We explain to you here how to make your investment in Bitcoin and Co. work even if you do not want to do day trading. Because zero interest as with bank deposits in euros must now really be.
Among crypto investors, HODL is a popular strategy, i.e. to simply hold balances in Bitcoin (BTC), for example, on a wallet and wait for medium- and long-term value growth. But the crypto industry has grown up and there are at least five alternative methods to generate passive income. Find out how it works and what to consider here. Let’s start with:
1. staking with proof-of-stake (PoS). Recent cryptocurrencies from Cardano (ADA) to Solana (SOL) predominantly use PoS as a protocol in their blockchains. Behind this is the fact that miners no longer write transactions validly as with the Proof-of-Work (PoW) protocol, but rather randomly selected network points. This makes such blockchains more energy-efficient and faster. However, the staking process in the background usually requires technological knowledge. This is where staking comes into play as a service and your profit opportunity. On crypto exchanges such as Binance, FTX or via links with ledger hardware wallets, you can place suitable coins in staking polls.
There, you usually invest them for predefined periods of time and in return receive a fair share of the bonuses that the staking pools receive for their work in the network. The foreseeable revenues even for popular altcoins like Binance Coin (BNB) or Polkadot (DOT) quickly go in the direction of ten percent targeted annual interest and more. Paid out this interest is usually in the particular cryptocurrency that you have provided for Staking. As long as you have the staking done by a reputable provider, the risk is close to zero, but the extra income is impressive over longer periods of time.
2. interest through deposits at BlockFi and Co. The crypto industry now has a number of established providers that issue hand-checked loans in Bitcoin, for example, but also rely on deposits to do so. Herein lies your access to guaranteed interest even for coins with PoW as protocol. BlockFi is probably the best-known service of this kind, but we also know Nexo and Celsius Network to be reputable. Depending on the coin, from 4 to more than 10 percent annual interest is realistic here. Again, it is important to check the security measures and the reputation of the provider, because for this method you temporarily give up control over your Coins to the crypto financial service provider.
3. lending, or loan transactions. These are offered by centralized crypto exchanges as a service, but also in the decentralized finance (DeFi) sector. In the latter, smart contracts take over the organization of the deal. You lend your coins directly, if necessary; such loans are in demand, for example, from traders who engage in intensive margin trading (trading with leverage). When lending, assume targeted annual interest rates of 4 percent and more and make sure that the conditions are clearly defined. For Lending in margin trading, for example, it is important that borrowers agree to liquidate positions when the risk potential is exhausted. Binance and FTX in particular are the reputable providers here.
4. tokens that automatically pay dividends. Altcoins such as KuCoin (KCS) sometimes have embedded in their concept to automatically reward HODLers. To do this, for example, they distribute fee income from their ecosystem to everyone who holds the underlying token. KuCoin, for example, is targeting around 10 percent APR in this concept in late fall 2021.
5. Yield Farming is based in the DeFi division and rewards you for providing liquidity. When Yield Farming became popular from 2019, the procedure was mostly still complicated and required the individual to think along. Now, however, the procedures are much more user-friendly with decentralized crypto exchanges Uniswap or PancakeSwap, as well as protocols like Curve or AAVE. What Binance offers under Liquid Swap and Dual Investment, respectively, is basically Yield Farming as well. Yield farming comes with some risk because you have to rely on the providers to have their strategies cleanly programmed and executed. In the traditional financial world, yield farming would be most comparable to mutual funds. However, for the willingness to take risks, realistic annual interest rates of 20 percent and more beckon.
(6.) Mining, also cloud mining. We have already explained several times why Bitcoin mining is not profitable at German electricity prices, just like Ethereum mining. However, there are also providers that promise returns through cloud mining. Here, you rent shares in a mining pool and are supposed to receive revenue for it. However, there are many black sheep in cloud mining and therefore we do not recommend this method at the moment.
Conclusion: Passive income with crypto is not magic.
The methods we’ve described for generating interest from your crypto assets are all chosen to do little to no work for you. All you really need to do is choose a provider that has rightly earned trust. Then you are taking very low risk with Staking, Lending and Dividend Tokens, Yield Farming means a bit more venture in concept. We do not recommend cloud mining at the moment, and if you have to pay German electricity prices, you can also cross mining off the list. However, as pointed out, there remain enough ways to earn carefree passive income from your crypto assets. Simply HODL is no longer appropriate for the smart investor in 2021.
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