Crypto is struggling — but it can still make you money
While cryptocurrencies are rebounding this week, most are still well off their highs. The good news: You can earn income from your crypto assets even when they’re down.
Bitcoin has led the way into a bear market for most cryptocurrencies in the past four months. Despite a recent rebound, the main cryptocurrency is down more than a third, and it’s been pulling altcoins down with it.
Yet the market didn’t sell off. In fact, digital-asset investment funds in the Americas saw inflows of $95 million last week, $17 million of which went into Bitcoin, meaning investors were still buying in.
Also, some cryptocurrency networks, such as Terra, have increased their total value locked (TVL) to record numbers this month, according to Defi Lama. TVL means that instead of selling their crypto assets, a large number of investors have deposited them to decentralized finance protocols (DeFi).
This lets investors earn passive income while prices are down and they wait for another bull run. That’s one reason there’s been as much holding as selling. Here’s how what’s called staking might work for you.
Staking coins
Some cryptocurrencies — like Ethereum (ETH), Solana (SOL), Polkadot (DOT) and Cardano (ADA) — work on the proof-of-stake concept. This lets you “lock” some, or all, of your coins and earn a financial reward.
Staking can be either flexible, meaning you can withdraw your funds whenever you want, or locked for a specific period of time. You’ll earn less with a flexible position than a lock. But If you withdraw your “locked” crypto before the end date, you’ll have to forfeit some of your earned yield.
Cryptocurrency staking is similar to cryptocurrency mining — you earn coins for validating transactions on the network. The main difference? You don’t need any special hardware or copious amounts of electricity to earn rewards; you just need to own coins.
Staking is a straightforward process
The way you stake coins slightly varies between cryptocurrencies. In general, you have to buy your coins from an exchange like Coinbase first. After that:
- Either send your coins to your wallet or look for staking options on your crypto exchange. These are often clearly visible on your exchange app, labeled Earn, Savings or Staking.
- Select a staking pool, or select a validator if you want to stake it from your wallet.
- Select the amount you wish to stake and deposit your funds.
The reward varies depending on the cryptocurrency
Lesser-known cryptocurrencies may offer generous rewards of 100% annually or more, paid in the form of the coins you stake. But typically, these are the riskier ones that may lose value by the time you get your rewards.
Staking popular cryptocurrencies like Ethereum and Solana can earn you between 5% and 8% annually. This is typically the return you can expect by staking most of the major cryptocurrencies. For comparison, the average yield of dividend stocks varies between 2% and 5%.
You can find brokers that offer staking services in our Cryptocurrency Staking Guide.
Other passive income methods
Aside from staking, you can passively grow your crypto assets through other means, including providing liquidity to market makers via liquidity farming and yield farming. These are slightly more complicated strategies than staking, but can often provide higher annual yield and can be used for cryptocurrencies that can’t be staked like Bitcoin.
Learn more about these strategies on our yield farming and liquidity farming articles.
Another strategy to earn passive income is by lending your coins. Until recently, you could lend your Bitcoin or other cryptocurrencies to borrowers and earn passive income in the form of interest paid by the borrowers. For example, you could earn up to 6.2% back annually in BTC for the Bitcoin you lend.
The Securities and Exchange Commission (SEC) is working to regulate the lending landscape, which is why popular platforms like BlockFi and Nexo no longer accept new crypto deposits. Those who already deposited funds on these platforms can still earn money by lending, but they can’t add new funds for now.
Some decentralized exchanges may still offer this feature in the meantime, though.
Know your risks
Earning passive income is an excellent way to grow your crypto assets, especially when you don’t plan to sell them anytime soon. But it may not be for everyone. Most of these funds aren’t FDIC-insured, meaning you can lose all your funds in case of platform hacks or smart contract bugs.
Granted, there are services — like InsurAce.io — where you pay a small premium to insure your crypto assets against these risks. Regardless, it’s best to do your due diligence and know what you’re getting into.
Interested in cryptocurrency? Learn more about the basics with our beginner’s guide to Bitcoin, dive deeper by learning about Ethereum and see what blockchain can do with our simple guide to DeFi. Interested in staking? Find a broker in this guide.
Kliment Dukovski owns Bitcoin, Solana, Ethereum and Cardano as of the publishing date.
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