Passive income with cryptocurrencies

In the early days of cryptocurrencies, the primary avenues for revenue were through mining, investing, and active trading. Passive income streams were limited, with long-term trading and mining (given the maintenance of equipment) being the main contenders. But 2023 paints a different picture. As the crypto sphere has evolved, fintech firms have broadened their offerings, introducing a myriad of passive income possibilities for cryptocurrency enthusiasts.

While cloud mining, conventional mining, and investing are all passive income strategies in the crypto domain, this article sidesteps them. The rationale? Current market conditions render cloud mining less profitable, often leading to potential losses without significant price surges. Traditional cryptocurrency mining, meanwhile, demands substantial capital. Instead, our focus will pivot to approaches accessible to most novices, where the entry barrier might be as low as $100.

However, a word of caution is imperative: cryptocurrency investments are inherently volatile. They come with no guaranteed returns and can result in potential capital loss. It's prudent to allocate only what you're prepared to part with. The strategies outlined here cater to those already versed in the crypto milieu or viewing cryptocurrency not just as a static asset but as a dynamic source of potential revenue. With that in mind, let's delve into how crypto investors can harness these newer avenues for additional passive earnings in 2023.

Types of passive income with crypto

The crypto industry suggests many income-generating options, and fintech companies offer various services to attract new customers. Passive earnings with cryptocurrencies can be divided into two major categories: the one with a fixed rate and the one with a variable rate. The advantage of passive income is low risks compared to trading, mining, and other popular methods of cryptocurrency earnings.

P2P Lending & Crypto Loans

Lending is widely used by traders to leverage their positions. Previously brokers used to credit clients, but crypto exchanges introduced another solution. Now traders can borrow your cryptocurrency, and you receive interest in return. At the same time, crypto exchanges do not bear the risks caused by the volatility of the crypto assets, and the income comes from fees. We have covered this method in one of our previous articles; therefore, we will not dive into details of this subject but will only briefly describe this process.

Crypto exchanges set a fixed interest rate, which varies on average from 2% to 4% per annum. The main benefit of the method is that interest is accrued on a daily or weekly basis. Therefore, the actual return will be higher due to the compounding returns.

Crypto loans operate similarly to lending except for one factor: lending is available on crypto exchanges and is only intended for trading, while crypto loans are open to a wide range of users. Another difference is profitability. Crypto loans allow one to receive up to 8% – 12% per annum.

Popular cryptocurrency exchanges providing P2P lending:

• Binance;
• Poloniex;
• Gate.io.

Crypto loans services:

• Nexo;
• BlockFi;
• CoinLoan;
• Celsius.network.

DeFi lending is a new type of credit provided by DeFi platforms. Such operations are called flash loans. Interest rates are significantly lower due to the absence of risks and intermediaries and range between 0% and 0.55%. All transactions are performed by the atomic protocol and are fully automated. DeFi-platforms where one can issue flash loans:

• Aave;
• Maker;
• Compound;
• EOSREX.

Lifehack: the difference in interest rates opens up arbitrage opportunities. For example, one can borrow ETH at the Aave platform at 0.55% and lend it on NEXO at 8%, or open a deposit on the Binance exchange at 4% or in the Crypto.com wallet at 6% per annum.

Cryptocurrency deposits

There is no major difference between lending and deposits, except that with the latter, users lend crypto to the platform, not to other traders. The process is similar to banking: platforms accept deposits and offer loans to other users at a higher interest rate. On average, platforms offer between 4% and 12% per annum, depending on the service and the selected cryptocurrency.

Exchanges that offer interest on cryptocurrency deposit:

• Binance;
• Crypto.com;
• Yobit;
• Freebitco.in;
• Cointiply.

The last two services are cryptocurrency platforms that allow you to earn free coins after a certain time. Freebitco.in offers 4.08% per annum with a minimum deposit amount of 0.0003 BTC, and Cointiply offers 5% with a minimum deposit amount of 0.00035 BTC.

Yobit is a popular cryptocurrency exchange from the CIS that provides an attractive service called “Investbox.” Users can deposit coins and receive profits starting from 0.1% per day. The exchange guarantees that this method is neither hype nor a financial pyramid. All payments are generated from a special pool, replenished at the expense of fees and DICE profits. If the pool is depleted, users are able to withdraw their coins with accrued interest at any time. The minimum profit is 36.5% per annum and may reach 44% if compound interest is taken into account. The maximum profit may exceed 10% per day.

The only drawback of the Yobit InvestBox is that popular cryptocurrencies such as BTC, ETH, DOGE, or WAVES are not often found there. At the same time, many coins that can be added to an InvestBox offering a higher interest rate have low liquidity, so the profits may not always cover losses from a drop in their value. Investment boxes are periodically replenished with Bitcoin and top altcoins as part of promotions to attract customers and increase trading activity.

Trading bots and social trading

In traditional stock and forex markets, services that employ trading bots or allow for signal subscriptions have been around for a while. With the evolution of the crypto space in 2023, these functionalities are now accessible via crypto-exchange APIs. These permit trading bots or human traders to interface with the trading account of a client who's opted into signal subscriptions or activated the auto-follow feature. Typically, the trader or bot might levy a profit percentage or a subscription fee. While free bots are in circulation, their efficacy can be questionable, occasionally leading to fund losses, although there are a handful that report profitability.

It's crucial to understand that these traders and bots don't possess the authority to withdraw your deposit. Their scope is limited to trading with your existing position. However, the importance of selecting a reputable service cannot be overstated, given that certain bots, through API misuse, could engage in unfavorable selling activities. Such actions could see your assets offloaded at suboptimal prices on exchanges. This underscores the inherent risks tied to automated trading bots. It's also imperative to assess bot performance data and evaluate associated graphs. If you notice consistent deposit growth interrupted by sharp downturns, it's indicative of the Martingale strategy in use. While this technique can yield returns ranging from 100% to 200%, it's not sustainable in the long haul and can drain deposits. A more balanced approach would be to opt for accounts showcasing organic growth coupled with periodic corrections. Although this might translate to lesser profitability, it also ensures moderated risks.

One of the standout platforms in the realm of auto trading in 2023 is 3Commas. Esteemed for its efficacy, it offers users a trial period, empowering them to gauge strategy effectiveness, even with minimal deposit allocations.

Staking

PoS-mining and DPoS have replaced the outdated and inefficient PoW-mining, known for its high electricity and mining equipment expenses. To start staking, you need to set up a node, reserve tokens, and launch the software. It may take several thousand dollars to set up your own node. However, some platforms have launched their nodes (pools), and offer to stake your coins for you in exchange for certain profits. This way, you may receive benefits while investing a minimal amount. The platforms will charge a fee for services, usually up to 10%. With staking, you can passively earn from 1% to 20% per annum in cryptocurrency.

Cryptocurrencies that work on the PoS and DPoS consensus algorithms:

• Tezos;
• TRON;
• EOS;
• MCO;
• CRO;
• ALGO;
• ONE;
• Vechain;
• ONT, and many others.

Ethereum developers have recently launched the Ethereum 2.0 testnet, which is already available for testing. After the successful implementation of the new network, Ethereum will switch to the PoS concept. Therefore, ETH will soon be added to the list of coins that support staking.

So, to participate in staking, you need to choose a platform and replenish the pool with tokens. Here are the ways to stake coins and earn passive income:

Through staking providers (validators)

They can be found using the block explorers of the selected coin. To do so, it is required to install a cryptocurrency wallet, replenish it and vote for the chosen validator, i.e., delegate your coins. Supported wallets can be found on the project’s official website. Usually, one can get their coins back no earlier than a few days after delegation. The freezing period can be anywhere between 3 and 30 days, depending on the staked cryptocurrency.

Through crypto wallets

There are crypto wallets that support staking. All you need to do is deposit cryptocurrency and activate the service. Coins will be reserved for the duration of the procedure. Here are some wallets that support PoS:

• Hardware wallets by Ledger;
• Crypto.com;
• Cobo;
• Trust Wallet (by Binance).

Through crypto exchanges

Many cryptocurrency exchanges support this service. When you make a deposit or buy tokens on the exchange, they are stored on exchange wallets at all times. Exchanges profit from staking and pay the bulk of the revenue to users, transferring interest to their balance. Unlike previous methods, coins can be withdrawn at any time.

Conclusion

The modern crypto space is rich in passive income opportunities. Some involve large initial investments, while others allow you to receive passive income from the start. It is also worth considering that for passive earnings in DeFi, one requires basic knowledge of how these tools operate.