How to Make Passive Income in the Crypto Market: 2022 Updated
Dear Sunday Investors:
Happy Super Bowl & Valentine’s Day Sunday! Welcome to this week’s edition of the Sunday Investor! To our new members, the format of this weekly newsletter will be a deep-dive into one investment-topic. This week, we will be going into depth on an updated version of “How To Make Passive Income In The Crypto Market,” which is a topic I have written extensively about back in Fall 2021. Exact strategies and ways to make passive income are below so let’s dive in.
Read, enjoy and share with any friends. Let’s build wealth together.
Weekly Market Recap
Let’s dig into some of the most important events that happened in the markets in the last week:
Prices climbed 7.5% in January compared with last year; this continues inflation’s fastest pace in over 40 years
Get Your Tax Return In Crypto: Tax filing platform TurboTax is allowing U.S. filers to get their refunds directly in crypto as part of an arrangement with crypto exchange Coinbase.
Metaverse land continues to gain traction: Sandbox land prices increased ~445% and Decentraland land prices increased ~36% between October 2021 and January 2022 showing the publics interest in the metaverse.
Feds Tracked Down $3.6 Billion in Stolen Bitcoin: Back in the crypto space in 2016, one of the biggest crypto exchanges Bitfinex got hacked for over 120,000 Bitcoin (worth over $4B today). The feds finally haven found a couple in their 30’s in NYC who was laundering over $3.6B in this stolen Bitcoin.. read more in the linked story.
Passive Income
In the crypto world, there are a variety of different ways you are able to make passive income. What is passive income?
Passive income is income that requires minimal labor to earn and maintain.
Passive income is powerful as in theory, it requires minimal work, such as a landlord receiving rent payments every 1st of the month. When we transfer this theory to the crypto market, below we will discuss the different strategies and exact protocols on how passive income can be accomplished.
Before jumping in, lets get a refresher on a few definitions:
What is inflation?
Inflation refers to a general progressive increase in prices of goods and services in an economy. From 12/20 to 12/21, consumer prices for all items rose 7.00%. Currently, the best savings account on the banking market is 0.50%. See the problem here?
What is DeFi?
According to Investopedia, DeFi is a system by which financial products become available on a public decentralized blockchain network like Ethereum. That makes them open to anyone to use, rather than going through middlemen like banks or brokerages.
What is a Stablecoin?
Stablecoins are designed to combine the stability of a typical currency like the US Dollar while also having the ability to trade quickly online like Bitcoin using blockchain technology. USDT and USDC are two of the most popular USD-reserve backed stablecoins & DAI is a completely decentralized stablecoin which uses automated smart contracts on the Ethereum blockchain to maintain it’s stability at $1.
Centralized Finance in Crypto (CeFi):
CeFi short for centralized finance, offers some of the yield benefits of DeFi with some of the ease of use and security of traditional financial-services products. As Coinbase puts it, with CeFi, you can earn interest on savings, borrow money, spend with a crypto debit card, and more dependent on the platform.
CeFi is the easiest way to gain exposure to some of the benefits of DeFi in a packaged solution from centralized companies that we are used to
Lets take a look at some of the best CeFi options to beat the .01% interest in our checking accounts, and to receive passive income on our existing crypto holdings:
Voyager is an U.S. based cryptocurrency exchange that offers very attractive yields for generating passive income.
Earn: Stablecoins like USDC 9.00% and Crypto: 0.88%-12.00% (BTC/ETH 4.75%)
Pros: Easy to use mobile app on iOS, easy to deposit from a bank account, minimum is only $100 to earn, coming out with a debit card where you can spend USDC held in your Voyager account, can withdraw whenever
Cons: Delays with withdrawals as they sometimes take 3-5 days to get approved, have seen complaints with slow customer service response times, to get boosted rates you need to buy the Voyager token
BlockFi is a fin-tech crypto lending and savings platform where you can trade, swap, earn and borrow all in one platform.
Earn: Stablecoins: (GUSD, USDC, DAI, USDT) 8.75% and Crypto: 2.00%-5%
Pros: Great rates on stablecoins, easy to use platform to deposit from a bank account, 1 free withdrawal of funds per month, can withdraw whenever
Cons: Variable interest rates, BlockFi changes rates on higher account balances frequently, 2-5 day withdrawal wait times to an external crypto wallet or a bank account, interest is paid monthly rather than daily like some other options here
Gemini is a crypto exchange created by the Winklevoss twins (the twin bros who sued Zuck & Facebook); their platform that offers interest earning features to all clients.
Earn: Variable rates that can change weekly, GUSD (8.05% APY), BTC (1.01% APY) and ETH (1.26% APY)
Pros: Secure, intuitive UI & easy to use application, very competitive interest rates across many different cryptocurrencies, can withdraw whenever for no fee, daily interest
Cons: Not as high of interest rates on BTC and ETH, available in all US States
Kraken is a crypto exchange which offers a plethora of trading features including staking coins on their platform for passive income
Earn: Variable rates ETH (4-7% APY), DOT (12% APY) and SOL (6.5% APY)
Pros: Redesigned UI & very secure exchange which has never been hacked, high interest rates for specific tokens, interest rewards are paid out twice a week, can withdraw whenever
Cons: No stablecoin options, BTC interest rewards are (0.25%)
Disclaimer: I have linked my referral code to some of these platforms above as we both get bonuses if a friend signs up!
Decentralized Finance (DeFi):
As we shared above, DeFi unlocks financial products & applications to be used directly by users on the blockchain, with the most popular blockchain being Ethereum today (and many more we will discuss later).
A big difference between CeFi and DeFi is that you and only you control your funds and private keys (think of these like passwords to your bank account). If you forget your password and don’t have your private key, you will not be able to log into your account and nobody will have your information to log back in.
So, how do you get started interacting with DeFi protocols? First things first, you need a decentralized wallet like MetaMask. This will be your gateway to DeFi.
MetaMask is one of the most popular wallets and it can be download it here.
Download the appropriate version of MetaMask depending on the device you’re using and add as a Chrome browser extension or as an app on your iOS device.
Setup a new wallet clicking on “create wallet” and set a new wallet password.
Advice: Save & store your secret recovery phrase somewhere safe and secure. If you forget your password, this is the only way you will be able to access your account as there is no centralized organization that stores this information.
Fund your MetaMask: Withdraw Ethereum you have in a centralized exchange to your MetaMask ETH wallet.
Now you are ready to roll. Let’s go into some DeFi protocols for passive income below:
Lido Protocol:
Lido is a liquid staking solution for ETH 2.0 backed by industry-leading staking providers. Lido lets users stake their ETH, LUNA, or SOL - without locking assets or maintaining infrastructure themselves. Self-staking ETH brings with it a minimum deposit of 32 ETH and a token lock-up which could last years, Lido solves this.
Earn: ETH (4.6% APY), LUNA (9.5% APY) and SOL (5.9% APY)
Pros: Decentralized (connect with MetaMask), ability to stake any amount of ETH, LUNA or SOL
Cons: Lido takes a 10% fee on users staking rewards for its node operators, DAO and coverage fund
Curve & Convex Finance:
Curve is an exchange liquidity pool on Ethereum designed for: extremely efficient stablecoin trading, low risk, supplemental fee income for liquidity
Convex Finance is an inventive DeFi protocol built on top of stablecoin exchange Curve Finance. At its core, Convex rewards Curve liquidity providers and CRV stakers with additional DeFi yields.
Earn: CRV (Currently 53% APR)
Pros: 50%+ yield returns, decentralized (connect with MetaMask), ability to stake any amount of CRV
Cons: Ethereum gas fees required to get started (think of this as like a transaction fee), more complex process to begin staking and transferring CRV to the cvxCRV token for interest
Video instructions for how to get started in staking CRV on Convex Finance
Maple Finance:
The Maple Finance protocol offers one of the most capital efficient options for institutional borrowing and fixed income lending in decentralized finance. Crypto institutions are able to partake in undercollateralized lending, and Maple lenders(like us) are able to benefit with a consistent yield opportunity for lending funds.
Earn: USDC Lending (Starting at 7% APY in USDC rewards and 7% in Maple Token rewards = 14% total), USDC Staking (24% APY) - You have to stake both USDC and MPL token to be a staker
Pros: Great decentralized yields for stablecoins, ability to connect with MetaMask, ability to gain additional yield for staking 50/50 with USDC/MPL tokens
Cons: 90 day staking period before you are able to withdraw coins, liquidation risk from undercollateralized loans
Anchor Protocol:
The Anchor protocol is a savings protocol based on the Terra blockchain that provides its users with low-volatile 20% yields. Initially, Anchor protocol helped to increase the demand for UST, which is Terra’s USD-pegged stablecoin, but it has since expanded to support other stablecoins like USDC, and DAI.
Earn: UST Lending (20% APY Target Rate)
Pros: Some of the highest decentralized yields for stablecoins, decentralized with Terra Station Wallet (different from MetaMask)
Cons: Recent risk/rumors of 20% fixed interest not being sustainable, have to use Terra Wallet on the Terra blockchain which is different from Ethereum
Video instructions for how to get started earning with Anchor Protocol here
Ribbon Finance:
Ribbon Finance is a new protocol that creates crypto structured products for DeFi. As you see in the picture above, they have a variety of different packaged options strategies for cryptocurrencies that users can invest in with one click to take advantage.
Earn: ETH Covered Call (13% current rate)
Pros: A great way to hedge certain holdings with covered calls, decentralized and auto-invests returns automatically for users
Cons: More investment risk than other options shown here, limited upside if ETH was to appreciate over the strike price of the covered calls
Potential Risks:
It is very important to be aware of the types of risks when using any DeFi lending and borrowing protocols such as the ones mentioned above.
Technical Risks: There is always a risk of smart contract bugs/flaws which could allow hackers to exploit and drain collateral on a DeFi platform. It is worth mentioning that there are decentralized insurance protocols that you can use protect funds from this.
Collateral Risks: As a borrower, the main risk comes through possible mismanagement of collateral. If you borrow a loan from Aave with a cryptocurrency that has high volatility, if your collateral goes lower than the minimal collateral ratio on your loan it will liquidate your collateral. This is why it is vital to monitor all loans taken out as a borrower to ensure you have a healthy collateral ratio.
Investment Risks: Many of these platforms are incentivizing you to buy their token to stake on their platform for increased yield or rewards. If the token goes down more in value than the yield offered, your capital would have been better utilized elsewhere.
Cryptocurrency Mining:
Another way to make passive income in the crypto market is through mining cryptocurrencies. There are two different popular types of crypto mining which are mining with ASIC miners, and mining with GPU’s. ASIC miners were built to mine Bitcoin/Litecoin, while GPU mining is more popular among Ethereum and other Altcoins in the crypto market.
GPU Mining
GPU mining offers a very lucrative opportunity for miners and had caused explosive growth among the most powerful GPU’s from companies like AMD and NVIDIA. Two things to keep in mind when you are GPU mining is maintenance of your GPU miner for any tweaks that need to be made as well as electricity costs for running the crypto miner. This is why I choose to have BitCap, a crypto mining/hosting company which builds, maintains, and hosts my miners in a larger mining farm they own. If you’d like to learn more about this DM me or check out the website for the company I use for this here at Bitcap.io.
How do we know we’ll make money? Use the website NiceHash.com to calculate which GPU’s you plan on buying for your miner to calculate the ROI or return on your investment.
Earn: Depends on the GPU, but for example from 1x NVDA 3070 GPU, current mining profitability is around $3/day. (Typical miners have 8-12 GPUs)
Pros: No trading expertise needed, no need to build the miner yourself when using a hosting company, mining profits can compound & appreciate if there is congestion in the market or if altcoin prices rise
Cons: Larger initial investment to get started, mining profitability changes constantly, investment risk if you are getting mining rewards in a cryptocurrency and it lowers in value
Helium (HNT) Mining
Another way to make passive income mining is through Helium mining. Helium is a decentralized wireless network competing with the likes of AT&T, Verizon, and other internet providers.
Helium’s network of miners receives rewards by sending out radio signals with their equipment. The users are the internet service providers. Click here to see if there are miners in your area currently and to see what the profitability of those existing miners are.
Earn: Depends on miner location, miner height etc. Average that I have seen in my location are 2-8 HNT/month (1 HNT= $28 currently)
Pros: Low barrier to entry as a Bobcat HNT miner is only $429, uses little energy, and doesn’t make any noise
Cons: Currently there are 3-6 month+ wait times for Helium miners to be shipped to your house, as more people get miners in your area the expected profitability goes down
StrongBlock Nodes
StrongBlock is a cryptocurrency project where with a few clicks you are able to create, host, maintain and update a crypto node with Strong.
What is a Node? Nodes are responsible for keeping a full, up-to-date copy of all blockchain transactions, and providing access points where that full copy can be quickly accessed by blockchain applications.
To create a node on the StrongBlock platform it costs 10 $Strong tokens. 1 $Strong token is currently around $430 on the market today. Your rewards for having a node is 0.1 STRONG/day or $43 at current market value.
StrongBlock is operating more than 170,000 Ethereum nodes, and more than 1000 Sentinel dVPN nodes, and since December 7th, they are also running Polygon nodes and a Ethereum 2-pool where you can stake Strong tokens and receive Ethereum rewards as Ethereum 2.0 is launched.
Earn: Earn 0.1 Strong tokens/day after having a node (at current prices this is $43/day)
Pros: Passive income, after buying your node there is zero maintenance other than claiming your rewards, ROI is 3-4 months if $Strong coin prices stay the same or less if it goes up
Cons: Currently around $5000 initial investment, you have to pay around $20-30 in Ethereum gas fees every time you want to claim rewards, controversy about sustainability of business model and rumors of $Strong rewards decreasing from 0.1 Strong/day to significantly less in the future
Potential Risks:
It is very important to be aware of the types of risks when thinking about mining cryptocurrency or starting a node.
Profitability Volatility: With any types of crypto mining shown above, the expected profitability can change on a moments notice due to congestion in the market, more miners in your area (for Helium), or large changes in crypto prices
Protocol/Investment Risks: With GPU mining, you are able to use software to algorithmically mine the most profitable coin at all times, which mitigates risk if one of the coins substantially depreciates. With a $HNT or $Strong miner, you are only mining each of those coins so if the coin price goes down, so does your expected returns.
Use Me As A Resource: I am a user/investor in every platform/strategy that I have written about in this article. If you’d like to learn more or want me to help you get started on anything here send me a DM or text and I’m happy to help.
Next Article
For our next article, the main topic is still TBD; be sure to send in any questions directly to me or comment below on this post what you’d like me to write about or answer next!
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Not financial or tax advice. The content in this newsletter is for informational purposes only. Every investment and trading move involves risk. Do your own research when making a decision.