Automated crypto investment vs passive income: don’t make these common mistakes

By Trey Huynh July 9 2024

One of the best things that get investors out of bed in the morning is maximum returns, but there is something better. Maximum returns with minimal effort. Two popular strategies that come to mind are automated crypto investment and passive income. While both share a common goal, which is making you money in the background, they do have distinct differences.

In this article, we’ll explore these strategies, focusing on how AI-powered crypto trading works, the benefits of automated crypto investment, how one can earn crypto passive income, and most importantly, the common mistakes that accompany them.

How does AI-powered crypto trading work?

AI-powered crypto trading often involves machine learning algorithms that can execute trades and make investment decisions on your behalf. You may see it in the simple form of an AI trading bot, and can also come across an entire platform dedicated to automated crypto investment.

These AI-powered crypto trading platforms employ powerful systems that can process huge amounts of data and make decisions according to your investment goals. For example if you’re a risk taker, you can set it to Aggressive mode, and the AI, or the crypto robo-advisor, will make bolder decisions and riskier trades for higher potential returns. Conservative mode will set you on a leisurely pace where your gains may be slow, but it will rise steadily, like a determined tortoise. After all, what’s important is progress and not the race.

You already know what passive income is, but what about crypto passive income?

Passive income is typically cash flow from either interests or dividends, or earnings from assets. For example, renting out living spaces or interests from savings. Crypto passive income exists based on the same principles, which often requires having owned cryptocurrency. Here are some popular methods of earning crypto passive income:

Staking: This involves holding a certain amount of cryptocurrency in a wallet to support the operations of a blockchain network. In return, stakers receive rewards in the form of additional cryptocurrency for that network. Essentially, this is similar to earning interest from your savings. 

Yield farming/crypto lending: crypto owners have the option of providing liquidity to a decentralized finance (DeFi) platform by lending their assets and earning interests or tokens as rewards. Some platforms like BlockFi and Celsius also allow investors to lend to other users and earn interest.

Earning dividends for your tokens: Some platforms, such as KuCoin, will pay their users for having their tokens, similar to shareholders receiving dividends for their stocks.

Common mistakes when exploring automated crypto investment and crypto passive income

Mistakes are a part of every success journey, but it doesn’t stop us from trying to avoid as many as we can. Here are some common pitfalls to look out for when trying to automate your investments:

Thinking automated crypto investment is the same as passive income. It’s really easy to mistake investing something with earning it, especially when minimal effort is involved. You may earn a good amount from AI-powered crypto trading, but the risk factors are still present. This is different from passive income where your profits are almost always guaranteed. Now, when it comes to crypto passive income, things become a bit tricky, for popular earning methods like yield farming or token dividends carry a certain level of risk, typically higher than traditional strategies, but still safer than actively trading.

Investing without research. Not all platforms offering AI-powered crypto trading or passive income opportunities are reliable or trustworthy. Inexperienced traders may fall victim to scams or just poorly managed platforms. Make sure to conduct thorough research and read as many reviews as possible before putting your valuable assets into someone’s hands.

Relying too heavily on automation. As mentioned above, automated crypto investment isn’t the same as passive income, so it will not grow on its own. Failing to stay informed on market trends and reviewing the performance of your automated strategies may eventually lead to financial losses.

To sum it all up, automated crypto investment may deliver financial gains with minimal effort, your results are still dependent on market trends and the performance of the platform. If you want crypto passive income, consider crypto lending or token earnings.

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