Passive income from cryptocurrency: 3 main ways

Buying and selling digital assets is not the only way to make money on the crypto market. Experts explained how to diversify portfolio and get more profit

Over the past month bitcoin has risen in price 1.5 times. The cost of the first cryptocurrency in the morning of August 23 for the first time since mid-May exceeded $50 thousand. Investors who bought bitcoin at $30 thousand per coin in May, June and July, have already managed to get almost 67% of the profit. But buying cryptocurrency isn’t the only way to generate income from digital assets.

Passive income from cryptocurrency: 3 main ways

Lending

Lending is a method of passive income that involves temporarily lending cryptocurrency for interest. A crypto investor lends either to exchanges (and they increase liquidity by doing so) or to individuals. The transferred funds are blocked in a smart contract.

For example, on the largest cryptocurrency exchange by trading volume, Binance, there are two types of lending:

Perpetual contract. It has a low interest rate, but funds can be withdrawn or added to such a contract at any time;

Fixed contract. Usually set for a certain period of time (10, 15, 30 days, etc.). It has a higher interest rate. Funds from such a contract cannot be withdrawn before its expiration.

Binance users have the opportunity to invest cryptocurrency in a perpetual contract using USDT Stablecoins. The interest rate on such a deposit will be 1.2% per annum. A higher interest rate of 3.3% p.a. is available for the perpetual contract of token 1Inch.

The Axie Infinity (AXS) fixed token contract offers 15% per annum. But funds invested in the contract will not be available for 14 days. On the decentralized BlockFI platform, a perpetual USDT Stablecoin Lending Contract is available at 9.3% APR. Lending platform Celsius provides a fixed contract in Ethereum at 5.3%.

Stacking

Stacking is a method of passive earning in which users store coins on the Proof of Stake (PoS) algorithm, ensuring that the blockchain works. This gives the holders the right to profit. This feature is only available to cryptocurrencies that run on PoS, such as EOS, Tezos, TRON and Cosmos.

The point of stacking is to ensure all transactions on the blockchain and keep the network running. Digital coin holders are rewarded for this. The more tokens a holder has, the more likely they are to become the creator of a new blockchain.

The use of stacking depends on the investor’s strategy, explained Nikita Zuborev, senior analyst at Bestchange.ru. According to him, if a holder of an asset is willing to put up with the inability to sell it over a long period of time, then stacking becomes an additional source of income.

“In the medium- and long-term strategies, you can get additional funds for your open positions, which looks very interesting against the background of the traditional financial market. Such a strategy turns the purchase of altcoins into an alternative to bonds, with their accumulated coupon income”, said the analyst.

Zuborev estimates that stacking can yield 3% to 15% annually. The most promising for stacking are tokens with a medium-term tendency to exchange rate growth, otherwise an additional issue of coins will not even help to cover the exchange rate difference, the expert says. Therefore, first of all, you should pay attention not to the stacking percentage, but to the stability of the growth trend of the token value, he added.

The most interesting tokens for stacking may become: EOS (EOS), Stellar (XLM), Cardano (ADA), TRON (TRX) and Tezos (XTZ), believes Zuborev.

“Stacking can be called a full-fledged alternative to bank deposits or bonds. This is a conservative tool, which in some strategies allows to reduce risks”,Β – the analyst stressed.

According to him, the risk depends on the choice of asset class and the type of blocking funds. For example, stacking volatile altcoins with a fixed long-term lock-up will have the maximum risk, while stacking stackablecoins with a flexible lock-up will have the minimum risk, the expert added.

EOS stacking is available on the Binance exchange for 30, 60 and 90 days. Stacking yields are 4.2%, 4.6% and 6.1%, respectively. Crypto exchange Huobi Global offers TRON (TRX) stacking at 7% p.a. On Coinbase, Cosmos Stacking (ATOM) is available with an interest rate of 5% p.a.

CryptoFunds

If an investor has no experience with crypto-assets but wants to start earning from them, the best solution is to use cryptocurrency funds, says Maria Stankevich, development director of EXMO crypto exchange. According to her, when working with the fund, the key risks are stipulated in advance and the investor can be more secure for his funds than if he buys the cryptocurrency himself.

“An interesting fact is that if a rookie client says he is ready to take maximum risk and wants super profits, he is always offered a low-risk or medium-risk strategy, because such clients usually do not realize the full danger of high risks”, the expert explained.

The most promising cryptocurrency funds are considered Pantera Capital, Bitcoin Investments Trust and Blockchain Capital, Stankevich said, but they are more focused on large investors. For retail investors, there are also funds with a good reputation, the expert added.

When choosing a crypto fund, Stankevich recommends studying its reputation in the market and operating history to protect yourself from fraudsters.

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