Cryptocurrencies like Bitcoin have proven to be one of the best investment vehicles over the past decade. However, many do not know that there are other ways to make passive income from these assets beyond simply buying cryptocurrency and trading it.
Such an approach especially comes in handy if you are someone who doesn’t have so much time and simply wants to invest and let your money work for you. With that in mind, this article will highlight major ways anyone can make money from cryptocurrency without spending so much time on it.
Four Ways to Make Passive Income with Cryptocurrency
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Passive Investing
Passive investing is perhaps the simplest approach for anyone seeking exposure to these assets. As the name suggests, it implies buying and holding cryptocurrency for a relatively long time before cashing in. This method means that you do not regularly check market prices or are looking to make a profit at the earliest opportunity.
One of the most newly found ways to passively invest in crypto is through exchange-traded funds ETFs (ETFs). Cryptocurrency-based exchange-traded funds (ETFs) such as Bitcoin ETFs track cryptocurrencies’ price performance by investing in their crypto-documented portfolio.
Like other funds, crypto ETFs trade on regular stock exchanges, and investors can secure them in their brokerage accounts. After about a decade of wrangling with regulatory procedures, the Securities and Exchange Commission (SEC), under pressure from a 2023 D.C. Circuit Court of Appeals ruling, authorized the first crypto ETFs in early 2024. These funds have amassed over $120 billion in investor capital in less than a year.
Crypto ETFs allow retail traders to gain first-hand exposure to crypto prices without owning the assets directly. This makes it possible to make speculations on cryptocurrency prices without engaging in business on a crypto exchange or dealing with the costs and complexities of directly owning digital assets.
If one is not interested in investing via an ETF, one can opt to purchase and store away cryptocurrencies as a long-term investment strategy.
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Mining
Crypto mining is the process of generating, verifying, and recording crypto transactions using a blockchain network, such as Bitcoin or Litecoin. Miners use powerful computers to solve complex math questions and puzzles that help to validate transactions on a blockchain network, secure the networks, and ensure that the same transaction isn’t spent twice.
Interestingly, mining was one of the earliest ways for people to make passive income from cryptocurrencies. At that time, anyone could install the Bitcoin software on the computer and become a miner, earning as much as 50 BTC for each verified transaction block. This rate has dropped over time, in line with Bitcoin’s pre-programmed halving every four years.
However, fast-forward to the present, mining has largely become an industrial venture, with some of the world’s biggest mining companies valued at billions of dollars.
Still, anyone with the required capital can set up a Bitcoin mining farm as a channel to earn passive income with cryptocurrency. Bitcoin mining machines cost between $3,000 to $15,000, depending on the manufacturer, hashrate, and efficiency.
This would require sufficient research to get started; however, once it is up and running, a home Bitcoin mining operation may not require much time to manage and can safely be considered a passive investment method.
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Staking
Staking cryptocurrencies is another way to make passive income from cryptocurrency. Interestingly, staking is a lot similar to mining since it involves being rewarded for helping other users confirm transactions on the network. Yet, the major difference is that staking does not require expensive hardware or large physical setups.
Instead, the way staking works is that you lock your cryptocurrency on a blockchain network, either as a validator or as a network participant simply backing a validator. If you want to lock your assets as a validator, you will get more rewards but will have a more sophisticated computer setup and spend more time updating software and implementing any new network changes.
However, if you lock your assets as a network participant, the validator takes care of the entire process and only takes a percentage of the returns as staking fees. Some popular blockchain networks that support staking are Ethereum, Solana, BNB Chain, Avalanche, etc.
The Ethereum network has over 33.6M ETH ($112 billion) in staked assets, proving that this is one of the most adopted methods investors use to earn passive income from cryptocurrencies.
(Source: Beaconchai.in)
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Crypto Lending
Crypto lending is another tested and trusted way of making passive income from cryptocurrencies. It is often as simple as depositing your cryptocurrency asset on a crypto-lending platform.
In this case, the cryptocurrency is lent out to borrowers in return for regular interest payments. These payments are made in the form of the deposited cryptocurrency, typically accrued daily, weekly, or monthly.
Cryptocurrency lending platforms offer a range of options for investors to borrow against deposited crypto assets and the ability to lend out crypto to earn interest in the form of crypto benefits. On some platforms, you can earn up to 5% for Bitcoin (BTC) deposits and around 10% for stablecoins like Tether (USDT). The rate may also fluctuate based on market demand.
Crypto lending has two major components: deposits that yield interest and loans from cryptocurrency. Deposit accounts operate typically like bank accounts. Users deposit cryptocurrency, and interest is accrued from the lending platform. The platform can use deposited funds to lend to borrowers for other investment purposes.
Crypto loans are typically offered as collateralized lending products, ensuring users deposit a minimum of 100% (up to 150%, depending on the lender) in crypto collateral to borrow cash or cryptocurrency.
Like bank loans, the interest rates vary by platform and require monthly payments. Unlike traditional loans, the loan terms for cryptocurrency can be as short as seven days but may go up to 180 days. They might even charge an hourly interest rate. Then, some lenders offer an indefinite line of credit instead.
It is worth noting that cryptocurrency lending has its risks, as evidenced by the 2022 wipeout of many cryptocurrency exchanges and lending platforms. The risk stems from the fact that investors may not know if the lender, under the hood, issues some uncollateralized loans to customers. If these customers default on their loans, investors might lose their funds.
A possible way to guard against this is to lend on only reputable and time-tested platforms. Some platforms also offer a periodic proof-of-reserves (PoR) audit, affirming that user assets are still in their possession as required.
Conclusion
Passive investing in cryptocurrencies is possible if done correctly. It is also noteworthy that aside from mining, the other methods outlined in this article are not capital-intensive and can be started with as little as $10.
You may choose to increase your exposure as you get more comfortable with your passive investment approach. In the end, you may build a solid investment portfolio, one that allows you to fully tap into the endless profit-making opportunities in the cryptocurrency space.