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Top 5 Ways to Use Crypto Passive Income to Make Money in 2021

Relite Education
Aug 31, 2021
7 min read

Like the 90's internet revolution, blockchain and crypto are offering a wealth of opportunities. From streamlining industries to transforming financial institutions, blockchain and crypto are proving their worth. However, an incoming generation option market participants largely overlook how to earn passive income with cryptocurrencies. Bitcoin, and other cryptocurrencies, are valuable investment tools for owners seeking to grow their wealth. There are many market options – including platforms, protocols, and d'Apps – allowing users to generate income from cryptocurrencies. Early adopters of crypto passive income have been enjoying awesome investment benefits.

Thankfully, even for late entrants, there are still opportunities to earn passive income. Crypto is a plentiful land of continuous opportunities, especially for generating passive income. In this article, we explore how to earn passive income using your cryptocurrencies.

Let's start by laying the important groundwork.


What is passive crypto income exactly?

The function of using cryptocurrencies to make money in cryptocurrencies or fiat currency. A popular income-generating option, crypto passive income is seen as a less demanding method of growing a users' crypto portfolio. In 2020, DeFi's popularity saw many opt to stake to diversify their portfolio in a rapidly expanding crypto market. DeFi's explosion also influenced a market shift to yield farming and lending from mining and staking. Regardless, the overall goal of crypto passive income remains to 'earn while you sleep.'

Here's how you can start earning passive income.

Top 5 ways to make money using passive crypto income

Staking Crypto Tokens

Proof of Stake (PoS) is a consensus mechanism common in crypto platforms. Unlike Bitcoin, which uses a mining process to validate transactions, PoS uses tokens. Participants in a network stake their tokens for validating transactions. Each network has its predetermined period for locking up tokens. Rewards are proportional to the number of tokens staked.

In staking crypto tokens, you benefit from passive income crypto gains of about 5%-25% per year. Some platforms offer more than 30% return, but there's a catch. For higher returns, networks subject your tokens to high-risk market situations. To expose your crypto to minimal risk, select a trusted pool. Check our article on crypto staking to learn how to make passive income from it. 

Running MasterNodes

Running masternodes is like staking tokens in PoS.

A masternode is a type of node performing specific functions within a network. Dedicated community members establish masternodes. Running a masternodes requires an initial investment in a network's native coin through staking, among other requirements. Network rewards are proportional to the number of tokens staked by a user.

For example, DASH requires a lock-up of 1,000 $DASH for masternodes translating to over $200,000. Investors earn a yearly return of about 6% in $DASH. Besides, they also influence decisions concerning operations and future options for DASH.

Interest through lending platforms

Lending platforms will pay you to hold your crypto in their wallets. Interest depends on the deposit terms, such a cryptocurrency and lending period. Platforms will pay interest daily or as per your agreement. Passive income crypto gains range from 4% to 20%. Higher interest, like staking crypto tokens, means higher risk for your tokens. But conversely lower interest staking tokens means lower risk. Sounds good, right? But what's the catch?

Well, in earning passive crypto income through lending, you are trusting a platform to manage a loaning service correctly, preventing any risk of overexposure. Fortunately, several robust platforms are backed by leading financial institutions such as Nexo, insured by Lloyds of London. If you're ever in doubt about crypto lending, use our article on considerations before lending crypto as your guide.


Make money through crypto dividends

An emerging passive income cryptocurrency option, dividends are a win-win for both investor and company. Companies benefit by keeping their investors happy through rewarding investors who hold their crypto. On the other hand, investors benefit from free tokens by doing nothing.

In addition, investors can use crypto dividends to attain a net-zero spend on their tokens. Earning crypto dividends requires investors to purchase tokens initially. Companies then reward investors for holding these tokens. If investors hold their tokens long enough, they can earn rewards totaling their initial token purchase price. An additional factor to consider is that these platform tokens could appreciate in value, making owning dividend tokens really attractive as passive crypto income

Like lending platforms, earning through crypto dividends has its risks. Your earnings depend on the success of the companies behind your tokens.

Providing Liquidity

Liquidity refers to how easily you can purchase or sell a cryptocurrency without affecting its price. A cryptocurrency with high liquidity means it has ready buyers and sellers. This translates to better market conditions and an increase in trading volumes. For protocols and platforms, high trading volumes mean higher revenue from trading fees. Therefore, platforms incentivize users to provide liquidity. Liquidity pools are pivotal to DeFi operation. Here's why they're beneficial to you.

DeFi increases trading pairs, which increases your investment options. Trading pairs determine returns on liquidity provision. You can earn as high as 100% return on liquidity provision due to favorable trading pairs. There's just one problem.

Highly rewarding trading pairs often involve tokens subject to market volatility. In some cases, simply holding tokens could be more rewarding as fluctuating prices can lead to a loss.


Crypto passive income tax implications

For maximum income, consider reducing your tax. Institutions such as the IRS (the US specific) track your income and require your returns on crypto profits. To avoid any penalties, file your returns accordingly. You can also increase your earnings by using tax reduction measures. For more information on reducing taxes on your crypto passive income, consider our elaborate article on crypto and taxation.


Top 3 platforms for crypto passive income

Having hinted at them previously, here are three platforms you should consider for crypto passive income:

  1. Nexo – Allows users to either lend or borrow crypto or fiat currencies. Nexo requires crypto as collateral for borrowers, and each loan is overcollateralized to consider market volatility. Investors earn an APY of 4% or 6% if they opt to earn in $NEXO. Stablecoins such as USDT, USDC, and TUSD earn 12% interest. But that's not all. $NEXO is a dividend-earning cryptocurrency. Nexo rewards stakers yearly for holding $NEXO, making $NEXO among the best crypto to earn passive income.
  2. BlockFi – Similar to Nexo, BlockFi's model relies on lenders. BlockFi incentivizes its users with an 8.6% APY on crypto (but interests vary, for instance, USDT has an APY of 9.6%). Interest is compounded and accrues daily with monthly payouts.
  3. Celsius – Another crypto lending platform on our list, Celsius provides a wider range of crypto options. Users can earn up to 17.78% when they reach the platinum level. Stablecoins such as USDT and USDC have an APY of 12.65%. Opting for rewards in Celsius' native crypto increases interest.

How sustainable is crypto passive income?

Blockchains offering passive income as either staking or mining need to provide additional products and services to stay profitable, relevant, and sustainable. In the short term, these rewarding models are sustainable. Nevertheless, increasing market participation and rewards will dilute the token valuation of these platforms. Offering more products diversifies a platform's revenue stream, helping maintain a healthy token value.


Can I earn crypto passive income with Bitcoin?

You can earn Bitcoin passively by crypto lending. Platforms like Nexo and BlockFi will reward you for lending your Bitcoin, in Bitcoin. If you're unsure of your Bitcoin lending strategy, read through our guide on investing in crypto lending for great returns for suggestions on Bitcoin passive income.

Our Verdict

Diversifying your income stream is a necessity. Time is a limited resource—Crypto passive income branches out your income without consuming your time. To optimize your earnings from crypto, consider your strategies, network fees, and taxation. Importantly, select a lending platform appropriate for your crypto portfolio. Finally, before committing your cryptocurrencies to any platform, conduct your research to determine what's best for you.

Get earning!


Frequently Asked Questions (FAQs)

What are the risks of earning passive income with crypto?

Depending on your passive income of choice, here are risks you'll likely be exposed to:

  • Rug pulls – A common occurrence in DeFi, rug pulls end with users losing their funds. Their creators target participants unaware of potential risks in crypto and unscrupulously run away with the users’ funds. 
  • Impermanent loss – Fluctuation in token prices can result in losses. Impermanent loss is observed in staking, where tokens lose value in liquidity pools because of volatile market conditions.
  • Unsustainable platforms – regardless of your passive income of choice, failure of a platform will result in losses. Consider sustainability before staking or lending your crypto.
  • Smart Contracts hacks - Despite every effort of most platforms to enable strong and highly guarded security protocols, smart contract flash exploits and hacks are a common occurrence in crypto. The danger of poorly written code being exploited is a real danger. 


How long does it take to earn money with crypto passive income?

Platforms like Nexo start rewarding lenders after 24hrs; however, the reward is comparably insignificant. With crypto passive income, patience is a virtue pivotal for optimal earnings. Most platforms will require crypto lock-ups of one month onwards.

Do I have to pay tax on my crypto passive income?

Yes, tax is required to be paid on all forms of passive crypto income. In this article, we summarize what the best crypto tax software options are.

Can you really make money with Bitcoin?

Yes! Select any lending platform from our elaborate list and start making money as passive crypto income with your Bitcoin today!

How do I make passive income with XRP?

You can earn passive income using XRP by lending XRP to crypto lending platforms supporting the crypto.

DISCLAIMER: This article does not constitute financial advice in any form. Readers are expected to be fully aware of any risks involved in crypto lending and should only participate after appropriate research.

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Crypto lending Platform
Centralized or Decentralized?
Rating out of 5
Interest Rates
BTC
ETH
USDT
DAI
XRP
XLM
Aave
BlockFi
Cake
Basic
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0.0%
0.1%
2.7%
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Crypto.com
Nexo
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2.7%
YouHodler
Binance
CoinLoan
Decentralized
3.2
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0.5%
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9.3%
8.5%
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5.0%
4.5%
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7.5%
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8.0%
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4.0
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Basic
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4.4%
5.3%
8.9%
8.9%
2.5%
3.1%
6.2%
6.3%
11.2%
11.2%
3.1%
3%
3.0
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1.5%
3.5%
6.0%
6.0%
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8.5%
8.5%
14.0%
14.0%
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5.0%
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3.7
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4.0%
4.0%
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8.0%
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12.0%
12.0%
Centralized
Centralized
Centralized
3.8
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3.5
Up to 12.7% for all 25 supported crypto assets
Up to 7% for all 58 supported crypto assets
Up to 12.3% for all 18 supported crypto assets

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