Passive ways to make money on cryptocurrency

At the moment, the cryptocurrency market has a wide range of passive income methods. If you are the owner of Bitcoins or other coins, you probably wondered about the available passive options for increasing capital.

• Profitability. The modern banking system cannot boast of high-interest rates on deposits. Moreover, the interest rate is sometimes negative; you pay the bank interest.

Cryptocurrencies look much more attractive in terms of long-term investment despite the strong volatility. Periods of depreciation are more than offset by a period of growth due to its deflationary nature and growing popularity as a store of value. Not all cryptocurrencies have this quality, but mainly Bitcoin.

• Risks are directly related to profitability; the higher the expected profitability, the higher the risks. These are mutually exclusive criteria. That is, if the risks are acceptable for a particular method taken, then the profitability will not please you.

In any case, passive crypto investing methods are an addition to investments, so it is better to prefer those methods that involve minimal risk. It is important to understand that you cannot do without risks. Even if the interest income is guaranteed (like deposits in banks), this does not entirely exclude the possibility of losing funds.

Therefore, the optimal way out is to distribute assets, choose several available crypto investing methods, and diversify the investment portfolio.

Crypto investing in deposits

Crypto exchanges strive for as many users as possible to deposit their funds with them. This allows exchanges to increase liquidity and use cryptocurrency for other purposes.

There is the possibility of crypto investing funds on account of deposits with a fixed or floating interest rate to the standard deposit of funds to the account. In return, users receive a part of the crypto exchange’s income; the principle is the same as that of banks.

The yield is constantly changing for deposits with a floating rate and is both higher and lower than deposits with a fixed rate. The latter has one nuance, interest is charged only after the end of the selected period, but the longer the period, the higher the yield.

Crypto investing in a lending

Lending is when some traders transfer assets to others for trading in return for receiving collateral that covers the loan and interest. Borrowers are free to use funds for any purpose, not just for trading.

There are centralized lending platforms and decentralized ones.

• Decentralized financial platforms (DeFi) are considered more secure, but their interest rates are lower than those of centralized ones. DeFi can be used profitably to take out cheap loans and then provide them at higher centralized sites. But consider the risks if the rate of the borrowed cryptocurrency drops significantly, then the collateral may be canceled.
• Lending is no less simple but more profitable than deposits. However, the difference is that interest rates are not fixed but depend on the balance of supply and demand.

Crypto investing in farming tokens

Farming is a new form of crypto investing in cryptocurrency that came from DeFi.

Liquidity mining means that investors act as liquidity providers (LP); they provide liquidity to the platforms and earn on spreads and commissions on exchanges.

As with loans, the profitability of crypto investing varies depending on the total volume of the liquidity pool. At first, when the sites just started to gain popularity, the profitability exceeded 100% per year. But later, as the number of users grew, it fell to 5% – 20% per annum.

The farming process practically does not differ from lending, but with one caveat, not a separate cryptocurrency is added to the liquidity pool, but a pair. For example, ETH and USDT, therefore, both cryptocurrencies must be on the wallet balance.

It should be remembered that farming also has its drawbacks. For example, an incorrectly drawn-up smart contract lends itself to hacking, not only in theory but also in practice. There have already been such precedents, but large well-known platforms are quite reliable. Therefore, be wary of the new DeFi platform offering very high-interest rates.

Select only platforms that have passed a comprehensive security audit to minimize risks.

Crypto investing in staking

Staking is an energy-efficient alternative to mining. Coin holders do not need to buy and configure expensive mining equipment; they just need to buy a cryptocurrency.

For this, the holders receive from the network a reward of up to 36% per annum. This approach encourages investors to keep cryptocurrency as long as possible, which positively affects the dynamics of the exchange rate.

You can stake cryptocurrency in two ways by launching your node or by delegating coins to validators.

• The first method requires technical knowledge and is suitable only for those with a large amount of money for crypto investing. But in this way, you can increase profitability because other participants can vote for your node.
• The second way is delegation. You do not need to install a node; it is enough to replenish the crypto wallet and delegate coins to the network validators. But in this case, you will have to pay a small commission on the profit, and the income will be accrued automatically.

Crypto investing in staking is supported by several exchanges, such as Binance. Moreover, the profitability may be even higher since such platforms have low commissions. But keep in mind that funds will not be completely safe on centralized sites.

Minuses:

• The percentage of profitability is variable. The more holders in the coin, the lower the percentage of the profit of each of them. Besides, coins offer different staking percentages, sometimes even less than 3% per annum.
• It is necessary to carefully choose a validator because if it is idle, penalties will be charged, and the holders will not receive the expected income.
• PoS cryptocurrencies have an unstake period during which there is no opportunity to use the cryptocurrency without losing profit. This is done to ensure that the functioning and security of the network is at a high level and keep investors from panic selling when the rate falls, and encourage holding coins for a long time.

Passive methods of crypto investing can increase the profitability of investments or at least partially compensate for losses in the event of a force majeure situation.

But if there is a desire to increase profitability and at the same time you are ready to take on increased risks, it makes sense to try yourself in crypto trading. Experienced traders, as well as beginners, use crypto signals in order not to miss a profitable deal and minimize risks.

Experienced traders earn on average over 20% per month and sometimes even per day. But before that happens, you need to study a lot of information and check the exchange on which you plan to work. Crypto signals help a lot, but earnings depend only on the trader himself.