Investing in crypto can be highly rewarding, with returns as high as 500% or more. However, there’s the downside of a fall in crypto prices that can bring you down to even lower than where you started.
In 2018, Bitcoin fell by 65%. In the same year, it fell again to 80%. That is a significant loss. In early 2021, bitcoin investors were rejoicing with the all-time high of $65,000/1 bitcoin; their hopes were dashed with a fall of nearly 50% by May. This time, it fell with almost every unstable coin in the market.
This is why it is always important to understand the crypto world and the strategies to deploy at different times to minimize loss and maximize returns. This article will focus on passive income with crypto, especially when prices are falling.
Why Build Passive Income with Crypto?
It’s pretty easy to leave your money in your bank account because that’s safe and, well, passive. However, that doesn’t bring many returns. You will likely get a return of 0.01% – 0.50% a month or even a year, depending on where you live.
There are other passive income-generating ideas you can utilize to grow your income. Still, several of them, except short letting your house, can require much time or money investment at the beginning before they truly become passive.
If you want to make passive income without spending a lot of time growing or marketing your income stream, look to crypto.
There are several passive income-generating avenues with crypto, but this article will focus on a few of them that can grow your income and save you from much loss even when the price of cryptocurrencies is falling.
Passive Income Generating Ideas with Crypto
Yield Farming in a Pool
Yield farming is the process of providing liquidity to crypto pairs so you can earn from the trading fees and, on some platforms, governance tokens / the platform’s coin.
With this strategy, you can earn quite a lot. For example, if you join a pool early, you can earn as much as 5000% of your money. If you haven’t heard of yield farming previously, read this yield farming guide, it’s an explanation to help beginners. Also, read the Ubeswap platform mentioned in it; there’s an in-depth tutorial on how to farm yields for massive returns.
How to Make Passive Income with Yield Farming When Prices Are Down
There are two strategies to focus on with yield farming when the prices of your coins are down.
One strategy is focusing on stability. That is, taking all your coins and pulling them in stable pairs. For example, this is an unstable coin pool on Ubeswap:
This is a stable coin pool:
The stable coin pool, mcUSD-mcEUR, has the lowest returns; those coins are pegged on the dollar and euro. However, the unstable coins have the highest. For example, the UBE – CELO pair has an APR of 522%.
When the market is highly volatile, you can swap all your coins for stable coins and put them in stable coin pools. You will get lower but safer returns. Your money keeps growing without a loss.
When the market shows signs of recovery, you can swap them back to the unstable pairs and have many coins to stake because when the market is down is the best point of entry.
The second strategy is de-risking. That is to move your profits into stable coins, but leave your unstable coins in the unstable pair that they are in. So, you get the best of both worlds by sort of holding but still getting returns.
You can take it further by farming with your stable coin returns. The profit you moved to stable coins, put them in a stable coin pool, and still make more.
What are Stable and Unstable Coins?
I have mentioned both terms a few times, so it’s only fair that I explain what they are. Stable coins are cryptocurrencies that are pegged against a fiat (a government issues currency like the US dollar).
Since their value is tied to the value of fiat, they don’t experience high volatility. One of those is the USDT that is pegged against the USD. So, if you purchase USDT today, the value of your USDT wouldn’t change much, even if the market is changing a lot.
For example, when most of the unstable coins were falling in May 2021, stable coins only experienced a 3% fall and went back to their rate pretty much immediately and stayed there.
Unstable coins are all other coins like Bitcoin, Ether, Litecoin, Dogecoin, and so on. Any coin that isn’t pegged against fiat is an unstable coin.
With unstable cryptocurrencies, you can get pretty high returns but are faced with higher risks. An unstable coin can rise by 1000% in a few months, but a stable coin will stay the same because it is connected to the value of the fiat. So, you only make returns when the value of the fiat rises.
If you are a “keep-it-chill” person all the time, “hodling” will work for you. HODL is a misspelling of “hold” but has come to be seen as an acronym for “hold on for dear life” in the crypto world.
It refers to buying crypto and holding them regardless of how low the market goes. This helps you avoid a loss from selling when it’s down, with the potential for significant returns if the crypto rises in value in the long term.
Although this is less risky, it’s not for the faint-hearted. If you’re one to monitor the crypto market all day and your investment every minute, don’t use this strategy. Else you’ll get constant heartbreaks from news of low prices.
To stick with this passive strategy, you must have sufficient capital capacity so you are not forced to sell at a low price to meet unexpected needs.
This is for those that aren’t sure what the best strategy is at the moment. If you are unsure of what to do and want to minimize your loss, swap your unstable coins, like bitcoin and ether, to stable coins like USDC and USDT when the market shows signs of continuous fall.
When it starts to show signs of recovering, trade your stable coins for unstable crypto and end up with more to grow with.
For example, say bitcoin was at $65k and had fallen to $50k, and you are scared, trade it for USDC. When the bitcoin is at $38k but shows signs of recovery, trade your USDC for bitcoin and end up with more bitcoin, which gets you more value when it grows.
The problem with the above strategy is that you can never be sure of how low or how high a coin can get. So, while you might think $50k shows a downward climb, it might jump back up the next day.
Passive income with crypto is great, and it’s still possible to make returns and minimize or eliminate loss when the market isn’t doing well in general. Given that the market, especially the widely popular unstable coins, are highly volatile, you should always look for opportunities to de-risk or grow.
Nevertheless, always keep in mind that crypto is not a get-rich-quick scheme. Always think of the long-term instead of short-term returns; that’s the only way you can make much from your crypto investments.
Investors who bought bitcoin when it was at $15 are still profiting at a high percentage unless the market goes less than their $15. If they had sold at $1000, they would probably be regretting that decision now. Utilize the above strategies and relax while your income grows.