Passive Income in Crypto – 10 Options To Pick From
Crypto allows you to earn passive income through intelligent investments. There are multiple ways to make a passive income with crypto, from lending money on Defi platforms to staking your tokens or adding them to the liquidity pool. Read on to learn the ten best crypto passive income options.
1. Earn Interest With Crypto Savings Accounts
Crypto savings accounts allow you to deposit crypto and earn interest on it, just like a regular savings account from a traditional bank. However, crypto savings accounts typically feature much higher APYs.
Of course, they come with more significant risks as well. For example, if the crypto you’re depositing decreases in value, you’ll lose money in the long run. An alternative is choosing a USDT savings account, as USDT is pegged to the price of the dollar. You can also select another stablecoin (any coin that doesn’t experience price fluctuations).
However, crypto savings accounts don’t have FDIC insurance, unlike traditional bank accounts, so go with a reputable company.
Some companies that offer interest rates of up to 14.5% and up to 8.5% on stablecoins include Gemini and Crypto.com. Gemini has insurance for the small portion of your funds kept in a hot wallet (connected to the internet).
2. Let Your Portfolio Grow With Smart Investments
You can also treat crypto like stocks and invest in cryptocurrencies that will likely go up in value over the long run. It’s best to stick with major coins like Bitcoin or Ethereum instead of altcoins with less stability. Ethereum, for example, has significant plans for the future with the planned release of Ethereum 2.0.
Unlike day trading, a long-term investment strategy doesn’t require daily or weekly trades. In the crypto community, it’s called “hodling.” Don’t sell high and buy low. Instead, hold on to your crypto until it reaches your target goal – then sell it and keep the profits.
3. Stake Your Tokens To Earn More
Cryptocurrencies that use a proof-of-stake protocol (POS) to validate transactions on the blockchain allow you to earn money through staking.
Stakers validate the network by putting “skin in the game.” The more validators there are, the more likely people are to be honest and avoid funny business because they have tokens they have locked away that can go down in value.
Not all cryptocurrencies use a proof-of-stake model. Bitcoin, for example, uses a proof-of-work validation system, which allows you to earn money through mining (more on that later).
Some assets that use POS include the upcoming version of Ethereum, Cardano, and Polkadot. In exchange for validating the network and keeping it running by staking your assets, you will earn rewards. For example, some stakeholders can earn up to 30% interest annually.
One of the downsides of staking is that you have to lock your crypto for a certain period, during which you can’t withdraw it, even if the asset goes down in value.
4. Use Defi, Cefi, or P2P Lending To Earn Interest
Another way to earn interest is by lending your crypto to people who need the money. The best way to do it is by finding a high-quality Defi (Decentralized Finance) exchange.
Defi exchanges don’t usually require KYC (Know Your Customer or ID verification). They also don’t have a centralized authority controlling the platform – it runs on its own based on preset rules and “smart contracts.” By lending through a Defi platform, you’ll earn interest based on the terms of the smart contract.
You can also lend through a Cefi (Centralized Finance) company by locking your crypto in a savings account in exchange for interest, but the company may limit your withdrawals.
A third option is P2P (Peer to Peer) lending. P2P loans allow you to set the terms of the contract, including interest rates. However, they are riskier, so it’s best to use a Defi platform instead.
5. Add Liquidity to the Pool and Become a Liquidity Provider
Another way to earn crypto passive income is by adding tokens to the liquidity pool. Any token requires stores of the token in the liquidity pool so people can freely exchange the token.
For example, in Defi, many tokens are paired against the BNB. Let’s say there’s a token called ABC. There would need to be enough ABC and BNB in the liquidity pool to facilitate BNB/ABC trades.
You can deposit your own BNB and ABC into the liquidity pool to become a liquidity provider. In exchange, you will earn ABC as a reward for helping the token stay active.
Being a liquidity provider is not the same as staking. Staking helps validate transactions on the network while adding liquidity doesn’t.
The risks are different as well. Both face the risk of the crypto losing value. However, providing liquidity comes with other risks, such as impermanent loss.
Generally, becoming a liquidity provider allows for greater earnings than staking. However, despite being popular in the world of Defi, many dishonest projects can quickly end up in the trash can, causing you to lose your money.
6. Join a Mining Pool With Cloud Mining
Networks like Bitcoin use proof-of-work instead of proof-of-stake to validate transactions on the blockchain. Miners use computing power to figure out mathematical puzzles and generate matching hashes.
When a miner validates a block, they receive rewards in the form of Bitcoin. That helps keep the network decentralized. Bitcoin isn’t the only cryptocurrency that uses POW. Bitcoin was, though, the first cryptocurrency, and POW was the original way of keeping a digital currency decentralized.
Since POW relies on computational power, miners started to pool their resources to create mining pools. A mining pool has more computational power and thus a greater likelihood of solving a puzzle and earning rewards distributed to all miners in the pool.
So, how can you join a mining pool if you don’t have significant computing power to offer the pool? The answer lies with cloud mining.
Cloud mining involves renting part of the computational power of the mining pool. You’ll have to pay rent, but you’ll get your share of the distributed rewards in exchange.
Remember that rewards can vary. During high traffic periods, fees go up – and those higher fees are distributed to miners in the form of larger dividends. You may not earn as much during periods of low traffic.
7. Sign Up for Airdrop Opportunities
Airdrops are rewards that token creators provide to token holders. They’re essentially incentives to buy and hold the token. For example, they may announce an airdrop of 500 tokens at a random time to anyone with at least 200,000 tokens in their wallet. Airdrops will automatically appear in your wallet.
Typically, the early holders of a token get the most airdrops. Investing in a token at its early stages allows you to qualify for unique airdrop opportunities. While the extra tokens might not be worth much at the time, they will be worth a lot more if the token’s value goes up in the future.
Sometimes, airdrops come in the form of raffles. For example, you can enter into an airdrop lottery by sharing news about the token on your Twitter feed. Every share on social media might qualify as one lottery ticket, though there may be a maximum number of lottery tickets any particular wallet can hold.
A selected number of people who entered the lottery will receive airdrops.
You can also earn free tokens by holding a coin that will have a fork. A fork is when certain currency holders decide it’s not heading in the right direction and want to change how the network works.
One of the most famous forks was the Bitcoin/Bitcoin Cash fork, the first hard fork of Bitcoin. Bitcoin Cash proponents wanted to increase Bitcoin’s block size, allowing more transactions to receive confirmation at once, thus speeding up transaction times.
Holders of Bitcoin then received Bitcoin Cash airdrops (equivalent to the amount of Bitcoin they currently had in their wallets) for free. So if you hear news of a fork of a token releasing a version 2.0, consider holding some original tokens so that you qualify for the new tokens.
8. Buy Tokenized Stocks
Tokenized stocks are shares in a company represented by tokens. Instead of offering a traditional stock offering, a startup might offer tokens instead. Ownership of these tokens may demonstrate ownership of company shares and may be subject to price fluctuation.
Many startups fundraise by offering ICOs, or Initial Coin Offerings. Investors look for startup projects that seem worthy of investment. They purchase tokens for cheap – before the product launches, these tokens are worthless. However, they are banking on the fact that once the project gains steam, the tokens will go up in value.
While ICOs are legal at the moment, their legal future is uncertain. Besides, many ICOs have turned out to be scams or projects with no real future.
It’s critical to avoid investing in any random project that comes your way because many so-called entrepreneurs are setting up pump-and-dump schemes – there is no real value to the projects.
So, how can you tell if an ICO is worth investing in? Here are some things to look at:
- Who are the founders? Never invest in an ICO that has anonymous or unknown founders. You should look at their LinkedIn profiles, and they should have a prosperous past in other startup ventures or at least a professional history that points to success.
- Look at the white paper. The white paper will lay out the goals of the project and the problems it comes to solve. It will also give you a plan for how the startup plans on doing it.
- Check the roadmap and the overall website. Contact the founders via email or social media and see how transparent and trustworthy they seem.
- See if any big crypto investors have given the project their backing.
9. Buy a Crypto ETF
Crypto ETFs are exchange-traded funds that track the price of cryptocurrencies (or cryptocurrency derivatives, like futures contracts). A Bitcoin ETF, for example, tracks the price of Bitcoin but doesn’t require you to hold actual Bitcoin in your wallet. That makes getting into crypto a lot easier for many investors.
Crypto ETFs may also track the price of several cryptocurrencies at once. As a result, these ETFs offer additional security because even if the price of one cryptocurrency goes down, the others might go up.
However, crypto ETFs that contain several cryptocurrencies don’t offer nearly as much security as regular stock market ETFs. That’s because the cryptocurrency industry as a whole is much more interconnected than the stock market.
That doesn’t mean that the stock market is without risk. In the event of a massive stock market crash, all of the stocks in an ETF will likely lose value. However, that’s much less likely to happen than simply one or a few of the stocks in the ETFs losing weight in stable market conditions.
However, almost all other cryptocurrencies usually follow suit if Bitcoin falls in price. The cryptocurrency industry is volatile, and it’s unlikely that a few cryptocurrencies – even big names like Litecoin – will be the exceptions if it crashes.
10. Join a Crypto Affiliate Program
A crypto affiliate program may pay you in fiat or cryptocurrency in exchange for referring a friend. For example, if you set up a blog or an email list that drives consistent traffic, you can earn passive income in the form of cryptocurrencies.
Alternatively, some companies or exchanges may give you a percentage of all trading fees of a friend you referred, allowing you to earn passive income by simply inviting friends or sharing your affiliate link on social media.
There you have it – 10 crypto passive income methods that actually work. You can increase your income by using more than one method. For example, you can invest long-term in major currencies while becoming a liquidity provider for altcoins.
Above all, invest wisely. Remember that cryptocurrency investing is risky, and the market experiences extreme volatility. Don’t forget to diversify your investments by also investing in stocks, bonds, real estate, etc.