Beyond HODLing: How to (Always) Earn in Crypto

When it comes to cryptocurrencies, many individuals believe that the only strategy is to invest, hold, and wait for long-term gains and that they have missed the big money already. However, this assumption is wrong in many ways and its limited perspective fails to capture the vast array of opportunities the crypto space has to offer.

Since the explosion of decentralized finance (DeFi) in what became known as the “DeFi summer” of 2020, the landscape of earning potential in crypto has undergone significant transformations. In this article, we will delve into the most common methods to earn money in crypto, highlighting their advantages and risks. By exploring these avenues, we can unlock the full potential of crypto and empower individuals to make informed decisions about their financial endeavors. Let’s dive in!

Lending: Traditional banking mechanism, crypto-optimized

You need money? I have money. You get mine and pay back more. A concept as old as time, backbone of the traditional financial industry, that has found its place in the crypto world.

Cryptocurrency lending involves lending your digital assets to borrowers in exchange for interest payments. Lending platforms exist both centralized and decentralized with lenders and borrowers on both the institutional and retail side. Centralized lending in crypto involves using intermediaries or platforms that have control over the lending process and set the terms, interest rates, and collateral requirements, while decentralized lending operates on blockchain-based protocols, eliminating intermediaries and allowing users to lend and borrow directly, with terms determined by smart contracts and without the need for KYC/AML verification or relying on a central authority.

Popular examples of decentralized lending protocols are AAVE, Compound, or Spark with centralized platforms offering lending services being Coinbase, YouHodler or Bitgo.

Benefits:

• Generate passive income through interest payments on lent assets.
• Retain ownership of your crypto while still earning returns.

Risks:

• Default risk associated with borrowers failing to repay loans.
• Market volatility may affect the value of the lent assets.

Active Trading: (Try to) Earn like a Wall Street banker

Active trading involves buying and selling cryptocurrencies with the aim of capitalizing on short-term price fluctuations. Traders employ various strategies, including technical analysis, fundamental analysis, on-chain data analysis and market trends, to make profitable trades. Popular examples for cryptocurrency exchanges that provide a wide range of trading options are Binance, Bybit, or decentralized exchange Uniswap.

Benefits:

• Potential for quick profits through timely trades.
• Easy access to a wide range of cryptocurrencies and trading pairs accessible 24/7.

Risks:

• High volatility and market risks may (often) lead to financial losses.
• Requires in-depth knowledge, training and analysis, and monitoring of market trends.

Staking: Contribute to the ecosystem

Staking involves holding and supporting a particular cryptocurrency network by locking your tokens. By doing so, you contribute to the network’s security and consensus mechanisms, and in return, you earn rewards. Staking typically requires holding a specific amount of tokens and maintaining a stable online connection to validate transactions. A popular example of staking is Ethereum 2.0, where participants lock their Ether to help secure the network and receive rewards in return.

Benefits:

• Earn passive income from holding and supporting the network.
• Contribute to the security and decentralization of the blockchain.

Risks:

• Potential risks include slashing penalties for misbehavior or network attacks.
• Locked tokens may be subject to market volatility, affecting potential earnings.

Yield Farming & Liquidity Mining: Wait, is there a difference?

Both terms are often used interchangeably but in fact different, though very related concepts. Yield farming refers to the practice of maximizing returns by actively seeking out the most profitable opportunities in decentralized finance (DeFi) protocols, involving strategies such as staking, lending, and participating in liquidity pools. Liquidity mining specifically involves providing liquidity to DeFi pools, especially for decentralized exchanges and earning rewards in the form of additional (governance) tokens or transaction fees for doing so. Decentralized exchanges work as automated market makers that facilitate permissionless trading between parties by utilizing liquidity pools, and pay rewards to the liquidity providers (LPs) per transaction.

A popular example for liquidity mining are Uniswap, Sushiswap or 1inch.

Benefits:

• Opportunity to earn high yields on cryptocurrency holdings.
• Potential for additional token rewards or governance rights.

Risks:

• Smart contract vulnerabilities and security risks associated with DeFi protocols.
• Impermanent loss due to changes in the value of supplied assets.

Arbitrage Trading: It’s market neutral, what can go wrong?

Arbitrage trading involves taking advantage of price differences for the same cryptocurrency. Especially in the crypto market, where innovation is front and center, the sheer amount of new projects and technologies often gives availability for arbitrage. The most common execution of arbitrage trading happens cross exchange, where traders buy the asset from one exchange at a lower price and sell it on another exchange where the price is higher, pocketing the price difference as profit.

Benefits:

• Opportunity to profit from temporary price imbalances.
• Doesn’t rely on market direction, as the focus is on price differentials.

Risks:

• Requires quick execution and monitoring of multiple exchanges, often performed using trading bots.
• Liquidity limitations and transaction fees can impact profitability.

Initial Coin Offerings (ICOs): When I say early, I mean early

ICOs are crowdfunding events where new cryptocurrency projects raise funds by selling their tokens to investors. By participating in ICOs, individuals can potentially invest in promising projects at an early stage and benefit from future token price appreciation. However, it’s essential to conduct thorough research and due diligence before participating in any ICO, as there are risks associated with fraudulent projects or regulatory uncertainties.

Benefits:

• Opportunity to invest in early-stage projects with growth potential.
• Possibility of substantial returns if the project succeeds.

Risks:

• High risk of investing in unproven or fraudulent projects.
• Regulatory uncertainty and lack of investor protection.

Airdrops, Bounty Programs, Giveaways & Faucets: Free? Yes, please!

Airdrops and bounty programs are promotional campaigns carried out by blockchain projects. Airdrops involve distributing free tokens to existing cryptocurrency holders, while bounty programs reward users for completing specific tasks or promoting the project. Participating in airdrops or bounty programs allows individuals to receive tokens at no cost or earn rewards for contributing to project development or marketing efforts.

Benefits:

• Obtain free tokens or earn rewards without initial investment.
• Engage with blockchain projects and contribute to their growth.

Risks:

• Airdrops and bounty programs may have eligibility criteria or limited availability.
• Some projects may not gain significant value or fail to deliver on promises.

And there are more…

There are so many more creative ways to earn crypto and many of those strategies can be combined to create multiple income streams. Some more examples include:

• Work for a crypto company: There are many websites to find both freelance and fulltime employee positions in the web3 space with companies oftentimes giving the opportunity to earn (parts of) the salary directly in crypto. Websites include cryptocurrencyjobs.co, bitcoinjob.com, or web3 jobs.
• Build a Crypto Startup: Probably one of the hardest but most rewarding ways to get involved in the crypto industry is by building your own project or joining a team as an early employee or co-founder. A good place to start is by joining crypto events and pitch competitions to network with fellow web3 enthusiasts.
• Play to Earn Games: Play to earn games are blockchain-based video games that allow players to earn cryptocurrency rewards or non-fungible tokens (NFTs) by participating in gameplay or completing in-game tasks.
• Invest in NFTs: Investing in NFTs involves buying and owning unique digital assets, such as artwork, collectibles, or virtual real estate, which are recorded and authenticated on a blockchain, providing provenance and potential value appreciation.
• Accept Crypto as Payment Option in Your Side Hustle or E-commerce Project: Including crypto in your own project enables customers to make purchases using digital currencies, broadening your customer base and potentially benefiting from the growing adoption of cryptocurrencies.
• Content Creation: Sites such as YouTube, Twitter, Instagram, TikTok and Discord all have large and growing cryptocurrency scenes, with millions engaging with content. Building a followership is a tough task but once it is created, content creators can monetize it with ads or selling their own services.
• Mining: Mining in the context of cryptocurrencies refers to the process of validating transactions, securing the network, and creating new coins by solving complex computational problems using specialised hardware, with the most popular example being Bitcoin mining.
• Running Masternodes: Masternodes are dedicated nodes in a blockchain network that perform additional functions beyond basic transaction validation. By operating a masternode, individuals can contribute to network operations and receive rewards. Dash is a popular example of a cryptocurrency that utilises masternodes. It requires technical knowledge to set up and maintain a masternode.
• Dividend Payments: Some cryptocurrencies offer dividend-like payments to token holders. These payments are usually distributed from the project’s revenue or transaction fees. Holding tokens of such projects enables individuals to receive periodic dividend-like payments. For example, NEO, often referred to as “Chinese Ethereum,” allows token holders to receive GAS tokens as a form of dividend.
• Traditional Buy and Hold: If all else sounds too complicated, there is still the good old buy and forget. But don’t forget where you stored your crypto and in case of a non-custodial wallet, make sure to save your seed phrase appropriately.

Did I forget any strategies? Please feel free to share more in the comments and I will update this list.

Conclusion

Earning money in the cryptocurrency space requires a combination of knowledge, strategy, and risk management. Staking, lending, active trading, yield farming, and other methods offer different opportunities to generate income from crypto assets. It’s crucial to thoroughly research each method, understand the associated risks, and consider factors such as market volatility, platform security, potential rewards and very importantly act according to their personal investor type. You will soon find out if you are more the buy and forget or active trading person. But I will save the topic of investor personalities for another article.

Disclaimer

Nothing in this post should be construed as advice of any kind, including legal, business or tax advice. This post does not constitute an offer to sell or the solicitation of an offer to purchase any investment.