3 Ways to Earn Passive Income with Cryptocurrency: Novice to Expert
In 2018 I started to mine Bitcoin. What did I do with it? I spent it all on video games.
That crypto would be worth $500.00 now. Since then, I’ve been learning how to invest it properly.
Making passive income is hard. Your income is usually linked to your time. If you don’t have time, you don’t have cash flow.
Passive income aims to change that. This involves using your money to make money.
Letting your money sit in a bank account with 0.5% interest doesn’t count.
Crypto offers many ways to earn money with money, without spending too much time:
- Novice: Earning ~5–9% Annual Interest by Saving
- Difficult: Crypto Day-Trading
- Expert: Yield Farming
Novice: Earning ~5–9% Annual Interest by Saving
I make passive income with crypto currency by saving my money differently.
There are websites called crypto exchanges. You can buy, sell, and invest on these exchanges. Some offer unique services.
One exchange I invest in, called Celsius, provides me with a 6.2% annual interest on my Bitcoin.
The fantastic thing is, Celsius pays out weekly. So, if I have $1000 in Bitcoin (at price of ~$46,000) in my wallet, every week on Monday, I’ll be dished out $1.19.
This seems like a small amount, but this is one step in the right direction.
In just 1 year, with this weekly payout, you’ll have another $62.00. If you have $10,000 in your wallet at the same rate, you’ll have $620.00 of extra income.
If you saved that same $10,000 in your bank (at 0.5% interest) you’d be left with just an extra $50 at the end of the year. And that’s considered “a good interest rate” for a bank account.
Saving your money as crypto for interest is an excellent option for passive income.
Risk of Saving in Celsius?
If you’re worried about Bitcoin crashing, like back in May 2021, no need to fear, stablecoins are here.
A stablecoin is a crypto that directly mimics the value of government currency, like US dollars. So, no crazy fluctuations in price like Bitcoin.
Interest rates within Celsius on stablecoins, like USDC, earn 8.88% APY.
If you don’t want to worry about value fluctuations, like Bitcoin, choose a stablecoin instead.
There is another risk.
In the crypto currency world there’s a saying…
“Not your keys, not your coins.”
Celsius owns the keys to your crypto wallet. Without their access to your keys they wouldn’t be able to lend. Those loans provide that unbeatable interest rate.
Celsius manages $17.1 billion. They are considered highly reputable. There is a chance they get hacked, meaning your savings are vulnerable.
Remember, banks also have data breaches, but are FDIC insured. Meaning you can be reimbursed for any lost funds by the federal government.
Celsius getting hacked is unlikely. Saving your money in the bank provides negative returns because of inflation. Celsius combats inflation.
Celsius wins.
Difficult: Crypto Day-Trading
Crypto day-trading is the process of finding a market pattern, buying low, and selling high for a profit. This can happen all within one day or over a few weeks.
Automating when you buy and sell is possible. So, I still consider this a passive income source.
Before you can start you need a few things:
- A low fee exchange. Coinbase Pro charges 0.5% whenever you buy or sell. Binance has fees of 0.1% or lower, but its banned in the USA.
- Preloaded cash in your exchange. We’ll use $1000 in this example.
- An understanding of technical analysis. Technical analysis is what stock day-traders have used to “time” the markets for years.
Once you have a low fee exchange and some money, you can start to learn technical analysis.
This is a chart of Bitcoin’s price. Each candlestick counts as an hour of change in the price of the asset. I recommend playing around in Tradingview to get familiar with the price charts of crypto currencies.
Technical analysis is the art of searching for chart patterns. A chart pattern is difficult to find without some experience. So, here’s 3 crypto chart patterns to get started.
The chart patterns you find will inform you on what your future moves should be. Buy or sell.
While buying and selling you should also be mitigating your risk. You can mitigate your risk by putting in place a stop loss order.
A stop loss order is an automatic way for cutting your losses. Ideally, lose less than the possible upside on your investment.
Back to our example chart:
What I marked here is called a “double tops and bottoms” chart pattern. The two hills (marked by the arrows) have 2 dips preceding them.
The flat line on top represents the resistance area. If the hill peaks above the resistance area this pattern is no longer applicable.
Once you get familiar with patterns like this, you’ll be able to make future buy or sell decisions with some degree of certainty.
In this example you would want to sell near the top of the second hill and buy at the bottom of the next dip. If you sold a total of $1000 worth of Bitcoin at around $46,400 and then bought $1000 worth at $44,400 you could expect to see about a ~4.4% increase in your Bitcoin holdings.
This is assuming you already have Bitcoin. But, if you are just starting, you should learn how to identify patterns, and pretend you are making buy and sell decisions.
You can do the math to see if you came out on top in your imaginary trades. Once you become accurate enough, you can start doing the real thing.
Risk of Crypto Day Trading?
Technical analysis is NOT a foolproof method for making money. Even experienced traders can lose out on trades. Patterns aren’t a 100% guarantee.
Patterns are only a signifier of possible chart movements.
Expert: Yield Farming
I’ll cover three things: what yield farming is, how its done, and what the risk to reward ratio is.
What are the Basics of Yield Farming?
Yield farming is the process of lending out your crypto holdings to earn an interest rate. Same idea as banking.
This is done on the Ethereum network with lending protocols. The primary difference between banking interest and yield farming interest is smart contracts.
Smart contracts carry out certain actions based off fulfilled criteria, automatically without middlemen.
When specific actions are fulfilled, you’ll receive interest on your locked cryptocurrency.
How Yield Farming is Done.
Own some stablecoins: DAI, USDC, or USDT. Lend those stablecoins out using a decentralized non-custodial money market protocol: like Aave. Aave will deposit and lend out your ETH via a liquidity pool.
Once your stablecoins are lent out with these protocols, you’ll receive rewards. The interest rates on these protocols is constantly shifting.
The difficulty and reward of yield farming lies in chasing the best interest rate.
Risk of Yield Farming?
Lending protocols that are built on the Ethereum network can churn out huge rewards.
You’ll win big by doing two things: entering a new protocol early and offering a lot of liquidity.
Investing in the newest protocol can give you insane returns. Some yield farmers are known to have earned 100% APR!
Many Ethereum developers have said that yield farming isn’t sustainable. Some projects are considered scams and the percentages aren’t consistent.
Some yield farming platforms are sustainable, but most projects won’t make the cut.
Aren’t cryptocurrencies risky in general?
No, because banks suck.
Banks could provide the same interest rates as crypto, but they choose not to.
In America, the FOMC determines what amount of interest you get from saving in your local bank. For more on how banks work, read my other article Money DOES Grow on Trees.
Investing in crypto allows you to exit the banking system, opening up new opportunities. What you read above is just a glimpse of some of those opportunities.
Excuse: “I’m not an investor.”
We’re all investors. People spend their time. That’s a form of investing.
Freeing yourself of debt and building wealth with cryptocurrency is one way you can free your most valuable asset: time.
Once you do that, you can focus on your purpose.
What would you do if money wasn’t a problem?
Final Chunks of Financial Wisdom.
- Only invest what you can afford to lose.
- Stay out of extreme debt.
- Focus on what you do for people, not the money you could earn from it.
I am not a financial expert. I am someone that has experience mining Bitcoin and generating my own passive income with crypto. All written is opinion based.
