In the last several months, the cryptocurrency market has been embroiled in a wave of volatility that has seen many cryptocurrencies fluctuate between bullish and bearish price action.
Although this market is welcomed by traders that thrive on volatility — such as day traders and volatility traders — it has left more risk-averse cryptocurrency holders looking for risk-free ways to invest their crypto assets.
To help make this search a little bit easier, we have compiled a list of three different ways to make a profit in the world of cryptocurrencies — with little to no risk.
Earn Interest on Your Unused Balance
One of the simplest and safest ways to turn a profit on your cryptocurrency balance is through peer-to-peer cryptocurrency lending. As the name suggests, this is the practice of lending your cryptocurrency out to borrowers in return for an agreed interest rate.
The amount you can earn largely depends on two factors:
- The platform you choose to lend with.
- The cryptocurrency you offer for lending.
In general, you can expect an interest rate of between five to 10 percent, with shorter-duration loans typically attracting a higher APR.
CoinMarketCap Interest is a useful resource for finding information about the best interest rates available for your crypto assets since it contains a frequently updated list of current interest rates for both centralized and decentralized lending platforms.
Although it might seem like a high-risk practice from the outset, cryptocurrency lending is actually a low-risk investment option — regardless of the prevailing market conditions — because the vast majority of lending platforms implement several security measures to ensure that lenders receive their investment back, in addition to their due interest.
Firstly, borrowers are almost always required to put up collateral worth significantly more than the loan value, ensuring the maximum loan-to-value ratio (LTV) stays below a certain threshold — usually under 70 percent. Borrowers are then required to ensure their collateral stays above another threshold, known as the automatic liquidation threshold, which is typically set at around 90 percent of the loan value.
Failure to ensure the collateral stays above this threshold will typically result in partial liquidation to pay down the loan — ensuring the lender is sufficiently protected against unexpected volatility.
Participate in Trading Competitions
Although cryptocurrency trading can be an extremely profitable venture, it is also risky, since a large proportion of traders have little to no trading experience and are prone to making mistakes.
Fortunately, a good proportion of modern cryptocurrency exchanges offer a demo trading feature, which allows traders of all skill levels to try out the exchange features, as well as test their trading strategies, with absolutely no risk. These demo platforms, in combination with the wide variety of online trading resources available, can quickly turn a novice trader into an experienced one — making them well-prepared to tackle the market on a real trading account.
However, although building experience with no risk is all well and good, getting paid to do so is even better. That’s exactly what could happen when participating in the increasing number of cryptocurrency trading competitions, which give traders the opportunity to win real prizes for trading risk-free on a demo account.
StormGain, a popular cryptocurrency derivatives exchange, is currently scheduled to launch one such trading competition on March 13, 2020, which will see demo traders compete to win a slice of a 100,000 USDT prize pool. The rules of the game are simple, register for an account on StormGain between now and the end of the competition (April 09, 2020) and try to rack up as much profit with your 50,000 USDT starting balance as possible.
The 500 participants with the highest amount of profit by the end of the tournament will share part of the $100,000 USDT prize pool, with the number one trader winning a cool 5,824 USDT deposited directly to their StormGain account. Others will win a variable amount based on their ranking.
Stake Your Cryptocurrencies
In recent months, cryptocurrency staking has gone from being a relatively obscure practice performed by only a small percentage of cryptocurrency holders to a widely accessible feature available on several major exchange platforms.
Part of the reason behind this increased popularity is owed to the profitability of the practice since many proof-of-stake cryptocurrencies offer a yearly yield of more than five percent — with close to no risk.
The process is simple, by participating in the staking process, cryptocurrency holders receive a portion of the block rewards generated as part of the block verification process. These rewards are typically distributed in proportion to the amount of cryptocurrency that is staked, hence a large stake earns more rewards than a smaller stake.
Because the payout is guaranteed by the blockchain protocol itself, you only need to trust in the protocol to deliver the expected rewards.
As it stands, there are a wide variety of different stake-able cryptocurrencies available, each having their own pros and cons and differing wildly in the yields you can expect. As such, it’s worth weighing up the estimated returns against the volatility of the underlying cryptocurrency to ensure these rewards offset any losses due to bearish price action.
Staking Rewards is a popular platform that can help with this decision since it lists the majority of popular proof-of-stake cryptocurrencies along with their estimated rewards and provides a useful calculator to estimate your own potential staking rewards.
According to Staking Rewards, the average reward rate is more than 13.5 percent across the 85-yield bearing assets it tracks, though this is somewhat lower for the largest stake-able assets, such as Tezos (XTZ) and Waves.