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Lesser-known Ways to Earn Passive Income from Crypto
The crypto space is often regarded as a hectic environment. This is because cryptocurrencies and blockchain are still coming-of-age industries with much trial and error. However, what is lesser known to outsiders is the variety of simple passive income opportunities available in the space. Outlined below are different ways of earning passive income through crypto:
Dividends, Buybacks, and Coin Burns
Some coins give returns to their owners just for HODLing them. The mechanics behind this can differ from blockchain to blockchain, be it dividends, buybacks, or coin burns, but the desired result is always the same: return on investment. The returns can be paid either in the coin itself or in a different token running on the identical blockchain, like how Ethereum uses Gas for its network fees.
Dividends in the crypto space work similarly to those in the traditional financial sector, and in fact, buybacks and coin burns are not too different either. The principle is the same: give a return to the holder of the particular asset. Dividends payout interest rates. Conversely, some exchanges employ a buyback and burn mechanism where the blockchain buys back their native coins from the open market, increasing the price.
With this form of passive income, returns depend on two main factors: the interest earned and the price volatility. Naturally, the higher the dividend rate or buyback %, the higher the return for the user, but it can all be if the coin is too volatile and drops. Pay attention to the asset price versus USD so that the returns are not lost in real terms. Apart from this, this passive income only requires a little work beyond buying and storing coins.
Passive Index Funds
An Index fund tracks the performance of a basket of assets, typically of a representative portion of an industry. This investment suits those who want to benefit from the market’s long-term “fundamental” growth curve without sitting at the computer the whole time. These funds have become quite accessible in recent years as more and more organizations saw the value in offering risk-minimized exposure to the crypto market.
Though there is one caveat to cryptocurrency-based index funds, the crypto industry needs time to mature. Many projects died since the last major market cycle ended in January 2018, leading many to lose their investments. Therefore, it is essential to keep an eye on the progress of each asset. Of course, paying for actively managed funds is possible, but these tend to be more expensive.
In times of market downturns, it could require a bit of willpower to stay in the game, but those who are patient will be rewarded. For reference, the crypto market cap is currently sitting at $200 million, down 76% from its previous all-time high, and if it is even to reach its last all-time high at $835 million, this will increase.
Algorithmic Trading Bots
Algorithmic trading can be a radically successful way of earning passive income. Of course, algorithms come in different shapes and sizes, differing in functionality, quality, profitability, and usability. Still, they all require a basic understanding of how the market operates and which strategies are effective in the market cycle.
As a rule of thumb, a grid trading strategy can be profitable in a ranging market, where orders are placed above and below a set price, creating a grid of orders incrementally increasing and decreasing costs. In contrast, a swing trading approach tends to be profitable in trending markets (both long and short).
It can be technically difficult and expensive to set up if you need to learn how to code. Still, increasingly algorithmic trading services have been popping up, offering between 20% and 30% ROI. It is also essential to be prudent with these services, especially if they ask you to send your coins to an address you do not own the private keys; watch out for scams!
Decentralized Prediction Markets
Decentralized Prediction markets are platforms where users can buy and sell predictions on specific events, just like traditional betting platforms, except that anyone can create the odds. As a result, they transform how we forecast, gather data, and manage risk. Indeed, such a platform’s mechanics can be pretty complex, especially from a technical standpoint, but this underlines its disruptive potential.
Decentralized prediction markets are still in their early stages, even though prediction markets have existed in centralized form for decades (e.g., betting agencies). The critical difference is that anyone can create a betting market and gain passive income by being a market maker and earning from the spread. It may take time until earning passive income from such markets goes mainstream, which is precisely why experimenting and exploring them would keep you profitably ahead of the curve.
Conclusion – Lesser-known Ways to Earn Crypto Passive Income
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All the options mentioned are a great way to earn passive income on your crypto or free crypto. But remember, it is always important to remain vigilant in the crypto space because it is riddled with scams. So if something sounds too good to be true, it probably is.
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