Imagine kicking back while watching a great movie and making money all the time. That’s exactly what you can do with passive income.
There are several options for generating income that does not require ongoing effort on your part. Cryptocurrency staking is one of the growing approaches.This is the reason for staking Ethereum (ETH -2.62%). It could be an absolutely great way to earn passive income.
How to make concessions
Staking is only supported on blockchains that use the Proof of Stake consensus mechanism. These blockchains can be used to commit tokens to support transaction validation. In return, you will be rewarded.
Ethereum started with a proof-of-work model that doesn’t support staking. However, the introduction of the Beacon Chain in December 2020 paved the way for staking Ether tokens. The chain will be integrated with Ethereum’s mainnet this year, bringing bets to the entire Ethereum network.
How much can I bet on Ether Tokens? This depends on the cryptocurrency exchange you use and the length of time you bet tokens. However, the revenue is very impressive.
At the time of this writing, the highest annual yield available for Ether staking is 10.1%. Binance offers this particularly juicy yield over a 120-day staking period. It’s easy to find other exchanges with short-term yields between 4% and 8%. These yields are more attractive than the yields offered by most dividend stocks.
The back of the coin
Why doesn’t everyone want to bet Ether tokens when they have the opportunity to earn double-digit annual yields? The main drawback is limited sales capacity.
Cryptocurrency exchanges typically require a predefined period of lockup when betting Ether tokens. Even after the staking period is over, it may not be possible to sell immediately. Some exchanges have a “no bet” period that can last for several days.
This inability to sell can be especially problematic if the price of tokens is falling rapidly. I’ve recently seen this exact scenario run. Ethereum has fallen by more than 30% in the past week.
There is a good chance that the recession will spread. Staking can mitigate some losses, but yields are barely enough to offset the big losses we experienced this month.
From a long-term perspective
This is essentially the same challenge faced by dividend equity investors. You will not receive dividends even if you sell your shares. The stock price can be significantly lower than the dividend.
That is why investors are most attracted to dividend stocks of companies with a solid long-term outlook. Stock prices can fall in the short term, but investors expect to step on (and hopefully rise), at least in the long run.
Anyone considering staking Ether tokens should adopt the same idea. Steaking Ether Tokens is not recommended unless you believe in the long-term outlook for cryptocurrencies.
But that’s not the case, given that Ethereum’s blockchain is powerful and that Ethereum will continue to make significant investments over the next few years. If this view proves correct, betting Ether can be a great way to earn passive income.