Due to the growing popularity and accessibility of digital assets, more people than ever received some form of cryptocurrency as a gift in the last year. According to a recent survey, 26% of Australians planned to give crypto as a festive gift in 2021, followed by 10% of Americans.
If you were fortunate enough to be a recipient of a cryptocurrency gift, there is a wide range of options available for you to explore before selling it.
What to do with your crypto gift
Before we dive into ways of investing or trading your shiny new cryptocurrency, it’s worth mentioning that the opportunities available to you depend on several factors. The first is the type of digital asset you received as a gift. There are over 16,000 crypto assets existing today, each with its own utilities, compatible platforms and protocols. With this in mind, you may be limited to specific exchanges or applications depending on the type of asset you have and the blockchain technology used to create them.
Nonetheless, you can explore more opportunities by simply trading the digital asset for other cryptocurrencies. Before going for this option, however, be sure to confirm that you can take out the digital asset to an external wallet or crypto exchange. If not, you will be restricted to the services provided by the app where you received the coins as a gift. Examples of apps that do not allow users to transfer cryptocurrencies to external wallets or platforms are:
- Venmo
- Paypal
- Revolut
- Robinhood
It’s worth noting Robinhood has announced plans to roll out its crypto wallet in early 2022 so customers can move their coins off-platform.
One more thing you need to have at the back of your mind is that none of the income-generating opportunities listed in this guide are risk-free. Hence, it is advisable to carry out your own research, consult a qualified financial advisor and gauge your risk appetite beforehand. That said, below is a list of what you can do with your newly acquired digital assets.
Ho ho hodl it
One of the easiest and most popular options available for new crypto holders is to simply hold on to their gifted assets long-term – usually for a minimum of one year. Although cryptocurrencies are notoriously volatile, the values of legitimate cryptocurrencies often maintain an upward trajectory over time as an increasing number of people adopt them. So simply by doing nothing, you can potentially generate profit by holding on to some cryptocurrency. For instance, the price of bitcoin at the beginning of 2019 was $29,000, and by November, it had risen to an all-time high of $68,700.
Now, where you do that “hodling” (the slang adopted by crypto enthusiasts for holding on tight to your coins), is a good question. The easiest solution for beginners is a custodial account like the ones offered at Coinbase, Robinhood or Paypal, but there are risks associated with this option. You’re subject to the policies of the platforms and possible security breaches.
A more secure and flexible model is to transfer or keep your coins in a non-custodial wallet. This means being responsible for your own coins, including keeping the secret key (the key used to access the wallet) safe and secure. If you lose your secret key, or forget it, you lose your coins.
Use it to buy stocks
People who received their crypto gifts on a broker app that also supports the trading of traditional stocks can use the proceeds generated from the sale of their crypto assets to invest in stocks and exchange-traded funds (ETFs). This is an ideal option for individuals who would rather stick to what they know best, which in this context is stock trading. An example of a platform where you can use crypto as capital to trade stocks is Robinhood.
Use it to pay for goods and services
Thanks to the increased adoption of cryptocurrency in recent years, it’s now possible for you to pay for goods and services using your digital assets. This feature is available to PayPal users, thanks to the launch of Checkout with Crypto functionality back in March 2021. In essence, when making payments, you can opt for a crypto payment method, and PayPal will automatically convert your coins to fiat currencies before finalizing the transaction.
Deposit crypto in interest-yielding apps
If you’re going to keep your crypto, there are a lot more options to explore than just hodling it. If your crypto assets are on apps that permit the transfer of funds to external platforms, you can take advantage of yield-bearing crypto solutions. The idea is to transfer all or a fraction of your crypto holdings into an account that would, in turn, generate fixed interests based on the duration of the investment. Think of it as putting money in a fixed deposit account. The only difference is that you are depositing digital assets instead of fiat. Below are some of the platforms that offer this service and the interest rates they provide.
| Platform | Interest rate |
|---|---|
| Nexo | Up to 20% APR |
| Celsius Network | Up to 17% APY |
| BlockFi | Up to 9.5% APY |
Lend your crypto out
Another option you can pursue is crypto lending. With this, you lend your holdings out to borrowers and, in turn, earn interest. This can be done on custodial or non-custodial platforms, depending on your risk appetite and the level of technical expertise. In line with conventional practices, custodial lending platforms often match lenders with borrowers, set fixed interest rates and govern the entire processes involved.
The non-custodial options, which fall under a broader group of self-executing protocols known as decentralized finance (DeFi), eliminate the need to rely on intermediate services while borrowing or lending out crypto. Unlike traditional lending platforms, these solutions depend on programmable and self-executing contracts (smart contracts) to periodically set interest rates and make deposited funds accessible to borrowers.
Farm yields
Yield farming is an interest-generating strategy employed across multiple DeFi platforms. This is because it requires participants to interact with automated market makers (AMMs) or decentralized exchanges (DEX).
Here, you need to take up the role of a liquidity provider by depositing your crypto assets into purpose-built smart contracts, or what is commonly called liquidity pools. These funds are then made available to other users to trade against. For your troubles, you will receive a share of the trading fees paid by traders as well as receive liquidity provider tokens (LP tokens) that indicate your share of the liquidity deposited into the liquidity pool. In order to withdraw your initial capital out of the pool and receive your portion of transaction fees, these LP tokens must be redeemed.
Moreover, you can further leverage your stake in the platform’s total liquidity to generate even more profits by depositing the LP tokens you received into other decentralized lending protocols – effectively earning a double yield on a single set of assets. This strategy of maximizing profits using multiple DeFi protocols is what is known as yield farming.
Stake your coins
Ever since the introduction of the proof-of-stake (PoS) consensus mechanism, which is a more power-efficient model for validating transactions executed in blockchain networks, staking has become a critical concept in the crypto space. Here, the goal is to implement a decentralized or community-focused network whereby no single entity has unfettered control over core processes, including the ones involved in validating transactions.
To this end, PoS networks delegate the role of validators to participants that have shown interest in contributing to the well-being of the network by locking a particular amount of crypto on the blockchain. With this, the protocol can seize a fraction or the entirety of validators’ stakes when they are deemed to have failed to play their part or when they try to sabotage the validity of the network (known as slashing.) In contrast, compliant validators are rewarded with rewards denominated in the network’s native token.
Although you can participate in this opportunity by staking directly on a PoS-based blockchain, the technicalities involved may restrict the profitability of such a venture. For one, you have to meet the financial, hardware and software requirements imposed on validator nodes. Also, you have to be online at all times. To bypass these requirements, you can simply opt for third-party staking services or pools. These services take up all the technicalities that come with self-staking on your behalf. Importantly, they allow users to stake a fraction of the minimum staking amount imposed by the blockchain’s protocol. As such, all you have to do is deposit your coins to start earning rewards.
Expectedly, the interest rates provided by these services are a bit lower than what you would have earned if you had staked the coins yourself. Fortunately, though, most crypto exchanges now feature flexible staking services. Hence, it is a lot easier to partake in this passive income-generating opportunity.
Finally, if you don’t want it, get the cash
Of course, there is always the option to exchange your crypto for fiat at any time, regardless of the app or platform where your cryptocurrency is stored. This is the ideal choice for individuals who are not ready to dabble into the technical, volatile and often risky world of cryptocurrency. For this option, the best line of action is to sell their cryptocurrency for fiat currency. Depending on the type of app your digital asset is located in, you can either sell the digital assets directly on the platform or transfer them to a crypto exchange where you might find better deals.
