Cryptocurrencies are tools which not only function as digital assets but also as avenues to give the investors attractive returns on their investments. Like any asset which is available at a marketplace, cryptocurrencies too can be bought and sold by traders and investors through exchanges. These virtual assets have opened up horizons for users to earn high returns and turn their financial exposure into robust portfolios. Let us discuss the ways in which you can earn the highest returns on crypto.
Buy Low, Sell High
This is the conventional, tried-and-tested way of going about earning from cryptocurrencies. You just buy into a coin, let its value increase with the help of market forces and then sell it at a profit. You can do this to potentially earn high returns. This can be done in two ways which depend on the priorities of the user.
If you are an investor, you can adopt a ‘buy and forget’ approach. This is a long-term outlook which allows you to hold on to a coin until its value reliably increases over a period of time.
However, if you are a trader, you can buy into a coin for the short-term and book periodic profits. The success of this approach depends on the volume of the coin bought. Trading can be of different types, like day trading in which you buy and sell on the same day, BTST trading in which you buy today and sell tomorrow as well as swing trading in which you keep buying and selling within specific periods of time.
When you have invested into a cryptocurrency, the assets usually sit idle in your wallet. This leads to possibly stagnating value of that asset if its trading price decreases. To avoid such instances, you can lend your crypto to other peers, which is known as P2P (or peer-to-peer) Lending. Several crypto exchanges and platforms like Salt Lending, BlockFi, Celsius etc. support such lending.
This is comparable to bank loans that we are familiar with. The borrower has to temporarily part ways with something which becomes the loan collateral. Similarly, in crypto lending as well, the borrower gives crypto as the collateral and in return receives cash or other crypto from the lender. The lender becomes entitled to an interest which is paid in the form of more crypto, apart from the principal crypto amount. This way, you can earn high interest returns on your crypto without simply letting them sit idle in your wallet. For example, Salt Lending allows interest rates starting from 3.5% with a loan-to-value ratio of 30% to 70%.
Staking is essentially a way of validating blockchains. Holders of a coin block their holdings in favour of the blockchain in order to verify crypto. It is a useful way for the blockchain to save energy and use coins to validate the system. This is called Proof-of-Stake (PoS). It is a feature which is offered by various crypto platforms to not only help validate the blockchain which is issued by the network, but to also enable customers to earn high returns and yields on their crypto.
You can block (or stake) a portion or the entirety of your holdings of a particular cryptocurrency, in order to earn more of the same asset. The amount that can be earned is determined according to the annualised percentage yields (APY) of individual cryptocurrencies and of the crypto platform through which staking is taking place. For example, Nexo offers 12% annual return on USDT while Celsius offers 8.50% annual reward rate for the same coin. Staking returns are basically rewards given to the stakers for helping validate and secure the blockchain. However, the value of the crypto (and therefore the returns) might be subject to fluctuation because of changing trading prices of the asset. Learn more about staking rewards here. (Link to our article on staking rewards).
This is similar in process to staking, but potentially gives much higher returns on crypto. Moreover, staking can take place in almost any crypto platform, but the highest interest rates are offered only by decentralised exchanges (DEXs) like PancakeSwap, UniSwap etc. DEXs are platforms which are outside the purview of a central nodal authority and therefore enjoy greater autonomy.
Through yield farming, you can contribute your crypto to the liquidity pools of exchanges. If you contribute to a Cardano liquidity pool, then you enhance the exchange’s ability to sustain more Cardano transactions. So, whenever anyone trades in Cardano, you will receive a cut of the trading fees. This process enables you to earn high returns through yield farming. Usually, some exchanges offer higher returns when you lend its own native token, e.g. PancakeSwap’s CAKE token. However, value of yield farming returns depend heavily on the market prices of the cryptocurrencies. For example, if you earn 50% return and the coin suffers a 40% drop in market price, you essentially get a return of only 10%