“An investor should act as though he had a lifetime decision card with just 20 punches on it.” — Warren Buffett
What if you could only invest in 20 cryptocurrencies in your lifetime? Would you jump in and out of the cryptocurrencies with the highest momentum? Or would you choose a few quality coin investments and buy and hold them?
If you want to earn 1 percent a day, staking coins is a way of earning consistent returns on your cryptocurrency portfolio. You don’t need to hold your investments forever like Warren Buffet. Staking typically has a holding period of one to six months, but a wide range of fixed periods are used.
Here’s how staking works:
1. Stake Crypto Coins
Staking coins involves buying crypto and holding it in your wallet or on an exchange. Sounds a lot like buying and holding stock, but there’s a key difference. Like a stock, you could simply hold a crypto coin in your wallet and hope it appreciates.
But with staking, in addition to market appreciation, you have another potential upside. When you stake a coin, your coins are doing some extra work by contributing to the Proof of Stake (POS) work that validates a block on the blockchain. Your staked coins are frozen for a period of time and used to validate transactions on a block. In exchange, you receive a percentage of the staked tokens as a reward.
How much can you make? The protocol randomly chooses coins to validate a block. The more coins you stake, the higher the chance of your coins being chosen, and thus the higher your potential profit (usually between 5–12% returns, but sometimes more).
2. Diversify Your Staking Portfolio
There’s an incentive, therefore, to put all your money in the same coin to increase the chance of being chosen to validate more transactions and earn more rewards. But if you want to make a consistent profit, diversification is still the best strategy.
By staking several coins, you can smooth out volatility and earn steadier returns. On the OKEx exchange, a service called Term Deposit can help you diversify your crypto assets across coins with different terms (one month to three months) and returns.
So I put most of my staking in Bitcoin (3.7%), and for some upside a 10–12 percent slice in higher yielding cryptos. For example, the Synthetix Network Token (SNY) — a breakout DeFi app on Ethereum — is currently paying a 43 percent annual reward. Higher risk takers may widen that high yield slice but, if prudent, still remain broadly diversified.
A $10k investment in SNY would net you about $400 in passive staking income per month.
3. Sit Back and Earn Passive Income
Once you’ve chosen the coins to stake, wait for the staking rewards to be deposited into your wallet. What if your coin depreciates? With the staking awards you could still break even or make a profit. Worst case scenario — your loss is partly offset by the rewards.
Some exchanges offer extra rewards, so shop around. HitBTC and OKEx, for example, offer opportunities to earn rewards from Supernode staking (SPOS). Supernodes are nodes with the highest processing power, whose rewards have been traditionally out of reach of the average crypto staker.
Staking is a strategy for both the speculator and long-term investor.
Nonetheless, when choosing staking assets, even the technical trader could benefit from the wisdom of Warren Buffett’s most famous quote: “Why not invest your assets in the companies you really like?” If you like and would use a platform — for travel booking, gaming, investing, logistics management — then why not stake the crypto tokens?
