Creating Passive Income in Crypto: Is It Worth It? – Motley Fool
Is staking worth it for the average investor?
To stake or not to stake, that’s the question being discussed during the Jan. 12 episode of “The Crypto Show” on Backstage Pass. Fool.com contributors Chris MacDonald and Jon Quast discussed how to stake various cryptocurrencies, and whether it makes sense as a long-term strategy.
Jon Quast: As we transition out of the news section of today’s show, I did want to hit a couple of questions over here in Slido. I’m going to put you on the spot here, Chris. Long-Time Listener, First-Time Caller says, “Any thoughts about using Nexo (CRYPTO:NEXO), Celsius (CRYPTO:CEL), and BlockFi for passive income. Are you familiar with Olympus (CRYPTO:OHM), symbol OHM? Thanks.” Any thoughts there on passive income?
Chris MacDonald: Yes. The Celsius Network is definitely an interesting one to look into and similar in some ways to Compound (CRYPTO:COMP) and Aave (CRYPTO:AAVE) that I brought up earlier. OHM, I know has been a big mover. A lot of those tokens have been highfliers of late.
I think the passive income argument with crypto is certainly interesting. For me, when I think about passive income in the crypto world, there’s maybe two sides of the coin. On the one hand, if you’re going to hold this crypto for the long term, it probably makes sense to lock it in somewhere and earn a return on it.
Generally speaking, there aren’t cash flows necessarily with cryptocurrencies, but there are ways that various decentralized applications can allow for income streams to be provided. Whether it’s staking or what have you, there’s value that can be created there and probably makes sense to capture some of that value.
On the other hand, there are some risks with whether it’s staking tokens or finding ways of earning passive income. Two main risks are that the platform that one stakes that tokens on could, there’s always a potential loss of your tokens from whether it’s a hack or an outage, what have you. That’s an inherent risk as well.
There’s price volatility and with staking some of your tokens and earnings and passive income, it depends on the particular platform, but you might be locked in for a specific period of time, can’t sell, and if the token drops 90% in value, doesn’t really help you if you’re running at 10% yield. There’s that volatility argument.
Personally, there’s one token that I have that I earned passive income on — that’s Tezos (CRYPTO:XTZ) — but other than that, I think it’s fine if it’s on a major platform personally, I do it on Coinbase (NASDAQ:COIN), but there’s an increasing number of applications that are offering this, and some are maybe better than others. Looking at those risks is important to do.
Quast: Along those same lines, Brandon Fong asks, “What are your personal thoughts philosophies on staking? What percentage of your cryptocurrency would you allocate the staking and why?” This is a personal question here. It’s going to vary for everybody and we’re not saying how much of Brandon’s portfolio should be in staking, but do you have a personal opinion on this?
MacDonald: Well, first of all, not all tokens can be staked. Like I said, there are an increasing number of platforms where you can stake tokens. Over time, I anticipate that probably most tokens will be able to staked.
But for passive income generation, it’s more of a complex discussion because there’s actually staking on a proof-of-stake network where you’re staking on a blockchain, for example. For Ethereum (CRYPTO:ETH), in order to stake from the Beacon Chain, you need something like $400,000 worth of crypto. That was the number a while back that I was looking at. For certain coins, it’s impossible to stake for most people. The smaller tokens, certain platforms like Coinbase will allow you to stake just by holding on the Coinbase platform and others, you need to seek out ways of doing it.
I think as you go further and further down, the token list, let’s say in terms of market capitalization, the risk goes up with staking in a particular token. Personally, I just have the one token that I stake, and just because it’s easy I’m going to hold it on Coinbase. But for those holding tokens, not necessarily on a centralized exchange.
Like I said, there are those risks that are involved that it really depends on what your risk tolerance. In the crypto space, it’s already risky enough. My personal take is that unless it’s easy, I’m not going to do it.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Chris MacDonald owns Compound, Ethereum, and Tezos. Jon Quast owns Ethereum. The Motley Fool owns and recommends Aave, Coinbase Global, Inc., Compound, Ethereum, and Tezos. The Motley Fool has a disclosure policy.