Crypto Passive Income Is Becoming a Dangerous Minefield

By johnwege | johnwege | 4 Aug 2022

Things just aren't as easy as they used to be. That is a phrase many of us have probably heard at some point in our lives and have probably thought about many times as well.  You can now apply that same phrase to cryptocurrency and make a passive income with it.  While it was once extremely easy to make a passive income with your bitcoin and crypto while maintaining peace of mind.  That is no longer the case.  Just setting your crypto and forgetting about it is a thing of the past.  There are still many great opportunities out there to earn with your crypto, but protecting your assets; now requires much more effort, attention, and time.  But it is possible.

Let's first lol at the crypto lending scene.  In the past, this was one of the best opportunities to earn a passive income with your bitcoin.  Finding interest rates of 6%, 7%, and beyond wasn't a difficult thing to do.  And there were plenty of options as well.  Places such as BlockFi, Nexo, Celsius, Vauld, Voyager, and the list goes on.  As far as rates go, they were all pretty much in the same range.  You could just pick a service randomly and use it.  Just set your coins and forget about them while they racked in passive income for you.  But, then came the onslaught of market turmoil and we learned that many of these places weren't as safe as we thought they were.  That they were doing some very risky things with the deposited user funds.  Which would lead to the insolvency of many of these services, which would also freeze users' funds on the platform.  It must be noted that currently; BlockFi, Nexo, and other places like FTX have not frozen funds and are running normally for the time being. But, confidence in lending services has been shattered.  And it isn't safe to do it until the market settles down.  


What this all boils down to is that lending out your bitcoin to these services was one of the best and also one of the only ways to earn passive income with bitcoin. For the time being, it seems that the best idea for people who want to earn a passive income with their bitcoin is just to sit and wait on the sidelines until the market becomes safer.  During times of turmoil, surviving needs to be your top priority.

Some people might argue that this only affects bitcoin, and that bitcoin wasn't designed to have a passive income avenue like many other blockchains are.  Other chains where DeFi is alive and well are where you should be trying to earn a passive income.  Smart contract blockchains like Ethereum, Solana, Avalanche, and the list goes on.  Earning a passive income is essentially in the DNA of these blockchain protocols.

With that said, now you would need to be much, much more careful on these chains.  It has often been said that we are in the "Wild, Wild West" with crypto.  It's the only free market left and anything goes.  While this means that there are amazing opportunities out there to possibly become rich.  It also means that it is a very dangerous place and you could lose everything.

This idea has become even clearer recently.  In the last several weeks and months there have been hack after hack, rug pull after rug pull, and Ponzi scheme after Ponzi scheme.  Resulting in the loss of billions of dollars.  We have seen UST and Luna be worth billions of dollars, to see it nearly go to zero in mere hours.  Innocent people like you and me were led to believe that these founders had great intentions, that these protocols were safe, and so on. But they weren't.


We recently saw the NOMAD bridge be hacked and drained, losing hundreds of millions of dollars worth of crypto.  A few days ago wallets in the Solana ecosystem were also hacked and had crypto drained.  But this isn't limited to just these two examples and the UST/Luna situation above.  It seems each week, and maybe now daily, we are hearing of new hacks where users are losing their funds.  There is a consensus out there right now that things are not safe.  People are rushing towards the exits and entering survival mode; simply trying to protect and maintain what they have. 

Now, some would people then say that the best way to get a passive income with your crypto would be to stake your coins on smart-contract blockchains that offer to stake.  After all, there are many chains out there that offer incredible interest rates.  Rates range around 20%, and others can be found with a much higher interest rate.  While those may seem like great opportunities, especially because staking is built into the chain and would seem like a much safer offering when compared to lending out your crypto to third-party services.  But as you can see with the hacks and above situations, sometimes these chains don't have the security that we thought they had.  They don't have the leaders that we thought they had as well.  But even more important than that.  Let's say there is a crypto that is offering a 100% APY staking interest.  But it is a lower market cap coin that isn't established at all in the crypto market.  It's a coin that probably doesn't have real long-lasting potential, and likely won't be around in a few years.  So tell me this, which is better? Staking Ethereum at a rate of 4-7%, or staking a brand new coin that is offering a 100% interest rate.  The answer is Ethereum.  If, or when that other coin drops in value or collapses, what good is the 100% interest? 100% of zero is, in in-fact, zero. 

And so that brings us to our last point. There are still some great opportunities.  I think staking Ethereum is about as good as it gets.  It is one of the 2 blue chip coins out there, has great security, and will likely still be around in the future.  Also, there is a great chance that its value will be higher as well. But even that still had quite a bit of risk to it.  When you stake Ethereum into the ETH 2.0 protocol, you are locking it up until quite some time after the merge.  Ethereum is a blockchain that has seen quite a few delays in its development.  There were some real doubts if we were ever going to see the merge take place.  The people who were staking into ETH 2.0, were taking a real risk by locking up their coins.  Thankfully, the merge is likely to happen in September, and in this case, the people who took the risk will have come out lucky and be rewarded.  

But that isn't always the case.  This crypto cycle years after the fact will probably be known as the cycle of hacks and lost fortunes.  A generation of people who will think back and have great regrets.  Thinking about the possibilities of what could have been, if they could have just held on to and protected the crypto that they already had.  This will become an even bigger thought when all of these coins have gone up astronomically in value. 

How about you? What are you doing for passive income with your crypto? Do you go slow and steady with safer options, or do you go after the more risky opportunities?



As always, thank you for reading!

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