers before the end of this post 😉

One thing that always fascinates me is finding arbitrage opportunity and with Bitcoin there are a few points that are fairly easy to exploit one. The most visible one is the price difference between different Bitcoin exchanges; for instance as I’m writing this blog post, Bitcoin is exchanged on Mt.Gox against the Dollar for $110 more than on BTC-e.

Another arbitrage opportunity, which I experimented in the past few days and that I’ll explain in this post, is taking advantage of the Bitcoin price on Coinbase and what you can sell those bitcoins for on LocalBitcoins. Coinbase is probably the easiest site to purchase bitcoins and LocalBitcoins is a platform that allows users to sell and buy bitcoins between each other with cash or other payment systems. Basically we’ll try running a currency exchange service.

STEP 1 – Join Coinbase and buy some bitcoins

make money with bitcoinTo start you need to create an account Coinbase. It’s very easy, and once setup with your bank account info, you’ll be able to purchase bitcoins in a click.

One interesting feature of Coinbase is that, once you verify your identity and complete a purchase, it allows you to buy bitcoins instantly. Initially the instant buy limit is very low (0.1BTC) but after 30 days you’ll be bumped to 1BTC.

You can start by buying even a small amount like $100 or less, this is just to get the verification process started.

STEP 2 – Join LocalBitcoins and transfer your bitcoins

LocalBitcoins is where we’ll create an ad to sell our bitcoins and to do so you’ll need an account. Once created, visit the wallet page on LocalBitcoins, copy the address, and send your bitcoins from Coinbase to that address (how to send money from Coinbase).

STEP 3 – Create a bitcoin trade advertisement

You can do this right away or wait until you have been verified by Coinbase. On LocalBitcoins, click “post a trade” in the menu. The form is pretty self-explanatory, but there are a few suggestions:

  • Payment method: I did my experiment using cash deposit. It’s very safe and deposits show up instantly on your account
  • Premium: the easiest way to set your price automatically based on a Bitcoin exchange is to use this field. For instance if you put 5%, your price will be set at 5% more the current exchange rate on Bitstamp. If you decide to use this I suggest you to stay around 5% premium.
  • Price equation: this is what I used to set my price. I experimented with a few formulas and I think the one that performed best was (mtgoxusd+bitstampusd+btceusd)/3*1.02 (2% premium over the average of the exchange rate of Mt.Gox, Bitstamp and BTC-e). Your goal is to sell at least 5% more than the exchange rate on Coinbase, since by doing so you’d have a ~3% net profit (both Coinbase and LocalBitcoins have a 1% transaction fee).
  • Min. amount: I’d set this at least $100 to avoid small wasting time transactions. I ended up setting my at $300 but at the beginning you’ll need those $100 transaction to build a positive history.

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STEP 4 – Start exchanging

Assuming that you’ve already been fully verified by Coinbase, now you can just wait for people to contact you on LocalBitcoins. The way LocalBitcoins work is by escrowing the amount of BTC requested by your buyers from your LocalBitcoins wallet. Once you see the deposit appear on your bank account you can release the escrowed bitcoins by clicking the release button. What I usually did was to immediately contact the buyer, to make sure it was serious about making the purchase and then buy the equivalent amount of dollars requested in bitcoins from Coinbase. If instead of growing your stash of bitcoins you prefer earning some old fashion dollars, simply buy the same amount of bitcoins escrowed and keep the difference.

Since now you can buy up to 1BTC instantly, even if you only originally owned 0.1BTC, you could trade that 0.1BTC over and over again without actually speeding a dime more. To give you an example, if you originally bought 0.1BTC and you trade your entire wallet 10 times at with a 5% premium, you’ll be doubling your initial investment in 2.5 days.

Final notes

This type of exchanges won’t make you rich, but they could easily generate a few hundred dollars every week. Using this process I was able to grow my (small) Bitcoin stash of about 10% daily. While I haven’t of course accepted all the requests, I received enough trade requests to exchange even $10,000/day, so there’s definitely a huge demand.

Try to keep your margin smaller at the beginning (but keep in mind that 2% of the transaction will go towards transaction fees) to create a positive history and start accumulate positive ratings. People will be willing to pay a higher premium if they know they can trust the seller.

One thing one needs to pay attention to is the price trend of Bitcoin, since during a meteoritic rise of the price, even few minutes delay in buying back the coins could mean losing all the margin (or more). It’s actually easier to make money on down trends since often a few minutes delay will increase the spread between your LocalBitcoins exchange and Coinbase exchange.

You can try other payment methods other than cash deposit but beware that Paypal, Chase Quickpay, Venmo and other services allow chargebacks and are often use to scam Bitcoin sellers. LocalBitcoins does a great job in explaining all the different methods and their risk level.

If you are in South Florida and you are interested in Bitcoin and crypto currency, don’t miss the upcoming Refresh Miami on the future of money on Jan 30th.


Disclaimer
If you plan to this consistently and with a volume superior to $1000/day, make sure to register as a money business service and follow all the given regulations.

  • http://sullof.com/ Francesco sullo

    Clever.

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  • Will

    I’m confused as to how the buyer pays you. Do you give them your bank account number and they go directly deposit it?

    • http://www.DavideDiCillo.com Davide Di Cillo

      Correct. They can deposit cash directly in any branch of your bank. It will show up immediately on your bank account.

      • Will

        Thanks for the reply. Are you not concerned about giving your full name and bank account number to a complete stranger?

        • http://www.DavideDiCillo.com Davide Di Cillo

          You can decide to deal only with people that look more trustworthy, such as those with multiple previous trades. If you decide do run an exchange consistently you could even open an additional account only for this activity. But knowing only your checking account and name doesn’t allow them to do much.

          • Buenaventura Hormazabal

            What bank do you recommend for something like this? I know simple currently can’t receive cash deposits.

          • JJ

            Test

          • Sierra McCall

            How can i possible do this using a credit card.

          • Bobby Joe

            U can’t hon. Serry.

          • Bobby Joe

            Hey lil bitch.

  • HS

    So the system practically is:

    1. Buy cheaper from Coinbase
    2. Sell a little more expensive on LocalBitcoins

    And that’s it?

    The only risk is if you buy from Coinbase and then the price goes down?

    • http://www.DavideDiCillo.com Davide Di Cillo

      Actually the only risk is if the price goes up by more than your net premium (your premium -2% in total transaction fees) between when the money is escrowed and when you buy back the coins. I use http://bitcoinwisdom.com to keep an eye on the market trends to see if I need to hurry and buy back or I can wait a bit and get a bigger margin.

      • HS

        But if price goes up isn’t that better for you? I mean, if you paid $850 in Coinbase but now Bitcoin price is $900, won’t people be paying that for a Bitcoin? I don’t get that part. I used to play online MMORPG games and I think this kind of economy behaves similar.

        • http://www.DavideDiCillo.com Davide Di Cillo

          Well the price is set the moment they request the trade. For instance if they request the trade at $900 while Coinbase is selling coins at $850 the spread would be $50. But if before you buy back your coins on Coinbase the price drop to $800 you would end up doubling your margins.

          • HS

            So, you set the deal first in LocalBitcoins, then you buy from Coinbase and complete the transaction after that?

          • http://www.DavideDiCillo.com Davide Di Cillo

            Yes, as soon as they mark the payment as complete and the deposit appears on my account, I release the escrowed bitcoins.

          • HS

            Hum so that’s what I meant before (I guess), if you bought the BTC from Coinbase before the deal at let’s say $800 and then price raise to $850, you can set a deal higher than that and make a good range of profit (isn’t it like that)? Thanks for taking time answering this, I really want to start “investing” on this but I’m a little afraid

          • http://www.DavideDiCillo.com Davide Di Cillo

            On LocalBitcoins the price of your offer automatically adjust based on the premium or formula you chose. But once a deal is started by a buyer, the price for that specific deal is fixed.

  • Declan

    small typo in the 3rd last paragraph: loosing -> losing
    Interesting article, have you thought about trying to automate the process?

    • http://www.DavideDiCillo.com Davide Di Cillo

      Thanks, fixed it :)

      Yes, of course, but doing the process manually gives you a bit more control. It would be easy if you weren’t dealing with other humans directly (like auto-trading bots do).

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  • http://borasky-research.net/about-data-journalism-developer-studio-pricing-survey/ M. Edward (Ed) Borasky

    Do *not* do this if you live in the USA without the advice of an accountant and an attorney! There is at a minimum a *mountain* of paperwork you have to fill out, even at the nickel and dime level.

    • Crypto Zark

      Can you elaborate? It sounds like if it is under $1000 a day, you should be fine right?

  • John

    So just to be clear, it looks like you have to give you bank account number to do this right? kinda scary

  • Ken Westerman

    It looks like Coinbase has limits of $1,000 for instant buys per week. I’m assuming you use the instant buys for every ad someone responds to then? When you’re getting frequent responses to your Localbitcoins advertisement, are you able to keep up with purchasing BTC from Coinbase without going over the weekly limit? Thanks.

  • JJ

    Don’t think this will be worth the time/investment. Coinbase $1K/week max instant buy limit will give you $30 return a week? Even $300/week wouldn’t be worth the time. I’d rather just buy low sell high when it gives me a 10-20%+ return.

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  • Dave

    So someone posted that we cannot do this without the advice of an accountant and an attorney? Is that correct or is that someone simply fear mongering?

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  • Anonymous

    DO NOY TRANSFER BETWEEN COINBASE AND LOCLBITCOINS OR COINBASE AND PAXFUL or any other P2P markets! Coinbase will threaten you they will close your account unless you prove that you closed your Localbitcoins or Paxful account! Coinbase is good for its cheap rate other than that they are a disgrace to Bitcoins and its decentralization. A way to avoid getting ur Coinbase account closed is to always use blockchain.info wallet and other exchange market wallets as pass-through wallets.

    • Gennady

      Why would they close Coinbase account? Did the try to close your account? No one else complained about it. What do you mean by pass through wallet? So transfer from Coinbase to blockchain.info wallet, then from blockchain.info wallet to Localbitcoins?

    • Jason Hernandez (Bitcoin Zoom

      Still true today. If you sell bitcoin for profit you better make sure its offloaded in another wallet. They don’t give notices anymore, they just do it. Everything I had associated with my wallet address on sites will no longer be valid and Coinbase will collect any incoming transactions. Robbery is what that is. DO NOT SELL YOUR BTC DIRECTLY FROM COINBASE :)

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  • Martin

    Hi David, This is a relatively old post that I stumbled across. Is this method still viable? Do you have any recommendations?

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  • Liam Stojanovic

    I know this article is old, but the TOS now forbids you from doing this.
    https://support.coinbase.com/customer/portal/articles/1905681-localbitcoins-and-coinbase

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