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Bitcoin Passive Income is Dead

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Avatar for johnwege
Written by   318
2 months ago
Topics: Bitcoin, Ethereum, Investing, Money, BTC, ...

Earning passive income with your Bitcoin is currently dead. Throughout the last few years, the market became obsessed with earning a yield on their crypto assets and took on significantly more risk to do so. Now that services like FTX, and BlockFi have frozen withdrawals, that’s not even including the eventual contagion effects that will follow. We have learned a very hard, but vital lesson. Many of us gave up the keys to our Bitcoin, an asset that we are convinced will be a life-changing asset, and someday will be worth over $1 million to receive a mere 3–6% interest. An asset that on average years increases much more than that. In order to win, all we needed to do was to buy Bitcoin and HODL. But, the market became greedy and got humbled quickly.

Now please don’t misunderstand. Bitcoin itself is perfectly fine and nowhere near dying. I remain as bullish as I have ever been about Bitcoin. However, this whole situation has been a very painful punch to the stomach. It will take time for the market to digest this and recover from it. With that said, It will rise again and will become even stronger due to this. We will build back and even better. 

This last cycle in the crypto market will be remembered as the cycle of greed and leverage. Perhaps Bitcoin was destined to reach those price predictions that we all dreamed about. Those days of dreaming about Bitcoin hitting prices of $400k seem so long ago. But, instead, the market used too much leverage, forgot the fundamentals, and got REKT. It was all self-inflicted wounds.

Bitcoin Lending

The first example of this is Bitcoin lending. For many, this was the easiest and most popular way to earn a passive income with your Bitcoin. All you needed to do was essentially deposit your coins on the service. Just set them and forget them while they earn you a great passive income. It was easy to find services that offered 6–8% on your Bitcoin and lending services began appearing everywhere. BlockFi, Celsius, Nexo, Vauld, FTX earn, Voyager earn, Haru, and the list goes on. Looking back, it is worrying that more people were not concerned about the risk that they were taking while doing this. 

The miseducation was real. If I received a dollar every time I heard someone refer to lending their Bitcoin as “staking,” I would have been able to buy multiple extra Bitcoin. Staking your ETH, Cardano, Polkadot, or any other crypto is relatively safe as the interest is baked into the protocol’s code. However, when lending your funds to services like BlockFi, Celsius, or Nexo, they are needing to use your coins to earn enough to not only pay your interest but also to make a profit. What this all means is that they are taking on great risk in a market that is already very risky.

Bitcoin Mining

Everyone would be thrilled to earn a passive income with their crypto. That is one of the reasons why proof-of-stake chains have become so popular recently. Right now you can buy Ethereum and easily stake it to earn a 5%+ interest rate. The equivalent to staking on Bitcoin would be mining. However, nearly all regular retail buyers all already priced out of doing this. You first must buy the expensive ASIC mining machines. And then the problem of the exorbitant electric fees that you will be paying. For most people, this would be a venture that costs them more money than they would make. They would be better off just buying spot Bitcoin. 

Bitcoin Liquidity Pools

Providing liquidity is still a valid way to earn a passive income with your Bitcoin. However, this requires a user to take on substantial risk. The user must first deposit their funds onto the exchange, DEX or service which could be hacked. If there is one thing we have learned throughout this entire situation, it is that we need to be taking self-custody of our Bitcoin and not trusting services to return our coins when requested. The second risk is that if the liquidity isn’t maintained, you could also lose everything. This is a method that I would never recommend for the average crypto user and therefore can’t say it’s a valid form of passive income for Bitcoin.

Bitcoin Covered Calls

Another form of substantial passive income with Bitcoin is using covered calls. Once again, this is a much more complex method that I wouldn’t recommend to the average user. It isn’t easy as lending out your Bitcoin was. Essentially using covered calls is betting on the price of Bitcoin. You can agree to sell your Bitcoin if it reaches a certain price point in a set amount of time. For agreeing to do this, you receive money upfront. If Bitcoin doesn’t reach those amounts up/down, then you keep your Bitcoin and also that amount of money you got up front. But if it does hit those numbers then you would be forced to sell. It’s a risky venture that I wouldn’t recommend to most people and therefore isn’t a valid form of passive income in my opinion.

The Future

As it stands right now, there isn’t a safe way for the regular user to earn a substantial Bitcoin passive income. This most likely will change in the future as the crypto industry matures. While the market is in chaos currently, there may be some good that eventually comes because of it. We will see more regulations, and maybe services will become more trusted. While crypto lending services are currently dangerous and I can’t recommend them. Someday, they could become much better due to those regulations. As the Bitcoin protocol evolves and is updated there could be various new ways to earn passive income. If Taro is implemented into the Bitcoin protocol, it will bring the ability to create more tokens on Bitcoin and even greatly increase smart contract abilities. Which could eventually bring more passive income opportunities.

The key thing is this. While we all want to earn passive income with our Bitcoin and crypto. The most important thing right now is survival and protecting your portfolio. We need to take self-custody of our coins and wait for the market to settle down. Live to see another day. Bitcoin isn’t finished and will become stronger due to this.

How about you? Do you think passive income with Bitcoin is dead?

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Written by   318
2 months ago
Topics: Bitcoin, Ethereum, Investing, Money, BTC, ...
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Comments

Luckily I was watching the market carefully and was able to withdraw. Ah man, that's rough. I hope you will receive it in your account!

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2 months ago

Did you manage to get your funds back in time? I did withdraw 0.1 BTC and 0.05 ETH from Blockfi but it did not come to my account.

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2 months ago