How to Make Passive Income from Cryptocurrency
Passive income in business is described as money that accrues to you even when doing other activities. For instance, most people make money by getting a 9-5 job and going to work. The hours worked translate into money earned, which is active income.
On the other hand, when you create a business like a tech startup or a venture, you start to make passive income since you’ve created value for others. In the crypto markets, passive income is mostly made by placing your money in a cryptocurrency and allowing it to accumulate in value.
Most people describe this as spot trading. However, the issue with this type of passive income strategy is that it could make you lose money. This article will outline ways to make passive income from crypto, its benefits, and disadvantages.
|You can earn passive income with cryptocurrency by leveraging airdrops, dividend-bearing tokens, affiliate programs, crypto lending, crypto-savings account, cloud mining, staking, and liquidity pools.
Eight Methods of Earning Passive Income from Digital Currency
Here are eight methods to earn passive income with crypto:
Staking is an easy way to earn passive income in the cryptocurrency market. With a few clicks, you can stake your coins for a certain period to earn interest on the amount staked.
Crypto staking for passive income can give you up to a 17% increase in your staking amount per annum. Nevertheless, these returns depend on the crypto exchange platform you’re staking on. If your coins or tokens are on a wallet or exchange that doesn’t offer staking, move them to one that does.
You need to note that not all digital currencies can be staked. For example, Bitcoin cannot be staked because it utilizes Proof-of-Work technology. Some forms of staking also carry risks, like the ones where the amount staked gets locked.
Another way to make passive income is to place your crypto in an interest-bearing account. Crypto lending for passive income works by accruing your savings through lending for a platform. You don’t need to worry about that part since the platform takes care of it.
Stablecoins are valued higher than traditional coins and tokens and, thus, accrue a higher interest. To find crypto-lending platforms, you can check Defi apps.
Yield Farming and Liquidity Pools
Decentralized exchanges often offer liquidity pools for investors. To place your tokens into the pool, you’ll need a wallet. Liquidity pools work by creating liquidity tokens that can be placed on farms to produce rewards. Yield farming for passive income can give as high as 100% returns on investment.
Crypto Savings Accounts
Some centralized exchanges and crypto products offer interest when you save your crypto with them. The process is very similar to that of the conventional savings account in a bank.
When you place your money in a crypto savings account, the platform will use the funds as they see fit. The returns on their investment will then be accrued to you as interest.
When Bitcoin came onto the scene in 2008, the major way most people got their hands on this new digital currency was to mine them. Since then, crypto mining has become one of the best ways to earn passive income.
Crypto mining for passive income practically involves using computational resources to solve complex mathematical equations and get rewarded in cryptocurrency. Mining companies like Genesis Mining in Iceland, Bitfury in Amsterdam, and GigaWatt in Washington are solely focused on virtual currency mining activities.
About 10% of Bitcoin miners control 90% of the mining capacity.
However, there are cons associated with earning income while mining cryptocurrency in a conventional way. First, you have to purchase costly hardware that runs into thousands of dollars. Some of the best Bitcoin mining hardware costs somewhere in the range of $1,000 to $4,000.
After paying this huge initial cost for the mining hardware, you’ll then have to make regular payments for the electricity used in mining the coins.
With the emergence of cloud mining, investors don’t have to pay through their noses to engage in crypto mining. Additionally, cloud mining eliminates the technical expertise miners typically require to engage in the activity. Thus, a wider range of crypto enthusiasts can now mine on the cloud and get passive income.
When you want to earn money through cloud mining, you’ll have to make periodic monthly or yearly payments to lease the mining resources. After you’ve paid for this, the mining service will mine the crypto with the resources you’ve leased, and you get a percentage of the coins mined.
If you’ve ever invested in the stock market, you’ll know that after the end of a company’s financial year, they pay out dividends. The size of dividends you get from the company depends on the number of shares you hold.
Dividend-paying cryptocurrencies operate just like shares in the stock market. The token’s consensus mechanism would have been programmed to pay periodic dividends.
VeChain (VET), which is the 38th largest cryptocurrency by market cap as of the time of writing, pays out dividends to holders of its token. The users aren’t given more VET tokens. Instead, they receive dividends in the form of another token called Thor. Like the traditional stock market, the number of Thor tokens you get depends on the size of VET you hold.
KuCoin Shares are another type of dividend-earning cryptocurrency. However, its holders get paid depending on the value of the transaction charges earned by the popular KuCoin exchange. The dividends earned come from 50% of KuCoin’s daily trading fee.
The percentage of the transaction fees earned is proportional to the number of KuCoin shares you hold.
Affiliate and Referral Programs
Firms have used affiliate marketers to earn more revenue by attracting a bigger customer base. Unlike other forms of marketing where there’s the risk of not getting returns, affiliate marketing ensures you get value for your investment. An affiliate marketer can only get paid when they’ve already made a sale.
With the rise of the internet, it has become easier for anyone to engage in affiliate marketing. Some different crypto exchanges and platforms offer affiliate programs. If you have an account on these platforms, you can get a unique affiliate link and then earn rewards depending on who signs up or takes action through your link.
The best way to earn passive income as an affiliate marketer is if you have an extensive network of people that regard you as an authority in a specific niche. That’s why bloggers and social media influencers make up the bulk of affiliate marketers. Some platforms that offer crypto affiliate marketing programs include Binance and CoinLedger.
If you’ve been active in the crypto space for at least three years, you would likely have been the beneficiary of a crypto airdrop program at least once. An airdrop is the distribution of a protocol’s tokens to users engaged in the program.
To receive airdrops for passive income in crypto, you’ll have to take a specific action to qualify. All you’d have to do after that is wait and get the tokens into your wallet.
Benefits of Earning Passive Income from Cryptocurrency
Simple Way to Earn Passive Income
When you delve into these cryptocurrency investing opportunities, your income can increase exponentially without you putting in any effort. The advantage is that you can focus on other things while earning passive income.
Passive methods to earn cryptocurrency are significantly less time-consuming than spot or perpetual futures trading.
Risk Reduction During Crypto Downtrends
The crypto space is no stranger to bear markets since it happens at least once every three years. Many investors lose money during a sharp downturn in the general cryptocurrency market.
Nevertheless, investors that earn passive income can counterbalance these losses with the rewards they’ve gained.
Disadvantages of Passive Income from Cryptocurrency
Investing in a Scam
The cryptocurrency space is still largely plagued by scams and fraud. Thus, there’s a risk of investing money into a fraudulent venture. If you want to earn passive income from cryptocurrency, you must do a ton of research about the venture.
Platforms Going Insolvent
Most bear markets in the crypto world come with platforms going insolvent and unable to give creditors returns. For instance, the Celsius Network and Three Arrows Capital ventures got liquidated in 2022, leading to a $25 billion drop in the DeFi market. Both companies still haven’t been able to pay clients back.
Rapid Development in the Crypto Industry
The crypto industry follows a new trend more rapidly than other markets. A new sub-sector like DeFi could emerge, a buzzing new coin could appear, and even the interest rate could experience high volatility.
In the midst of all these, existing cryptocurrencies have to maintain their value to remain relevant. Compared to the conventional finance world, where passive investments are largely predictable, crypto’s passive investments mandate a level of active participation.
Passive income is money you earn even while doing nothing. To earn passive income in the digital currency space, you can utilize the methods outlined. You can engage in staking, yield farming, or place your money on crypto lending platforms.
Other forms of cryptocurrency investing for passive income include dividend-earning cryptocurrencies, interest-bearing accounts, airdrops, and affiliate programs.
Did you learn something new? Which of these methods do you prefer? Do you have any experience in investing in cryptocurrencies? Did it yield returns? Share your opinion in the comments.