Crypto investors and those considering investing in Crypto: Listen in. I break down how to earn passive income from your Crypto, the risks involved and the potential benefits.
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How To Earn Passive Income From Your Crypto
In this episode, we are going to talk to you about earning passive income off of your crypto as you wait for it to grow and value. I love assets where I can earn passive income from them while I’m holding them and waiting for them to appreciate them. Let’s face it. Sometimes assets don’t appreciate in value or maybe even drop in value but in the meantime, while all of that up and down price action is happening, you are growing richer every day. This is easy to do if you know what you are doing.
Passive Income From Crypto
I’m going to explain to you exactly what to consider and how to go about doing this. If you own any crypto, no matter what the amount that you own, it is going to be worth it for you to pay attention to what to do here. Get this moving because if you are not staking or lending your crypto, you are giving away money. You are leaving money on the table that is very easy for you to earn. I love multiple streams of passive income. This is one more opportunity for you to create an additional stream of income.
After I recorded this, I picked up John, my oldest son, from school and we are going snowboarding. In 2021, when I did this same trip, we were going bittersweet about an hour away. I took a selfie with the boys before we went to the mountain. I was all excited. It was going to be incredible. It was so much fun. On the very first run, I hit a jump that I didn’t mean to hit. I somehow found myself in the terrain park, which is where they have all the jumps, halfpipes, bars and all that shit that I have no desire to do.
I prefer my board to be on the ground at all times. I get uncomfortable when that board gets into the air. I found myself in the air and turned my board side, which is the absolute worst thing you can do in a panic. I landed on my face hard. It got close to my eye. I was bleeding profusely. I ended up in the ER and they could even do stitches because I took a chunk out of my face. I hope that doesn’t happen again. I’m hoping for a safe, exciting and fun adventure with my son and his friends. Wish me luck. Hopefully, you don’t see anything on social media as we did on the last trip.
Let’s dive in here because I want to make sure you are clear on this. Some sample results. This is from one of my accounts called Nexo.io. I love this account because I can not only lend out my crypto and earn additional streams of income but I can also borrow against my crypto. I’m going to explain what to do as far as borrowing goes and how this all works but to set up, the nine-month result period, I started doing this in May of 2021. Here we are recording in February of 2022. I have a total on Nexo earned of 65.76. I have gotten BTC. I have gotten 0.04, which doesn’t sound like a lot but that’s $1,800 worth of Bitcoin. I’ve earned over one full Ethereum, 1.15, for a value of $3,736.If you're not staking or lending your crypto, you're giving away money. Click To Tweet
In addition, with smaller amounts on the Nexo coin, Stellar chain link like an Avalanche coin. You add all those up and you total 65.76. One of them, the Stellar coin, only generated $26 but I like all streams of income. I love the bigger ones but any stream of income that is passive in nature is a great stream of income. Never discount these smaller amounts because they all accumulate and add up because these results are paid out in coins that I have either lent or staked with.
For example, when I lend Bitcoin, I am putting it up on the exchange and they’re lending it out to somebody else. I get paid in that coin. You don’t get paid in dollars. You get paid in these coins. If the coins go up, which I anticipate, we are going to start to see, as we already are some continued price movement upward for the rest of 2022. I believe that we are going to see a bull market. These could potentially turn into $12,000, $13,000 to $20,000 worth of passive income as the coins appreciate.
If you sold these coins, the minute that you got the value, you are going to convert them into dollars and your passive income is dollars. However, I like to lead them in compounding because the compounding will create even faster growth. Not only I’m getting paid out in those crypto coins but as I lead them there, they continue to compound upon the gains. “Compounding is the sixth wonder of the world,” as Warren Buffett has said.
Staking Versus Lending
Crypto staking and lending, what is the difference between the two? These two words are used almost the same and they are very different. I want to make sure that you understand what you are doing when you are staking and when you lend. Staking can think of this as leasing your crypto to the blockchain, whereas lending is leasing your crypto to another borrower. Both earn a trickle of interest, which is typically paid out in the crypto that you lend or staked. If you lend Ethereum, you are going to be paid in tiny pieces of Ethereum. Usually, you are going to be paid out daily. You are not going to be paid out in US dollars.
Let’s talk about staking. Staking involves locking up your crypto for a certain period. Think of it like a certificate of deposit at a bank. Usually, you pick either 1, 2 or 3 years period, maybe even more. You are locking up those dollars at the bank. In turn, for locking them up for a longer period, the ban is going to pay you a little bit higher interest rate on that certificate of deposit. The intervals are usually much shorter in the crypto world, typically in intervals of 30 days. However, if you stake Ethereum, for example, you are locking it for an indefinite period until ETH 2.0, the next diversion of Ethereum is released. It could be 1, 2 or 3 years. Who knows?
Staking generates income because you are being rewarded for pledging your crypto to support the blockchain network. Staking is similar to mining. Miners dedicate computing power to the blockchain, whereas stakers dedicate coins and both are rewarded with more crypto. That is the big distinguishing factor. Not all crypto can be staked. If it is a proof-of-work type of crypto, you cannot stake it. You can only mine it.
I’m going to make this as simple as I humanly possibly can. We can go into the weeds on all of these subjects. I’m trying to give you guys a higher-level simplistic version of how this works. Miners compete to validate transactions on the blockchain and are rewarded with more crypto. What does that mean? In Layman’s terms, it means that they are proving, validating or simply showing that the transaction is valid and it becomes a permanent part of the Bitcoin network. For example, when you and I do a transaction on Bitcoin, the miners validate that transaction and prove that it is valid, legal and permanent. This requires a lot of computing hardware and technical expertise.
I also have a Bitcoin mining company called Crypto Mining Specialist. What we do is offer investors a way to mine Bitcoin. It is lucrative and extremely profitable. It also requires a much larger investment. If you have over $100,000 that you want to devote to mining Bitcoin, hit me up, send me a message or an email and I will be happy to tell you how it works because we have expanded our facility to where we have over 500 slots available for machines that you be able to buy and plug into our mining network. It is profitable to do this but it does require more money.
Mother Of All Proof Of Work
I recorded an episode where you can mind Bitcoin for as little as probably $10,000 with other companies. You can do that. I released all the different ways that you can do that in one of my previous episodes. Make sure to check that out if you are interested. Bitcoin is the primary proof of work cryptocurrency. This is the mother of all proof of work.
Proof of stake is different. Examples of these would be Cardano, Polkadot, Solana and Cosmos. Think of this as putting up collateral. You promise to validate transactions honestly. If you don’t, they can take some of your tokens as a penalty. The system makes sure that you are rewarded more for being honest. Unless you are running a node, which is a lot more technical in nature and I’m not going to get into the weeds, you don’t have to worry about this because you are going to do this on a central exchange. They are going to handle all the proof of staking for you and they are going to get a cut of the rewards. In turn, they are going to give you your reward for putting up your crypto.Cryptocurrency is the mother of all proof of work. Click To Tweet
3 Ways To Earn A Reward
There are three ways to earn a reward. Option one, you can stake through your exchange like Coinbase, Binance, Crypto.com or Kraken with a couple of clicks. Option two, you can stake directly through a software wallet like Atomic Wallet or Exodus. Option three is that you can stake directly through that specific wallet. For example, you can stake the Axie tokens directly on their Ronin Wallet.
If all that is confusing, I get it. It is a lot simpler if you stick with option one. I would recommend using option one as it is the simplest, safest and quickest for you to do. Option three is more profitable because you are going to be capturing the entire piece of the pie where you stake directly to that blockchain’s specific wallet. It typically involves 10 to 15 different steps to get it set up. I looked at doing this but I’m like, “I don’t want to go down this chain. I rather do it simply. Give up a little bit of the spread to the exchange that is doing this on my behalf and call it a day.”
What are the staking pros and cons? The pros number one is a simple three-step process that most major platforms support. Number two, you support your favorite crypto. It helps to maintain a healthy blockchain, secure the blockchain network and keep everything up and up. Number three, it doesn’t require mining hardware. You can stake right from your smartphone and four, it is environmentally friendly. It doesn’t use any energy whatsoever. The con is that it ties up your crypto. If you like to retain your ability to sell your crypto at a moment’s notice, either due to market fluctuations or you need emergency cash, you can’t. That is one thing to consider.
Let’s talk about lending. Think of these platforms the same way you think of a bank. You can earn 5% to 15% on these platforms and even 10% on what is called your stablecoins, like USDT. What is a stablecoin? A stablecoin is a crypto coin but it is tied and pegged directly to the US dollar. One dollar of USDT stablecoin is equal to $1. This is an incredible way to earn interest on a wide selection of crypto assets but it is incredibly powerful to earn up to 10% on your cash when the bear market hits. I believe that at some point, we are going to experience a bear market. I don’t think it is going to be anytime soon, maybe towards the end of 2022 or even into 2023.
Lending has three key differences from staking. Number one, when you lend crypto, you let the platform lease it out to other crypto borrowers. To put this in terms and ways that you can do on an everyday basis, it is like when you hold your money in a bank savings account. They loan your money to somebody else. They charge interest to the borrower and pay you interest as a reward for putting your money in their facility. Although it is very poultry interest that you get.
Could you bypass the middleman and loan your money directly to a private person? Of course, it is called private money lending. It is a little bit riskier because if you loan your money to that private individual and they don’t repay you, you got to pursue them legally and that can be difficult. Banks provide this service for us and they capture a huge portion of the difference between what you get paid from them and what they, in turn, lent out to their borrowers. This is called the spread.
We are simply getting hose. The banks are making huge spreads off of the money that we are putting into their banks. Crypto is coming along and it is disrupting the main banks. This is called DeFi, Decentralized Finance. It is a way for everyday people like us to start to capture this spread and keep more of it for ourselves.
Number two, the difference is that staking locks up your crypto for a period of time but lending platforms let you withdraw your assets any time you like. If staking is like a CD or Certificate of Deposit, lending is like opening a savings account. The third difference is that you, as regulators perceive them differently. It appears that they are okay with staking but they hate crypto lending. We may see changes to regulations at some point. It is full steam ahead on lending but it is something to be aware of that the regulations and rules could change and could make this less appealing. I don’t know what that looks like but it is possible.
The lending pros and cons. It is simple and low-risk. Number two is that you can support unbanked borrowers. There are 1.7 billion people without access to bank loans and your crypto loan empowers them. Number three is that you can lend Bitcoin. You can’t stake it but you can lend it out. That is how I got that 0.04 in Bitcoin rewards off the one Bitcoin that I lent out. The cons. There is a smaller coin selection. At the time of this recording, the big lending platform supports only about 30-ish coins. The other con to it is that limited platforms support it. There is only a handful that supports lending. As I hit on incoming regulatory scrutiny, there is a definite possibility.
Staking Or Lending Out Your Crypto
How do you stake or lend out your crypto? It is pretty simple. Number one, you are going to pick your platform. The ones that I have used are Nexo.io, Celsius.network and Kraken.com. Those are the three that I have used. There are also popular as BlockFi.com. I did not go with BlockFi because after I looked at the coins that I owned and the interest rates that BlockFi was paying out, the other ones were much better than that one, although BlockFi has gotten great reviews. A lot of people are happy with it. I don’t see any downsides to BlockFi.The one benefit to putting your money on multiple exchanges is that you have diversification and protection. Click To Tweet
My favorite so far has been Nexo because of its easy ability to borrow and wanted to buy Bitcoin mining machines when they came up for sale and China locked down and pretty much effectively canceled any Bitcoin mining, which at that time was 70% of the world’s mining. These machines came available. However, I didn’t have much liquid cash. I wasn’t able to jump on this opportunity.
On Nexo, I went in and borrowed against the value of my crypto. When you borrow against it, you are no longer getting the rewards from lending it out. You are the one that is paying the interest to somebody else who is loaning the crypto to you. That is one downside of borrowing. However, by borrowing against it, I was going to be able to make a lot more money, Bitcoin mining, getting the machines and doing all the mining versus lending it out and making 4% or 5%. When I did the borrow, it was easy. In a few quick, simple steps and clicks, the next day, the cash dollars were deposited in my bank account. That was pretty cool.
The number two step is to pick your crypto. You can buy cryptos based on their yield but I say, “Don’t buy one based on their yield.” You want coins that have solid long-term potential for growth. Some coins have crazy 6,000% rates of return to entice the best investors to buy them. I might put a little bit in to test those out but that seems risky that they are offering those crazy rates of return. Usually, there is something wrong with the crypto or an investment that is promising those insane types of returns.
Step three is lender or stake to crypto. You are going to transfer your coins from Coinbase, for example, to Nexo.io. You click deposit, choose your timeframe, stake or lend your coins and watch your interest accumulate. It is a simple process to do. If you want to find out different possibilities of coins and what they are paying out, go to StakingRewards.com. As of this recording, Solano is paying out 5.88%, ETH is 4.85%, Cardano is 5%, Avalanche is 9.23% and Polkadot is up to 13.97%.
I already owned all of these coins. I like all of these coins for their long-term growth potential. The bonus is that they pay out this additional interest in passive income. Look at the coins that you already own, go to StakingRewards.com and you can look at where you can stake or lend these on what exchanges make sense.
One note of caution. I set up multiple accounts. I got Celsius, Nexo, Kraken and Coinbase. I got four different exchanges that I got my crypto on because I wanted to capture the highest interest rate that I could for each coin that I owned. Also, some exchanges didn’t offer the ability to stake or lend on certain coins that I own. I had to set up these multiple exchanges. It is time-consuming. There is a lot to organize and keep track of.
Try to keep it simple and stick with 2 exchanges, maybe 3. One benefit to putting your money on multiple exchanges is that you have diversification and protection. Although these are safe exchanges, there is little chance of your coins getting stolen. However, there is a possibility that someone could hack your account and you lose all the coins that are in that account. That is a small percentage possibility but it is still a possibility. By putting your coins on multiple exchanges, if one should get compromised, you don’t lose all of your cryptos. That is the primary advantage, in addition to being able to maximize the interest that you are earning and the passive income on your crypto.
In closing, I want to talk to you about lending. What I recommend that you consider when you are borrowing against your crypto if you do go to do this is to be very conservative. Crypto can draw down fast. If you leverage too high and crypto has a crash, some of your coins can be liquidated automatically because that is their collateral. That is what they are going to do. They are going to sell the exchange and coins to cover their position so that they don’t have any risk.
Let’s say you have $10,000 worth of Ethereum on Nexo and you borrow 50%, $5,000 back out. Ethereum draws down and losses 60% to 70% of its value. I don’t think that is going to happen anytime soon but nothing is impossible as far as volatility action in crypto. They are going to liquidate a portion of your Ethereum to cover that loan balance that you have outstanding. If you don’t want to sell, that is a bad thing that your crypto got liquidated.
What causes some of these crypto-crashes that we are seeing is that people are overleveraging. They are borrowing against their crypto to buy more crypto. I would never do that. That is a house of cards. Do not borrow against your crypto to buy more crypto. If you are going to borrow against your crypto to do more safe and stable type things, that is okay. I would probably tend to stick to a conservative 20%, maybe 30% of the total value of your crypto in your exchange borrow up to that amount. Otherwise, you start going up too high and you could be setting yourself up for a major fall.
I hope this helps you. If you have additional questions on this, please feel free to reach out. I don’t have all the answers. I did a surface-level dive on this because if I go too much deeper on this, you are going to tune out and fall asleep, eyes crossed, eye rolls and deer in the headlight type look. I want to make sure that you don’t tune me out.
If you want to be more in-depth on how to do this, you can go to Google and search crypto lending and staking. There are lots of resources that will pull up the YouTube videos and articles that can teach you more in-depth detail. This is a good start to get you on the right path and get you earning more passive income.