Are there any crypto passive income strategies that genuinely work in 2020?
According to decentralized finance (DeFi) proponents, earning passive income from digital currency has never been easier. All that people need to do is deposit Bitcoin or Ethereum in DeFi yield farming liquidity pools.
Sadly, as popular as DeFi has become in 2020, yield farming is far from risk-free. In this guide, we’ll, therefore, look at what crypto passive income strategies still work in 2020, which are also the least risky.
What is a Crypto Passive Income Strategy?
A crypto passive income strategy is any strategy which allows you to earn steady returns, by either trading, investing, or staking cryptocurrency you already own in trading liquidity pools.
At present, DeFi yield farming is the world’s most popular way to passively earn cryptocurrency. In this case, we’ll examine this method first.
What is DeFi Trading and Yield Farming?
DeFi stands for decentralized finance. Moreover, how DeFi works is simple.
Businesses and autonomous organizations launch apps on the Ethereum blockchain that promise to help people invest cryptocurrency and earn guaranteed daily returns. Popular apps at present include decentralized cryptocurrency exchanges and peer to peer lending platforms.
To earn a passive income from DeFi, people can choose to stake coins they already own in liquidity pools. These are pools of digital assets which make sure that lending platforms and exchanges have enough liquidity available to serve their clients.
After staking coins, users earn a percentage of fees that the platforms they support generate over any 24-hours. However, there is a catch.
When adding or withdrawing cryptocurrency from liquidity pools, fees can top $60, even during slow trading periods.
The same fees apply when withdrawing earnings from different liquidity pools.
Because fees can be so high, it is only possible to make a profit from DeFi yield farming when staking $10,000 or more in DeFi liquidity pools.
Sadly, few people talk about how high DeFi trading fees can be on Ethereum. As a result, thousands of people every day lose thousands of dollars trying to break into DeFi without being aware of the real risks involved.
Cryptocurrency Bot Trading
If you are searching for crypto passive income strategies online, you will inevitably stumble upon cryptocurrency bot trading at some point.
Completely different from DeFi liquidity pool farming, cryptocurrency bot trading sees people deposit coins like Bitcoin on major exchanges. People then either buy or create cryptocurrency trading robots that execute trades on their behalf.
When put to use as a crypto passive income strategy, most people program bots to mirror the trading behavior of Pro cryptocurrency traders. Then they sit back and wait for their trading profits to start accumulating.
Sadly, cryptocurrency bot trading can be just as high risk as DeFi yield farming, especially if you are not an experienced trader.
Trading bots can cost anywhere from a few hundred to a few thousand dollars.
Some exchanges ban trading bots and may freeze your funds if they suspect you of using one.
Using trading bots requires a high level of skill—if you configure your bot incorrectly, you could make considerable losses.
When using bots to mirror the trading behavior of other traders, there is also no guarantee that traders won’t make heavy losses themselves at some point.
Cryptocurrency Arbitrage Trading
As most people will appreciate, neither DeFi liquidity pool staking nor cryptocurrency bot trading is without risk. However, there is one crypto passive income strategy that is almost risk-free.
At present, there are hundreds of different cryptocurrency exchanges available online. Of course, you already know this. What you might not know, though, is that the Bitcoin price on different exchanges is never universal.
Often, it is possible to buy Bitcoin cheaper on exchanges in the U.S. than it is in many parts of Asia. Cryptocurrency arbitrage trading, therefore, sees people buy Bitcoin on one exchange, before simultaneously selling Bitcoin on exchanges where prices are higher. After selling, traders then pocket the difference as profit.
Sadly, arbitrage trading is not completely risk-free.
Some exchanges do not allow users from certain geographic areas to create trading accounts.
Often, Bitcoin price differences across exchanges last for a maximum of a couple of minutes.
For arbitrage trading to work, traders need to set up multiple trading accounts, before watching the Bitcoin price on different exchanges like a hawk.
Because of the complexity of arbitrage trading, it is not really possible to define this as a true crypto passive income strategy. However, there is one last strategy that requires zero prior trading experience.
Bitcoin Mirror Trading
As a rule, if you have no previous trading experience, one of the worst things you can do is dive straight into trading. However, there are passive earning strategies that promise high returns to investors while keeping exposure to risk to a minimum.
Thanks to initiatives by groups like Mirror Trading International, it is now possible to stake Bitcoin in collective trading pools, where Pro traders trade assets on your (and their own) behalf.
Unlike when using bots to emulate the actions of other traders, you never need to worry about bots not being configured correctly. More importantly, Pro traders like those at Mirror Trading International are able to make trading profits even during major Bitcoin price drops through arbitrage trading.
Is Bitcoin Mirror Trading Safe?
Like with any crypto passive income strategy, there is a small element of risk involved with mirror trading. However, mirror traders always have an incentive to earn real returns on behalf of liquidity pool investors.
In simple terms, the more you earn by investing in mirror trading, the more likely you will be to recommend mirror trading to others. This adds more liquidity to trading pools and increases trading profits for everyone, traders included.
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