Lesser-known Ways to Earn Passive Income from Crypto

Beginner’s Guide / 13.12.2019

The crypto space is often regarded as a hectic environment. This is because cryptocurrencies and blockchain are still coming-of-age industries where there is still a lot of trial and error. What is lesser known to outsiders however, is the variety of simple passive income opportunities available in the space. Outlined below are different ways of earning passive income through crypto:

Dividends, Buybacks, and Coin Burns

Some coins give returns to their owners just for HODLing them. The mechanics behind this can differ from blockchain to blockchain be it dividends, buybacks or coinburns, but the desired end result is always the same: return on investment. The returns can be paid either in the coin itself or in a different token running on the same blockchain, like how Ethereum uses Gas for its network fees.

Dividends in the crypto space work similarly to those in the traditional financial sector, and in fact buybacks and coins burns are not too different either. The principle is the same: give a return to the holder of the particular asset. Dividends pay out interest rates, and at the time of writing, the crypto with the highest interest rate sits at 38%, whereas Bitcoin sits at 6%. Conversely, some exchanges employ a buyback and burn mechanism where the blockchain buys back their native coins from the open market, putting upwards pressure on the price.

With this form of passive income, returns depend on two main factors: the interest earned and the price volatility. The higher the dividend rate or buyback %, the higher the return of return for the user, but it can all be if the coin is too volatile and drops. Pay attention to the asset price versus USD also so that the returns do not get lost in real terms. Apart from this, this form of passive income does not require much work beyond buying and storing the coins themselves.

Passive Index Funds

An Index fund tracks the performance of a basket of assets, typically of a representative portion of an industry. This type of investment is good for those who want to benefit from the market’s long-term “fundamental” growth curve without having to sit at the computer the whole time. These funds have become quite accessible in recent years as more and more organizations saw the value in offering risk-minimized exposure to the crypto market.

Though, there is one caveat to cryptocurrency based index funds at this moment time: the crypto industry needs time to mature. Many projects died since the last major market cycle ended in January 2018 leading many to lose their investments. It is important to keep an eye on the progress of each asset. Of course it is possible to pay for actively managed funds, but these tend to be more expensive.

In times of market downturns it could require a bit of willpower to stay in the game, but those who are patient will be rewarded. For reference, the crypto market cap is currently sitting at $200 million, down 76% from its previous all-time high at and if it is even to reach its previous all-time high at $835 million, then this will increase.

Algorithmic Trading Bots

Algorithmic trading can be a radically successful way of earning passive income. Algorithms come in different shapes and sizes, differing in terms of functionality, quality, profitability and usability, but they all require a basic understanding of how market operate and which strategies are effective at which point in the market cycle.

As a rule of thumb, a grid trading strategy can be profitable in a ranging market, where orders are placed above and below a set price, creating a grid of orders at incrementally increasing and decreasing prices, whereas a swing trading approach tends to be profitable in trending markets (both long and short).

It can be technically difficult and expensive to set up if you do not know how to code, but increasingly there have been algorithmic trading services popping up offering between 20% and 30% ROI. Also, it is important to be prudent with these services, especially if they ask you to send your coins to an address of which you do not own the private keys; watch out for scams!

Decentralized Prediction Markets

Decentralized Prediction markets are platforms where users can buy and sell predictions on certain events, just like traditional betting platforms, except that anyone can create the odds. They are said to transform how we forecast, gather data and manage risk. Indeed, the mechanics of such a platform can be quite complex, especially from a technical standpoint, but this just serves to underline its disruptive potential.

Decentralized prediction markets are still in their early stages, even though prediction markets have existed in centralized form for decades (e.g. betting agencies). The key difference is that anyone can create a betting market and gain passive income by being a market maker and earning from the spread. It may take time until earning passive income from such markets goes mainstream, and this is exactly why experimenting and exploring them would keep you profitably ahead of the curve.


All the mentioned options are a great way to earn passive income on your crypto or earn free crypto. But remember, it is always important to remain vigilant in the crypto space because it is riddled with all sorts of scams. If something sounds too good to be true, it probably is.

Patrick is a third culture kid born to Brazilian parents, who enjoys reading, writing and thinking. He believes we need to be relentlessly improving models for investing in good ideas and moving them from the lab to the market, which naturally draws him to the cryptocurrency and blockchain space.