How to Navigate Passive Investing
Discover what it takes to get involved in passive investing and get positioned for long-term success.
There are many ways to get involved in passive crypto investing with options for different levels of risk tolerance. Most types of passive investing in crypto hold less risk in general than others, while certain types hold higher levels of risk.
This article will explain options for getting involved with passive investing. It’s important to note that in crypto, “passive investing” is used a bit broadly, as it includes things that otherwise do not really exist in the traditional finance world.
Dollar Cost Averaging
Dollar-Cost averaging is a common method of investing in any asset. You choose an amount to invest and an investment schedule. You then set this schedule and forget about it. This is a very widely endorsed way to invest in cryptocurrency.
Instead of buying a whole Bitcoin for $40,000, and watching it sink to $25,000, it’s safer to slice up that $40,000 over time. Instead, you could invest $500 every Monday until you own your desired amount of bitcoin.
By doing this, you become much less vulnerable to market volatility with your weekly investments balancing out the ups-and-downs in the market. While this isn’t going to be as profitable as being lucky and buying a whole bitcoin, and the price doubling the next month, it’s markedly safer.
You ride the waves rather than jump into the ocean without a life vest. The best part is that you can go at your own pace. If you want to do $1,0000 a week or $5 a week, most exchanges offer a recurring investment schedule feature so you can enter the market at a pace you are comfortable with.
Staking cryptocurrency is another great, low risk way to passively invest in crypto, with one caveat. Staking first involves an investment into a cryptocurrency that has a staking mechanism. Depending on the annual return you are looking for, you should be aware that a strong staking return may involve some risk with upfront capital. If this seems a bit confusing, an example will likely be helpful.
Cardano (ADA) is one of the most popular cryptocurrencies and offers one of the best staking mechanisms. You purchase Cardano and designate it into a staking pool, and every ~5 days you receive a reward in Cardano proportional to the number of tokens you have staked. The difficult thing about staking a cryptocurrency like Cardano is that it’s hard to balance risk from principal investment to reward from staking.
If you purchase 100,000 Cardano tokens (~$50,000 value), you are taking a big risk strictly in terms of the future price of the Cardano token. If it crashes, you could lose a significant portion of the principal, if it doubles in value you, of course, just made a great investment decision.
Staking, however, makes this a bit more confusing. If you staked all 100,000 tokens, your payouts will be quite large every 5 days, and will also see the benefit of compounding. The dollar figure per year isn’t entirely clear as reward amounts can be variable, but it’s usually between 5-15% annually.
This is a very nice and stable yearly return, but you must weigh the possibility that if the price of the token itself crashes, staking might take a very long time to recoup the lost value. On the other hand, if the value of the token doubles over a period of a year or two, you could find yourself with an amazing return.
Mining crypto is generally a safe way to passively invest, but unlike staking, requires a large upfront investment. Mining equipment has become very expensive, and it may take a while to see the return on that investment. Further, it’s imperative you research your local electricity costs before investing in mining, as electricity costs could render mining unprofitable in areas with more expensive electricity.
While this is arguably the riskiest type of passive investing in crypto, it’s also one that can be very lucrative. Most DeFi services require active monitoring, but some types of DeFi are passive. You could use high-yield DeFi savings accounts to earn anywhere from 5%-10% APY on your stablecoin (or cryptocurrencies like bitcoin). Generally, the higher the interest rate, the higher the risk, but there’s tons of options to use which also gives you the ability to spread your risk.
Crypto rewards cards
Perhaps one of the best ways to passively invest, especially if you are very new to crypto and uncomfortable actually investing, is through a crypto rewards card. These can be credit or debit cards that pay you crypto rewards for purchases. You simply get the card, choose your crypto reward, and just spend like you normally would, and you will get crypto rewards over time for doing it. Gemini is a great credit card to check out, and Coinbase card is a great debit card to check out.
Crypto Trading Bots
Another way that investors can get involved in passive investing is through the use of crypto trading bots. There are many different bots that accomplish different tasks, which is why it is important to choose the one that suits you best. For example, Stoic AI performs automatic trading with the use of a Binance account and a simple to use application. Crypto trading bots will eliminate the need to execute manual trades day and night which consume all your time and energy.
- Dollar Cost Averaging, Staking, Mining, Defi, and Crypto rewards cards are all ways to passively invest in crypto.
- Each option has different levels of risk, ranging from no risk (crypto rewards cards) to higher risk (Defi).
- It’s best to have a combination of these passive streams, but for newcomers it is best to start with the low-risk methods.
- Crypto trading bots are an important aspect of passive investing that can be beneficial when looking for good ways to grow your portfolio.
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Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.
Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.