- Cryptocurrency investments are rewarding but are also highly risky.
- There are several ways of making passive income with Bitcoin in particular, including staking, lending, trading, contributing to liquidity pools and HODLing
- Choosing a proper investment strategy is important, depending on how much risk one is willing to take and how much profit one has in mind.
Despite the current bear market, it isn’t new that crypto, especially Bitcoin is one of the best and most versatile investment options and provides several ways of making passive income.
While some of these means of income can range from low-risk strategies like staking and high-risk means like trading. This means that there is no shortage of options for investors, depending on how much risk they are willing to take, the amount of capital invested, and how much profit these investors intend to make.
It is important to understand that aside from crypto, there are several other means of making passive income, and crypto investment only serves a new dimension.
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This article focuses on Bitcoin and how to make passive crypto income with the flagship cryptocurrency.
Passive Income with Bitcoin
Bitcoin is a proof-of-work cryptocurrency. This means the ways of making passive income with cryptocurrency are somewhat limited.
What does this mean?
Consider cryptocurrencies like Ether (Ethereum), Polygon, and Cardano. These cryptocurrencies are proof-of-stake coins and can be staked (locked) for a fixed period. And when the staking period ends, the stakers can earn passive income from staking rewards.
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Bitcoin, on the other hand, cannot be staked. However, there are several other options with Bitcoin, including mining, lending, trading, and even providing liquidity to Liquidity pools.
Here are some in-depth ways of making passive income with Bitcoin
Mining is the most obvious means of making passive income with Bitcoin, as cryptocurrency is a proof-of-work coin.
In Bitcoin mining, miners provide computing power to the Bitcoin network and help to confirm and add transactions to new blocks on the blockchain. As a reward for the miners’ “proof of work”, the bitcoin network releases small amounts of Bitcoin to the miner who first solves the mathematical puzzle the blockchain needs to create a new block.
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The only disadvantage of this means of making passive income is that mining was possible with a regular desktop computer in the early days.
However, the Bitcoin network has grown so much over time that these blockchain puzzles have become very difficult. Mining is now a very expensive process that entails tight competition and requires heavy machinery called Application-Specific Integrated Circuits (also called ASICs for short).
The price of Bitcoin, just like several other cryptocurrencies and commodities, is heavily influenced by the law of supply and demand.
In simple terms, Bitcoin trading is a means of speculating the price movement of the cryptocurrency over a fixed time frame. Based on these speculations, the trader can decide whether to go long (buy) or short (sell).
For example, if the price of Bitcoin is $10 before a trade, and the trader determines that the price might rise to $15, the trader buys or “goes long”, and sells when the price hits the $15 target for a $5 profit.
Investors can buy when they believe that the price of the cryptocurrency might go up, and then sell when the price action indicates a trend reversal.
Trading can be done via centralized or decentralized exchanges, often providing leveraged trading options like futures. This means that investors can place trades worth several times their capital, depending on how much risk they intend to take and how much profits they intend to make.
However, it is important to realize that trading is one of the riskiest means of making passive income with Bitcoin. Bitcoin trading should not be jumped into and must be done with a good risk management strategy.
3. Bitcoin Lending
This means of making income with Bitcoin is exactly what it sounds like. In Bitcoin lending, holders of Bitcoin can lend their coins to borrowers via a peer-to-peer platform. And when the lending period lapses, the borrower returns the coins with a little extra on top as interest.
How much profit one makes depends on how much Bitcoin is borrowed, the lending period, and the interest rate.
Bitcoin lending is not managed by the P2P platform but is controlled with smart contracts, creating a trustless platform that ensures everyone plays by the book.
Some P2P platforms also allow lenders to set their conditions like the amount of Bitcoin to be lent, the lending period, and the interest rates.
4. Contributing to Bitcoin Liquidity Pools
Liquidity pools are one of the fundamental aspects of decentralized exchanges. Bitcoin holders can add their Bitcoin to these liquidity pools or (LPs).
LPs are essentially digital collections of cryptocurrencies locked in smart contracts. These liquidity pools enable quick transactions for other traders. These liquidity pool providers are rewarded with a small part of the fees collected from the traders and can be a great way to earn passive income.
Uniswap, SushiSwap, and PancakeSwap are crypto exchanges anyone can get started with.
5. Buying and HODLing
HODLing is one of the easiest ways to make a profit using Bitcoin. In this method, investors can buy some Bitcoin and store them in hot or cold wallets.
The coins can be sold for a profit when the cryptocurrency price goes up after a fixed period. However, such a strategy can only be employed in bull markets and can be quite limited, depending on the general market conditions.
Overall, it is important to note that Bitcoin and cryptocurrencies generally are not “get rich quick” schemes and must be entered into carefully.
Disclaimer: Voice of crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.