Whether you are just getting started with crypto, or are a seasoned pro at this point, it is always ideal to learn about new ways to make money. Who couldn’t use an extra buck?
While the cryptocurrency market can be incredibly volatile, there are ways to have the investment work for you. Passive income, or that earned without the direct, active involvement of the owner, is one way that crypto can bring more money to you.
You don’t have to analyze market charts, create in-depth investing strategy charts, or invest vast amounts of your own research. Passive income with crypto can happen in a number of ways. The crypto space can offer a passive yield without risking volatile assets or having in-depth knowledge about the crypto investment world.
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Generate Passive Income: The Long-Term Strategy
While the market fluctuates up and down drastically nearly every day, those seeking to sit tight with their crypto can stand to make passive income by playing the long game. When it comes to cryptocurrency investors, the term is holding or sometimes “HODLing” for those in the know.
Just Holding On
One of the easiest ways to make money, long-term, is to simply purchase it, place it in your digital wallet, and allow the prices to do as they will. Known simply as a “buy and hold strategy,” the idea of holding means you are doing nothing at all. You are allowing your investment to sit tight, and are hoping that over time the crypto will increase in value.
This strategy can range anywhere from six months to five years and is not for the fly-by-night investor. While the day-to-day market is unpredictable, the hope is that over longer periods of time, the industry will see growth. Come the day you aim to cash out, you’re banking on the crypto now being worth more than what you purchased it for, thusly making you passive income.
Interest-Bearing Digital Assets Accounts
Much like a savings account in a traditional bank, an interest-bearing digital assets account allows for an investor to once again park their crypto to earn passive income. However, in this case, set interest rates to allow for a guaranteed set amount to be added, typically monthly, into the account.
By leaving the crypto idle in the account, you are allowing the network access to the funds for use. In turn, your stored funds can earn you a set interest adding value without you having to lift a finger.
Interest From Centralized Accounts
Interest rates and terms vary by company but can be paid daily, weekly, monthly, or annually, depending on what is agreed to upon entering the account. The difference in the type of interest earned typically revolves around how the interest is earned.
For example, some spots offering this style of account include BlockFi, Nexo, and Crypto.com. This style of centralized digital asset accounts uses your funds to provide overcollateralized loans to institutional borrowers.
Stablecoin Interest Accounts
Not all accounts are created equal. Instead of a centralized crypto account, some opt for a stablecoin version. These accounts, which can be created with companies like Orion Money or Anchor, have a decentralized network but offer stablecoin returns via interest rates.
Let The Company Move It For You
The third type of interest-bearing account is offered by companies such as Yearn Finance and Autofarm. Instead of allowing your money to sit still, these spots automatically move your funds between a range of decentralized finance products, which will maximize the yield you earn.
Depending on the terms, investors can earn passive income through interest-bearing accounts by simply passing the time without moving funds around, thusly generating the new interest.
A Warning of the Long-Term Game
While holding assets seems to be one of the best ways to earn crypto with passive income, it is important to note that it won’t do so unless you have an interest-bearing account. Allowing crypto to simply sit will actually put you at risk of missing out on typical increases in value such as inflation.
For example, in 2011 Bitcoin was valued at less than $1. Today, one Bitcoin can be worth $47,000 each. That is an amazing increase in value.
However, in the past 11 years, the value of that same single dollar bill has risen naturally by about 24 cents. That said, one Bitcoin is still one Bitcoin.
A $1 bill in 2011 is equivalent in purchasing power to about $1.24 today, meaning the dollar had an average inflation rate of 1.97 percent per year between 2011 and today, producing a cumulative price increase of 23.95 percent.
In simpler terms, that same single dollar could buy you far more Bitcoin (or any other investment) on its own than it could 11 years ago. But how many Bitcoins you own remain stable if you simply let them sit still. Having let this occur in our timeframe above, your Bitcoins missed out on the inflation of the dollar and its worth.
That may sound like a mouthful to say aloud, but operating on a proof-of-stake (POS) digital ledger, known as a blockchain, can be another way to play a long game and generate passive income.
Another way of increasing your passive income streams that takes time requires the use of a decentralized platform that does not use proof-of-work, but instead a proof-of-stake system in validating transactions.
In this method, those benefiting from a new block of information (i.e. gaining crypto) are selected at random. Investors increase their “odds” of winning by buying more “chances” or grouping with other investors in an investing pool.
Whether on your own or part of a team, the network selects users, elevates them to a status of validator, and then rewards the validators for efforts. The bottom line in a POS blockchain is the chance of winnings is randomized, and not by any means a guarantee.
Choosing a Validator
How these validators are randomly elevated varies by platform. Most randomize the selection, making it a rather game of chance. In a POS blockchain, users “stake” by posting funds in the platform’s own currency form. This sort of collateral is what is required to play the game for a chance to be randomly selected.
Winners Need Help, Too
Being selected as a validator (thusly being the one that will earn the reward of crypto passive income) also comes with a lot of work. If this sounds too tasking, some POS blockchains allow users to delegate takes to others who are ready to handle the technical expertise side of the game.
In this scenario, those that do the work (the validators) earn more than those that delegate staked cryptocurrency, but it also gets you out of the technical analysis game, allowing you a long-term benefit of adding more passive income streams without you investing time and effort.
Earn Passive Income By Lending
Another way to utilize the crypto market to earn passive income is via lending. Lending can be done, most typically, in four unique ways.
If you like being the boss of your own money, operating lending in a peer-to-peer network may be best for you. Such platforms offering P2P lending allow you to set your own terms, decide how much you want to lend, and what interest rate you plan to charge for such lending.
After your terms are determined, the platform will match you with a borrower. These systems allow a higher degree of control for the lender (you), but also can mean more work for you.
Additionally, to use the platform itself, the lender will have to place digital assets into the platform’s custodial wallet. This must be done before lending or finding borrowers, which can make those that prefer remaining in control somewhat leery.
These accounts are more of the interest-bearing style we discussed above, offering predetermined interest rates to you as a lender, in exchange for allowing the platform to lend out your assets. Like the P2P equivalent, this style forces you to place money into the platform’s custodial wallet.
These types of loans come with a fixed interest rate and time period, determined by the company. There is less control for you as a lender, but more backing by a third party. Additionally, you are relying completely on the third party to handle the process.
Decentralized (or DeFi) Lending
If your desire is to have all hands off your crypto, then the DeFi style of lending may be for you. This allows lenders and borrowers to make direct contact without the third-party involvement that centralized or P2P lending requires.
Instead, those wishing to lend or to borrow can make direct contact on the blockchain network. Persons agree to terms via smart contracts, which are both automated and programmable. Once terms are met, the smart contract automatically releases funds.
This style of lending can give both parties more direct access and power to the process, though none of the backing or assistance of a third-party platform.
Finally, the margin style of lending allows you to post digital assets and walk away. These scenarios rely on a Trader working on your behalf. You make the assets accessible, and this trader will take the borrowed funds to lend them to others, charge interest, and pay you back with the added bonus of said interest (or a percent thereof).
In these cases, a crypto exchange network handles the process. It is rather like hiring an investment firm to manage your lending for you. You simply sit back and collect at the end of the term.
These loans both involve a third party (the trader), and a crypto platform, but you are not the one working out the nitty-gritty details. A trader with those technical skills handles it for you.
The Air Drop of Crypto
In what is known as a rather wild marketing stunt, some newly formed cryptocurrency platforms will provide an airdrop, allowing the earning of passive income without much effort. However, this option is largely a matter of luck and cannot be at all predicted.
Price dramatically varies in these airdrops, but the concept is for a new organization to randomly give away its new crypto to increase awareness and interest in the product. Think of it as sampling food in a grocery store. You never quite know when the sample stand might pop up, and you may or may not like the product available.
A Word to the Wise
These types of extra money are great, I mean who doesn’t love free coins? But they are also completely unpredictable and sometimes only offer goodwill deposit funds only useful on the new, unknown platform. Yes, you can earn money, but most investors rely on a more stable source of crypto funds.
The decentralized network system has brought about a lot of change to the world of finance, and one of those newly formed benefits for many is the chance to earn liquidity without restriction. One type of cryptocurrency, called DEX, is known as an automated market maker.
With DEX, the owners of crypto become liquidity providers. For doing so, the user gains a yield on the assets. These platforms offer decentralized liquidity pools that allow users to trade among one another.
However, the added features allow these same users to also benefit funds by facilitating efficient price discovery by using the weighting of the two or more assets held within a pool to determine each of their values.
What It Takes To Become an LP Provider
Investors can become liquidity providers by depositing tokens into smart contracts and receiving pool tokens in return. These pool tokens track the liquidity provider’s share of the total reserves within the platform. These pool tokens can then be traded in for the underlying asset at any time.
Funds are posted for investors to be able to execute trades, and in exchange for posting such money, users earn passive income with crypto by simply allowing the use of assets.
Another method of earning passive income with crypto includes the use of yield farming. Working in conjunction with the aforementioned liquidity pool dynamic, the concept of yield farming is to trade against funds deposited by investors.
These investors are known as the liquidity provider mentioned above who offer the assets, to begin with, thusly making the process possible.
Users in a yield farm enter into a smart contract known as the liquidity pool, and in turn, the liquidity providers get a portion of the trading fees from the pool. In this model, traders are not trading against a broker or another trader. They are trading against the funds deposited by liquidity providers.
Become a Liquidity Provider First
A user must first become a liquidity provider to then be able to enter into yield farming. To begin earning fees, aka a passive income stream, you would need to invest the two required types of crypto into the liquidity pool (making you by definition a liquidity provider).
After depositing both types of tokens required, a decentralized exchange will change the liquidity pool (LP) tokens representing your share of the funds locked in the pool, and you can use these LP tokens to support decentralized lending platforms, and then earn additional interest.
In doing so, a single deposit is technically earning you passive income streams from the LP and the lending.
Yield Farming Platforms
Some platforms that offer a yield farming opportunity include Uniswap, Aave, and PancakeSwap. Remember, the opportunity to yield farm works hand-in-hand with the use of the liquidity pool. Using these networks will create both types of benefits (and risks) for your crypto assets.
The cryptocurrency exchanges are known to be a wild and ever-changing market. No one ever knows what the future holds, and while these concepts for earning passive income on your crypto all come with their own risks and benefits.
There is no guarantee when it comes to earning money, but allowing your money work to produce income without any active involvement on your end is a chance many are willing to take.
There is no such thing as a safe investment. While some are low-risk, and others high, all investing strategy requires putting money up (in this case digital currency), and hoping to be a successful trader. There is, however, just as many opportunities to lose money as there are to gain it.
Do Your Research
Each investor needs to do his own due diligence with any platform or crypto passive income stream. The opinions expressed here, as always, are just some of the ways your crypto investments and digital currencies can work for you.
From earning interest to crypto lending, to collecting cryptocurrency dividends, your cryptocurrency deposits can bring in additional funds as you go about your typical trading crypto practices. Remember, however, to read all the fine print. Beware of transaction fees and lock-up periods when researching which platforms may work best for you.
So Many Options
There is an entire network out there of crypto assets, and for every way to make a buck in the crypto industry, there are far more ways to lose it. With proper analytical data and investing your research at the start, you can, however, allow for the crypto market to bring in funds for you, even via passive income.