Make Easy Passive Income With These 3 Cryptos

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Staking is an increasingly popular way to earn passive income on your crypto holdings. If you’re planning to buy and hold cryptos for the medium to long term, it could be an easy way to boost your overall portfolio returns. Just keep in mind that staking crypto is not an entirely risk-free process, especially during volatile market conditions. 

For that reason, it’s best to focus on high-market-cap cryptos such as Ethereum (ETH -2.02%), Cardano (ADA -0.69%), and Solana (SOL -3.42%). All of these have three things in common: They’re widely available on every cryptocurrency exchange, they can be staked using a variety of different methods, and they all offer competitive yields. Let’s take a closer look at what’s involved in staking these three cryptos.

What to know before you start staking

Depending on the level of your crypto-trading expertise, staking can be as easy or as complex as you want. For beginners, the easiest way to start staking is by purchasing a crypto on a popular cryptocurrency exchange such as Coinbase (COIN -8.07%), and then using built-in tools available on that exchange to stake it.

Often, it can be as easy as clicking a button next to the name of the crypto in your portfolio. It might sound obvious, but you actually need to own the crypto you want to stake, so that’s why it’s best to start with cryptos such as Ethereum, Cardano and Solana, which you may already own in your crypto portfolio.

Image source: Getty Images.

Before starting, it’s best to understand the exact terms of staking your crypto. The most popular crypto exchanges all provide a detailed explanation of which cryptos are available to stake, how much you can expect to make via staking, and any extra details that could impact your investment decision, such as the length of time you’re expected to stake.

In some cases, you can stake and then un-stake a crypto at a moment’s notice. Other times, you must agree to “lock up” your crypto for a specified period of time, such as 30 days or 45 days.

Choose the right coin for staking

The classic mistake that many people make when staking is simply choosing the crypto offering the highest annual percentage yield (APY). The higher the APY, the more money you can expect to make, right? Well, yes and no.

When you stake a crypto, you’re not paid out in dollars — you’re paid out in rewards in the form of the crypto you’re staking. Again, that’s why it’s important to focus on high-market-cap cryptos such as Ethereum, Cardano, and Solana. Nothing is worse than agreeing to lock up your crypto for a particular period of time, and then seeing the value of your crypto fall.

As a general rule of thumb, the higher the yield, the riskier the crypto. For example, take a look at the staking options available on Coinbase. You can earn yields up to 5.75% right now. The yields are 2.6% to 4% for popular coins like Ethereum, Solana, and Cardano. They’re even higher for relatively unknown altcoins such as Cosmos and Algorand. To put all this into perspective, just before it collapsed earlier this year, Terra Luna was offering outrageous triple-digit staking yields in excess of 250%. 

You may have noticed that Bitcoin (BTC -1.20%) is not part of the mix. That’s not an oversight — Bitcoin uses a proof-of-work blockchain, not a proof-of-stake blockchain, so staking with Bitcoin isn’t possible.

If the only crypto you own is Bitcoin, you’ll need to purchase a crypto that enables staking. That’s why it was a big deal when Ethereum became a proof-of-stake blockchain in September. Now you can now stake it, just like Cardano or Solana.

Maximize your staking rewards

Different crypto exchanges will offer different rewards for staking. If you’re an active crypto investor, you may be able to profit even more by doing a little yield shopping.

Right now, Coinbase is offering 4% APY for Solana. But if you look elsewhere, you can find slightly higher yields, such as 4.5% APY, depending on how much you’re willing to stake and for how long. Moreover, if you use Coinbase, you have two options: staking directly on the exchange (super easy) or staking from your Coinbase wallet (easy).

As noted above, crypto staking can be as easy or as complex as you want it to be. If you simply want an easy “set it and forget it” approach to passive income, staking via a cryptocurrency exchange is the easiest way to go. You may sacrifice some yield in the process, but you won’t have to worry about moving coins between different crypto wallets or using third-party staking platforms.

As with any crypto investment decision, there are risks to consider. Just make sure you read all the fine print and understand what you’re committing to when you decide to start staking.

Dominic Basulto has positions in Bitcoin, Cardano, and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Cardano, Coinbase Global, Inc., Cosmos, Ethereum, and Solana. The Motley Fool has a disclosure policy.



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