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How to Invest in Cryptocurrencies in 2021 (and What to Avoid!)

Last Update:
July 12, 2021

In this article, I will tell you about how to invest in cryptocurrencies in 2021 and especially tell you what to avoid in this area. Indeed, cryptocurrencies have a lot of potential to generate passive income, but there are also a lot of pitfalls to avoid, and this is what we will also see in this article.

What to avoid

Before learning how to invest in cryptocurrency, I wanted to tell you what to absolutely avoid in the field, and yet I see so many people doing day after day: putting money in cryptocurrencies for the sole purpose of speculation, hoping that their price will rise in the future. For example, a lot of people put money in Bitcoin at the start of 2021, hoping that the price of Bitcoin would continue to rise. However, the Bitcoin price declined rapidly towards the middle of the year, causing great losses for investors.

The problem with this strategy is that I think there is no intrinsic value in most cryptocurrencies: for me, these are just instruments that allow you to do a lot of things, but they don't have any intrinsic value, so there is no reason to invest in the hope of long-term gains. Moreover, we will immediately see that most of the ways of investing that I am going to tell you about in this article use stablecoins, which are cryptocurrencies that copy the value of fiat currencies like the Euro and therefore do not change over time.

How to invest in cryptocurrencies to generate passive income

For me, the 'right' way to invest in cryptocurrencies (and to invest in general) is to invest in order to generate passive income. It is indeed a guarantee to invest in stable assets which will avoid speculation, and will allow you to build a solid investment portfolio which will grow over time.

With cryptocurrencies, there are many ways to invest to generate passive income. We will now go through the list, going from the simplest to the most complex cryptocurrency investments for passive income.

Crypto Peer-to-Peer Lending

The first way to invest in cryptocurrencies to generate passive income is Peer-to-Peer lending, but in cryptocurrencies. Indeed, I really like investing in "classic" peer-to-peer lending, and doing it with cryptocurrencies allows you to diversify your investment portfolio on more platforms.

The advantage of these platforms is that the collateral for the loans is paid directly in crypto by the borrowers, which makes the loans more secure than on traditional platforms, because here the collateral is automatically taken and returned to the investors if the borrower does not pay back the loan.

In terms of returns, you can expect around 12% per year with stablecoins (which copy the value of the Euro for example), so we are in the same range as classic Peer-to-Peer lending.

To start in this field, I advise you to read my article on the best crypto lending platforms.


Dividend Growth Stocks

I also really like investing in dividend growth stocks, which are a big part of my investment portfolio. Well, it is also possible in cryptocurrencies! Indeed, some platforms like Binance will allow you to invest in cryptocurrencies that represent shares on the stock market, called stock tokens.

The advantage here is to have an account opening much simpler than on most online brokers, much lower fees, and also the possibility of buying fractions of shares, which is impossible with a classic stock broker.

Savings Accounts

There are also cryptocurrency savings accounts, which are much more interesting than a savings account that you can have at a traditional bank. For example, Binance offers this kind of service through Binance Earn, which allows you to have returns around 6% per year with zero risk. It's not my favorite way to invest with cryptocurrencies considering the returns are a bit low, but it's also a good way to start if you want to avoid any risk.

Mining / Staking

Another way to invest in cryptocurrency to generate passive income is to invest in cryptocurrency mining or staking. I will quickly move on to mining, which requires large material investments and which is more speculation than anything else.

Staking can be interesting: it consists of blocking money in cryptocurrencies for those that work on the principle of Proof of Stake (PoS). By blocking money, you will then help the network to function, and in return you will receive cryptocurrencies. The returns can be interesting, but having to block funds and therefore be exposed to fluctuations in cryptocurrency makes it a less attractive option than others mentioned in this article.

Algorithmic Trading

The last way to invest that I wanted to mention in this article is algorithmic trading, which involves buying / selling cryptos with code that makes the decisions for you. You are going to tell me: why talk about trading here, when I said above that speculating on the value of cryptocurrencies is a bad idea?

The reason is that we are not talking about long-term speculation here, but about a computer program that will make the decisions for you and buy / sell according to an algorithm, thus producing passive income once we found the right algorithm. That's why I also included this way to invest in this list.

To make it easier for you in this area, I have created my own algorithmic trading software, TradeEngine. This allows you to very easily get started in the field, and to copy existing strategies so that you can get started even without having a lot of knowledge in the field.

How to Start Investing in Cryptocurrencies?

I hope this article has helped you learn more about how to invest in cryptocurrency to generate passive income. There are really a lot of opportunities out there to diversify your investment portfolio, and I find that really interesting. If I had to pick one to start with, I would say crypto lending, as it's really easy to invest on these platforms. For that, I advise you to read my article on the best platforms in the field.

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