6 Ways To Earn Passive Income With Your Crypto
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6 Ways To Earn Passive Income With Crypto
Cryptocurrency has been one of the most if not the best performing asset in the past few years, especially bitcoin. This profitable market still presets a lot of business opportunities and ways to profit from whether it is for small or big investors.
Not all people can dedicate themselves to learning and trading 24/7, however that doesn’t mean they can’t still earn with crypto!
In this post you will find 6 ways to earn passive income with crypto even you can´t dedicate a lot of time for research, trading, or anything else, really.
Why is crypto passive income Important?
All financial markets go through cycles and no matter how active you are… you can always go around it. Even thought you might be opening long positions during bull markets and short or bearish, it’s hard to always come out on top.
That’s why having part of your funds allocated to passive investments is a very smart approach to an environment so unstable yet highly profitable.
But hold your horses! You don’t need to try and exceed at everything. Like in any other assets there are people with different investment profiles according to their risk and time available. So, you can choose to only make passive investments if you want to.
Passive doesn’t mean you won’t do any work! It does whoever relate to strategies that require an initial process/ action and will keep paying you its earnings through a certain time frame.
Detaching your time from your work is really a wonderful thing as you will see your accounts grow even when drinking margaritas on the beach (insert your typical guru).
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” Albert Einstein
1. Centralized Lending
There are companies and exchanges which allow you to lend/ borrow your assets whether they are stable coins, altcoins… they can be considered CeFi (Centralized Finance) because all transactions are made inside a single platform.
The main advantages when compared to DeFi (Decentralized Finance) is the fact that most of them have some sort of insurance or fund to protect lenders from potential losses such as smart contract hacks or borrowers not paying.
It is also easy to liquidate or exchange assets due to the huge number of users making transactions on a single platform.
KuCoin is a very good one for USDT lending with some of the highest rates available. Although its rates change often according to market conditions similarly to variable rates loans.
Some exchanges allow you to simply lend, by just holding your coins there while in others you will need to set parameters for it.
Midas Investments and BlockFi are two examples of the first where you can get fixed interest rates by having your funds there.
Fixed rates produce a somewhat predictable income, but you got to be aware the price of the coin is still bouncing around so the amount you receive in interest, at given moment, might be worth more or less, in FIAT currency (USD, Euro…)
On Bitfinex and Poloniex you can do what is called margin lending with variable rates and terms, usually providing better returns when the rates are up and worst when they are down.
2. Decentralized Lending
Decentralized lending is another form of lending out your assets to earn interest, but it different from the previous one by using DeFi platforms to achieve a similar outcome.
DeFi stands for Decentralized Finance and is the opposite of the previous option at least when considering the lenders.
You do not have to stick with a specific platform but rather connect your wallet with a compatible DeFi lending app (or dapp – decentralized app on the Ethereum blockchain) and start lending in a trustless manner, without intermediaries.
The most popular lending protocols usually work on top of the Ethereum Blockchain, but there are plenty of different options with lower transaction fees such as Polygon or Binance Smart Chain.
Rates are variable and there are multiple assets available to lend/ borrow on different platforms. Some of the most popular are Yearn, Compound, C.R.E.A.M…
I highly recommend you stick with high volume platforms and do your own research to choose the most favorable platform.
By using DeFi Pulse and DeFi Llama websites you can get a very good idea of what platforms are performing the best by TVL (Total Locked Value can represent adoption of a platform), what blockchains are supported and so on.
There are potential risks of Flash Loan attacks and exit scams. The latter is easier to avoid by using trustworthy platforms but there are always possibilities for hacks.
But recently there have been some developments towards heping people who use these platforms. Insurance products such as InsureAce and NexusMutual.
3. Yield or Liquidity Mining
DEXEs (Decentralized Exchanges) need a certain amount of a any given coin (liquidity) to enable trades between different coin pairs.
Let’s say that you want to trade Bitcoin for Ethereum on an exchange of this type. If there was no liquidity you couldn’t.
This number of coins used as a reserve for trades can be aggregated in a liquidity pool.
By providing liquidity to a liquidity pool, you would be depositing two coins (it could be on a 50/50 ratio) and then receiving a reward from that specific liquidity pool.
The reward is equivalent to a percentage of all transactions made between the pairs of a pool which means it also depends on trading volume for those pairs. Liquidity mining also provides some rewards in the platform’s token adding up to the rewards you receive from the tokens you provide.
With this strategy there’s a risk of Impermanent Loss and this happens if the price changes a lot compared to when you first started providing liquidity. It can be offset by trading fees rewards or by earning additional coins for one of the pairs.
Yield aggregators are one of the easiest ways to invest across multiple protocols and platforms from a single dashboard. The most popular being beefy finance, alpaca, instantdaap, autofarm and yearn finance.
Staking is when you delegate or lock your crypto to support transactions executed on a certain blockchain and in turn you will earn more coins.
Instead of using a POW (Proof Of Work) mechanism you are relying on POS (Proof Of Stake) which in turn doesn’t not require any sort of hardware mining or high electricity usage.
When considering staking don’t just look for the highest rates but also consider the project. While high rates sound good on paper a lot of those coins can be more volatile and you can incur in capital losses while still having your funds locked for staking.
It can be done right from your Wallet (if it supports staking for the coin you're looking at), such as ledger, trezor or exodus. Another simple way to stake is by using staking products on exchanges such as Binance!
To maximize returns and decrease risks make sure to research the original project, coin whitepaper, tokenomics, CEO interviews and whatever else is available from the team. Don’t go for this is “the next bitcoin” lame headlines or unproved claims.
Staking is great for long term investors who like to hold strong cryptocurrency projects overtime while also earning interest.
5. Dividend Tokens
Some cryptocurrencies will allow you to receive rewards in that same coin by just holding it for a certain term such as KCS (KuCoin Token), with that specific coin you get a percentage of the profits made from trading fees on the KuCoin Exchange.
There are still currencies which exclusively work like these, however the most common right now are the exchanges providing investment products such as savings.
With strong exchanges the risk of holding an exchange token or coin is very low, but of course with low risk usually comes a lower return.
Binance has their BNB vault which is a easy way to earn both their own currency which is BNB and also new coins added from the exchange but that falls under staking.
However, if you hold that coin you will still get new tokens on the platform.
Let’s just say that the way you get rewarded is tied to how a specific exchange works so you should read the documentation.
6. Trading Automation
The last one has more variables at play but nonetheless can be considered passive or semi passive depending on the strategy being implemented.
Essentially you are counting on crypto trading gains whether they are from Capital Gains (if the price increases or if you're betting the price is going to go down.
But instead of opening all the orders manually you set the values on a software, and it will execute trades for you or rebalance your portfolio if you are adopting a more long-term strategy.
There are a lot of trading bots available for free and paid too.
3Commas, Bitsgap, Pionex, BitUniverse, KuCoin bots and more… with different strategies available. Most of them connect with your exchange via API keys which gives you a lot of control over the permissions the bots have to use your funds.
As for long term approaches you can keep using the same tools but with different configurations or use a rebalancing tool such as Shrimpy which will keep the same ratio of funds allocated to specific coins.
The automatic rebalance can be done by using time intervals (monthly, daily… or price change percentages).
All the strategies mentioned above are solid but won’t work if you don’t have a strategy to manage funds.
What I mean by that is that you should have an outline to know:
- where you will invest
- what are the risks
- what are the costs
- when to get in
- when to sell
- action plan to offset risks
No need to dwell about it or create a huge spreadsheet. Sometimes all it takes to improve your earnings is to jot down your progress on a notebook.
You might want to allocate a certain amount of money to different products accord to the risk levels. For example, using trading bots to get higher returns and then reinvesting 25% of the profits on a more stable income source such as lending or staking.