The digital currency market has produced phenomenal growth in 2021, with Bitcoin, Dogecoin, Ethereum, and Ethereum-based Shiba Inu logging exponential gains. For example, Shiba Inu’s value has sprung from unfathomable lows to inconceivable highs. In September 2020, the value of Shiba Inu was $0.0000000003. It only took one year for the token’s price to jump to $0.0000072, or 2.4 million percent.
Those lucky souls who held on to Shiba Inu tokens during the period became Shiba Inu millionaires. But for every Shiba Inu millionaire, you can bet there were thousands of crypto investors who were at the wrong end of a sudden downturn that defied the technical analysts. As a result, the crypto market is an investment arena with nearly unchartable volatility.
However, there are some opportunities to earn passive income through cryptocurrency. Some of these investment options come with risk, but they don’t compare to the nail-biting activity of day-to-day crypto trading.
Interest-bearing digital asset accounts
The high-tech nature of crypto-investing may put you off at first. Although new terminology and protocols have a slight learning curve, the return on investment is the same: interest, revenue sharing, and dividends from digital tokens. It will soon become demystified once you visit some of the digital asset investment platforms we are about to mention.
Passive income generally comes from financial investments that require little or no involvement by you, such as mineral rights royalties and loan interest. The crypto market alternative to this type of investment is buying into interest-bearing digital asset accounts. Typically, digital investors store their digital currency in digital wallets. But instead, you would put your digital currency into an account that accepts only crypto deposits in exchange for interest earnings on a term basis.
Depositing your crypto into interest-bearing digital asset accounts is the digital version of putting money in a bank account, except with a much higher return. Traditional bank accounts usually yield .05% APY, while crypto asset accounts average 5% to 12% APY. However, these accounts expose you to slight price volatility risk.
Safer storage facility
Crypto-asset accounts have the added benefits of being a safer storage facility for your digital currency by lessening the chances of you losing access to your wallet. Also, platforms like AAX exchange and Crypto.com provide hack insurance for their depositors. Popular crypto-asset account providers include SwissBorg, BlockFi, Nexo, and Celsius Network.
Lending your digital currency is another way to earn passive income. You have a choice of four main crypto lending strategies: peer-to-peer, DeFi (decentralized), centralized, and margin. Peer-to-peer lending platforms allow you to set your lending amount, create the terms, and decide on the interest rate. Then, they match you with buyers most likely to accept your terms.
Fixed interest rates and terms
Centralized lending platforms require you to lend your crypto assets under fixed interest rates and terms. Conversely, DeFi lending allows you to facilitate lending deals directly on the blockchain because decentralization eliminates the need for intermediaries. You and the borrowers are free to set the rates and terms with programmable and self-executing contracts, also known as smart contracts. The fourth strategy is margin lending to investors who need leveraged money to trade. With this lending strategy, the crypto exchanges like Kraken.com, Bitfinex.com, and eToro.com do all the work for you.
Dividend-earning tokens are the most passive investment among digital assets. Tokens differ from cryptocurrencies because they are not native to a blockchain like Bitcoin or Ethereum. As a result, the token issuing company will give you a specified percentage of its revenue just for buying and holding on to the tokens. The amount of revenue sharing you receive depends on the number of tokens you own.
If you prefer a decentralized or DeFi option for gaining passive income, yield farming may be your choice. DeFi exchanges rely on smart contracts and investors (liquidity providers) to execute trades. So, instead of trading against brokers or other traders, users trade against funds provided by liquidity providers in a liquidity pool.
To take advantage of this passive income opportunity, you must become a liquid provider (LP) on a DeFi exchange like PancakeSwap, Aave, and Uniswap. You will start earning fees when you deposit digital assets in the liquidity pool according to a specified ratio. For example, to fund a Bitcoin/Ethereum pool, you would deposit both coins into it.
Liquidity pool
After your deposit, the decentralized exchange will transfer the LP representing your contribution to the liquidity pool. Then, you can market these LP tokens on DeFi platforms to earn additional interest. So, yield farming lets you earn two independent interest rates from one deposit.
Proof-of-state and cloud mining are other ways to generate residual income. But, since these methods require a great deal of computer expertise, money for equipment, competitive drive, and effort, they don’t qualify as passive income investments. Interest-bearing digital asset accounts, digital lending, dividend earning tokens, and yield mainly require an initial cryptocurrency deposit and occasional monitoring. You can’t get more passive than that.