Cryptocurrency is perhaps the biggest investing story of the past ten years. While stocks rose virtually every year since the financial crisis, crypto exploded, then contracted, then exploded again before settling into its current, high-volatility state.
Cryptocurrencies work differently from traditional asset classes, like stocks, commodities, or even regular cash. In this post, we ask whether they pay dividends and if there are any ways that you can make money from them.
Do Cryptocurrencies Pay Dividends?
Most cryptocurrencies do not pay dividends. Dividends are only paid when companies distribute profits to shareholders.
However, some cryptos pay people for staking. Staking occurs when members of the cryptocurrency network agree to verify various transactions. Their reward for this is a small fee.
Staking is a type of payout, it is not the same as dividends. Staking is something that people obtain for doing work, whereas dividends come from simply investing in companies and receiving a share of the profits. A cryptocurrency network is not a business and does not sell anything, so profits do not occur.
With that said, there are opportunities for investors to purchase crypto-related stocks. In many cases, these do pay dividends.
Which Companies Pay Crypto-Related Dividends?
A variety of companies involved in crypto pay dividends. These provide you with an income that you can use to supplement your regular wage or replace it entirely.
Some of the options we outline here will surprise you. One is the IT industry stalwart IBM. The company is currently exploring how blockchains work and wants to dramatically increase its exposure in the near future. The company now has a business division dedicated to helping other firms make better use of blockchain. The more successful the technology becomes, the higher the demand for IBM’s services, and the more valuable its stock will be.
Mastercard is another option. In 2019, the card payments processing firm signed a deal to partner with a blockchain software firm called R3. The deal was designed to help the Visa rival with cross-border transactions with the aim of increasing crypto payments. The company is also working on other technologies to make it easier to convert crypto into fiat, and vice versa.
Another option is to invest in publicly-listed crypto exchanges. As cryptocurrency becomes more popular, the value of these platforms will likely rise, leading to an increase in their profits and, therefore, their share prices.
Is It Possible To Earn Passive Income From Crypto?
Earning passive income from crypto operations is also possible. Again, while this isn’t the same as dividends, it does provide you with passive income that you can then use to replace your existing income.
There are plenty of options. For instance, you could set up a crypto savings account. This pays you a fixed fee every month in exchange for depositing your money.
You can also explore crypto lending. Here, you pool your funds with other lenders and then allow borrowers to take out credit. You get paid automatically when they repay the principal with interest, making you substantially better off.
Then there’s cloud mining and yield farming. These methods attempt to exploit small changes in the price to skim profits off the top.
What Are The Tax Rules For Crypto Profits?
The authorities aren’t quite sure how to classify cryptocurrencies. Everyone knows that they are a form of currency, but regulations currently see them as assets in the traditional sense. This means that you have to pay taxes on them when you sell.
If you receive income from crypto, you’ll need to add it to your regular income and then tax it in the same way. You’ll need to do this every year when you file your tax return. Income from crypto is counted in the same way as income from your regular job. Fees and interest payments add to your taxable income in the normal way.
If you make a profit when you sell cryptocurrency, then authorities view it as a capital gain. This means that you will need to pay capital gains tax on it. How much you pay depends on where you live and your income bracket. Capital gains taxes are higher if your regular income is higher. It is lower if your regular income is lower. You may want to take this into consideration when timing your sales. If you know that your income is going to be lower next year compared to this year, for instance, then waiting to sell could be a better strategy. Remember, converting one cryptocurrency into another can result in capital gains which you need to pay taxes on.