Investing Archives | Page 160 of 221

Sep

2022

12 Factors to Consider When Choosing a Cryptocurrency Exchange

14 Things to Consider When Choosing a Crypto Exchange

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

There are many factors to think about when choosing a cryptocurrency exchange, but for many investors, things like liquidity, ease of use, and whether the exchange operates in your area should likely be top of mind. Those considerations could save you time and money right off the bat.

While not all crypto investors will have the same specific priorities when it comes to choosing a crypto exchange, a majority of people in the crypto space may consider the following variables — in the following order — to open an account, and start trading.

Understanding Crypto Exchanges

Cryptocurrency exchanges are platforms that provide investors and traders a place to buy or sell cryptocurrencies, and generally, exchange their fiat currency (such as U.S. dollars) for crypto. They typically work much like a brokerage account, where users open an account, fund it, and then buy and sell securities, like stocks, bonds or ETFs.

How They Work

Curious about the inner workings of crypto exchanges? Thankfully, as a user you don’t need to worry too much about it, as most of these exchanges do their best to make the trading process as seamless as possible to attract and retain users.

But again, these exchanges more or less work in a very similar way to a brokerage account — which allows you to buy and sell securities on the stock market. Effectively, they serve as market-makers and pair buyers with sellers. They will sell you certain cryptocurrencies (not all cryptos are available on all exchanges!) for your fiat (such as U.S. dollars), and then trade one crypto for another.

Crypto exchanges usually can be accessed through a smartphone app or a web browser, and allow users to connect a crypto wallet, or use the exchange’s custodial wallet, in order to execute trades.

14 Key Factors for Choosing a Crypto Exchange

As mentioned, there are a slew of factors that investors should consider before settling on the best crypto exchange for their trading or investing style. Here are 14 of those factors, in descending order, based on what might be the most important for the average crypto investor:

1. Jurisdiction

First and foremost, figure out if the exchange your eyeing serves customers in the state and country in which you live. There are a lot of rules and regulations at play here, so if the answer is no, then you won’t be able to use the exchange in question.

Some exchanges have website addresses specific to each country, too. Instead of “exchange.com,” for example, U.S.-based users might have to visit “exchange.us.” An exchange’s jurisdiction reflects not only their target market, but also where they’re allowed to do business due to certain cryptocurrency rules and regulations.

2. Ease of Use

How familiar with trading are you? That’s an important consideration when choosing a crypto exchange.

Newer investors might feel intimidated by exchanges that display things like order books, or have a complex interface with lots of charts and other information.

If that’s the case, a newbie-friendly exchange might be the best option. Some cryptocurrency exchange sites have “basic” and “advanced” views, allowing users to choose their layout. Others are designed specifically for those getting into crypto investing as a beginner to avoid any potential confusion.

3. Liquidity

Traders need liquidity so they can make trades at any time. This means an exchange must have a high enough volume of orders flowing through its order books on any given day.

In order to get that volume, an exchange must have either a lot of users, or users who hold a large amount of assets on the exchange and trade them frequently. If there are only a small amount of orders available, then there may not be available trading partners.

Liquidity is also important during times of high volatility, which happen often in the crypto markets. Less liquidity can exacerbate volatility to the point where prices can experience dramatic rises and falls.

4. Asset Choices

Does the exchange in question trade the assets you want? With thousands of different types of cryptocurrency in existence, no exchange can make trading pairs available for all of them. For instance, most exchanges will likely have popular coins like Bitcoin, Ethereum, and Binance coin available for trading, but not all may have a less-popular crypto.

In general, the higher market cap coins have a higher likelihood of being traded on popular exchanges. Investors looking for more exotic, lesser-traded coins might have to search out smaller exchanges. That may require some research, so have a wishlist handy, and see what’s out there.

5. Security

Numerous exchanges have had security issues over the past couple of years, so it goes without saying that you’ll want to keep security top-of-mind when choosing an exchange.

Holding coins on an exchange means trusting someone else with that money. In most cases, if the exchange gets hacked or an employee steals coins, investors end up empty handed. And yes, that’s entirely possible!

Most exchanges will offer information about their security practices somewhere on their websites. While no exchange is 100% secure, and it’s hard to know which is the most secure cryptocurrency exchange, you might consider looking for which exchanges have been around for the longest time, have the most customers, and have had the least amount of problems.
Potential features worth considering might include:

Cold Storage

The term “cold storage” refers to crypto assets being kept in a crypto wallet that stays offline where hackers can’t access them.

💡 Recommended: Cold Wallet vs. Hot Wallet: Main Differences

Multi-Signature Wallet

Multi-signature wallets require multiple forms of verification, or signatures to be accessed. Users might have to use two different email addresses to open a multi-sig wallet, for example.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

6. Reputation

When choosing what restaurant to go to on the weekend, many people check reviews to help them decide where to go. Those looking at cryptocurrency exchange sites can consider doing the same. To do a little background research on what past and existing users of a particular exchange have said about it, do a search for “xyz crypto exchange reviews.”

7. Trading Fees

Fees often represent a hidden cost when it comes to purchasing cryptocurrency. Exchanges make their money by extracting fees from most or all transactions.

Be sure to understand what you’re being charged on any crypto exchange.

Some exchanges have their own native “exchange tokens,” similar to how ETH is the native token for the Ethereum blockchain. The exchanges create these tokens and often use them to give holders discounted trading fees.

For example, if a Binance user holds Binance Coin (BNB) in their Binance wallet, for example, then they would likely pay lower fees. The fees for each trade they make will be taken in the form of BNC, rather than from the currency pair they are trading.

8. Customer Support

Newer users might have a number of questions regarding the basics of crypto and how the exchange works. And odds are, you’re going to run into problems at some point — that’s why it’s good that an exchange has quick support options.

Sometimes the need for customer support could be urgent, as your money could be at stake. Crypto markets move quickly, and waiting days for a response from customer support could have real financial consequences. That’s why investors should look into the reputation of an exchange’s customer support service. Ensure that they respond quickly, that customers seem generally satisfied, and that the exchange makes customer service a priority.

9. Insurance

Some exchanges insure some or all of user funds. This might be an attractive selling point to investors who don’t like the idea of entrusting their money to a company with whom they’re unfamiliar. An exchange that offers insurance could shield investors from losses should anything catastrophic happen (like a hack or employee theft).

Insurance policies vary, so finding out details for a particular exchange would require independent research.

Crypto exchanges that offer various types of insurance include:

• Coinbase

• Binance

• Bittrex

• Gemini

Be aware, though, that crypto exchanges are not traditional financial institutions, and are not protected under the same rules and regulations. Your funds are not protected by SIPC insurance, for example.

10. Tech Infrastructure

Matching engines (which sync up buyers and sellers) built by developers aim to give exchange users a seamless experience when placing orders. A high-quality matching engine gives an exchange the ability to match orders even during times of extreme volume and volatility.

A good matching engine represents just one part of the infrastructure needed to create new trading pairs and order types, making it easy for the exchange to better serve its customers.

11. Leverage and Products

Most popular crypto exchanges are spot exchanges, meaning that they trade the actual cryptocurrency against fiat currency or other cryptocurrencies (most cryptocurrencies traded against Bitcoin or U.S. dollar stablecoins).

But some exchanges are derivatives exchanges, meaning they trade derivatives of cryptocurrency and not the actual coins themselves. Some common forms of derivatives include options and futures, where investors agree to buy or sell a commodity at a future date for a set price. The underlying commodity — crypto, in this case — doesn’t actually trade hands.

💡 Recommended: What Are Bitcoin ETFs?

Derivatives exchanges sometimes allow traders to make use of leverage, which allows them to make bets with more money than they have in the exchange. For example, 10x leverage would allow a trader with $1,000 in their account to trade with $10,000. This can amplify both gains and losses, and for many traders, can be extremely risky.

12. Deposit and Withdrawal Limits

Even if you’re planning on HODLing for as long as possible, you may still want to make withdrawals at some point. So, it’s important to know that while most exchanges don’t have a minimum deposit requirement, exchanges may put limits on how much money a user can withdraw or deposit in a given timeframe.

For example, a trader might only be able to withdraw $25,000 worth of fiat or crypto per day. As such, those interested in moving large amounts of money might want to consider limits like these. Even the best cryptocurrency exchange app might have strict limits on the amount of funds that users can move within a specific time period.

13. Transparency

As it relates to crypto exchanges, “transparency” refers to whether the exchange itself is upfront with its fee structure, the time it takes to complete trades and transactions, what jurisdictions it operates in, and, perhaps most importantly, how secure the exchange itself actually is.

If an exchange is evasive about those things, it may signal a lack of transparency, and send up red flags. Given how many scams and hacks there have been in the crypto space, investors and traders should take transparency seriously.

14. User Experience (UX)

If you’re going to use a crypto exchange, the experience should be pleasant. So, UX should be yet another factor to consider when choosing an exchange. Ask yourself: Does the exchange’s interface have an intuitive, modern feel? Are you getting lost in the settings and menus? Is the whole thing filled with confusing jargon?

If you answered in the affirmative to any of those questions, you may want to see what other exchanges are out there, and which may provide a smoother ride for users.

The Takeaway

Crypto exchanges are complicated, and choosing the right one for you and your goals requires some due diligence. It helps to know what kind of crypto you plan to trade (not all types of crypto are available on every exchange), and to set up a crypto wallet.

When choosing a crypto exchange, you also want to consider the fee structure, overall security, whether or not the exchange operates in your given jurisdiction — and how easy the exchange is to use.

FAQ

Which crypto exchanges are considered the most secure?

Generally, the biggest and most popular crypto exchanges are considered the most secure, as they have the most users and likely the biggest teams supporting their networks. They also have the most to lose from a potential hack or security snafu.

What do consumers look for in a crypto exchange?

Depending on their preferences, consumers can and do look at a number of factors and variables. Among the most common are security, liquidity, ease of use, fees, and whether or not the exchange operates in their country or state.

What are the crypto exchanges with the most users?

Some of the largest crypto exchanges in the world by user count include Binance, Coinbase, Kraken, Crypto.com, Gate.io, and OKX.

Photo credit: iStock/Drazen_

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High	Bonus Payout
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

SOIN0722022

Sep

2022

Should I Pull My Money Out of the Stock Market?

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

When markets are volatile, and you start to see your portfolio shrink, there may be an impulse to pull your money out and put it somewhere safe — but acting on that desire may actually expose you to a higher level of risk.

In fact, there’s a whole field of research devoted to investor behavior, and the financial consequences of following your emotions (hint: the results are less than ideal).

A better strategy might be to anticipate your own natural reactions when markets drop — or when there’s a stock market crash — and wait to make investment choices based on more rational thinking (or even a set of rules you’ve set up for yourself in advance).

After all, for many investors — especially younger investors — time in the market often beats timing the stock market. Here’s an overview of factors investors might weigh when deciding whether to keep money in the stock market.

Investing Can Be an Emotional Ride

An emotion-guided approach to the stock market, whether it’s the sudden offloading or purchasing of stocks, can stem from an attempt to predict the short-term movements in the market. This approach is called timing the market.

And while the notion of trying to predict the perfect time to buy or sell is a familiar one, investors are also prone to specific behaviors or biases that can expose them to further risk of losses.

Giving into Fear

When markets experience a sharp decline, some investors might feel tempted to give in to FUD (fear, uncertainty, doubt). Investors might assume that by selling now they’re shielding themselves from further losses.

This logic, however, presumes that investing in a down market means the market will continue to go down, which — given the volatility of prices and the impossibility of knowing the future — may or may not be the case.

Focusing on temporary declines might compel some investors to make hasty decisions that they may later regret. After all, over time, markets tend to correct.

Following the Crowd

Likewise, when the market is moving upwards, investors can sometimes fall victim to what’s known as FOMO (fear of missing out) — buying under the assumption that today’s growth is a sign of tomorrow’s continued boom. That strategy is not guaranteed to yield success either.

Why Time in the Market Matters

Answering the question, “Should I pull my money out of the stock market?” will depend on an investor’s time horizon — or, the length of time they aim to hold an investment before selling.

Many industry studies have shown that time in the market is typically a wiser approach versus trying to time the stock market or give in to panic selling.

One such groundbreaking study by Brad Barber and Terence Odean was called, “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.”

It was published in April 2000 in the Journal of Finance, and it was one of the first studies to quantify the gap between market returns and investor returns.

• Market returns are simply the average return of the market itself over a specific period of time.

• Investor returns, however, are what the average investor tends to reap — and investor returns are significantly lower, the study found, particularly among those who trade more often.

In other words, when investors try to time the market by selling on the dip and buying on the rise, they actually lose out.

By contrast, keeping money in the market for a long period of time can help cut the risk of short-term dips or declines in stock pricing. Staying put despite periods of volatility, for some investors, could be a sound strategy.

An investor’s time horizon may play a significant role in determining whether or not they might want to get out of the stock market. Generally, the longer a period of time an investor has to ride out the market, the less they may want to fret about their portfolio during upheaval.

Compare, for instance, the scenario of a 25-year-old who has decades to make back short-term losses versus someone who is about to retire and needs to begin taking withdrawals from their investment accounts.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Is It Okay to Pull Out of the Market During a Downturn?

There is nothing wrong with deciding to pull out of the markets if they go south. But if you sell stock or other assets during a downturn, you run the risk of locking in your losses, as they say. Depending on how far values have declined, you might lose some of your gains, or you might lose some or all of your principal.

In a perfect world if you timed it right, you could pull your money out at the right moment and avoid the worst — and then buy back in, just in time to catch the rebound. While this sounds smart, it’s very difficult to pull off.

Benefits of Pulling Out of the Market

The benefit of pulling out of the market and keeping your money in cash is that cash isn’t volatile. Generally speaking, your cash won’t lose value over night, and that can provide some financial as well as psychological comfort.

As noted above if you make your move at the right time, you might prevent steeper losses — but without a crystal ball, there are no guarantees. That said, by using stop-limit orders, you can create your own guardrails by automatically triggering a sale of certain securities if the price hits specific lows.

Disadvantages of Pulling Out of the Market

There are a few disadvantages to pulling cash out of the market during a downturn. First, as discussed earlier, there’s the risk of locking in losses if you sell your holdings too quickly.

Potentially worse is the risk of missing the rebound as well. Locking in losses and then losing out on gains basically acts as a double loss.

When you realize certain losses, as when you realize gains, you will likely have to deal with certain tax consequences.

And while moving to cash may feel safe, because you’re unlikely to see sudden declines in your cash holdings, the reality is that keeping money in cash increases the risk of inflation.

💡 Recommended: How to Protect Your Money From Inflation

Using Limit Orders to Manage Risk

A market order is simply a basic trade, when you buy or sell a stock at the market price. But when markets start to drop, a limit order does just that — it puts a limit on the price at which you’re willing to sell (or buy) securities.

Limit orders are triggered automatically when the security hits a certain price. For sell limit orders, for example, the order will be executed at the price you set or higher. (A buy limit order means the trade will only be executed at that price or lower.)

By using certain types of orders, traders can potentially reduce their risk of losses and avoid unpredictable swings in the market.

Alternatives to Getting Out of the Stock Market

Here’s an overview of some alternatives to getting out of the stock market:

Rotating into Safe Haven Assets

Investors could choose to rotate some of their investments into safe haven assets (i.e. those that aren’t correlated with market volatility). Gold, silver, and bonds are often thought of as some of the safe havens that investors first flock to during times of uncertainty.

By rebalancing a portfolio so fewer holdings are impacted by market volatility, investors might reduce the risk of loss.

Reassessing where to allocate one’s assets is no simple task and, if done too rashly, could lead to losses in the long run. So, it may be helpful for investors to speak with a financial professional before making a big investment change that’s driven by the news of the day.

Having a Diversified Portfolio

Instead of shifting investments into safe haven assets, like precious metals, some investors prefer to cultivate a well-diversified portfolio from the start.

In this case, there’d be less need to rotate funds towards “safer” investments during a decline, as the portfolio would already offer enough diversification to help mitigate the risks of market volatility.

Reinvesting Dividends

Reinvesting dividends may also lead the long-term investor’s portfolio to continue growing at a steady pace, even when share prices decline temporarily. Knowing where and when to reinvest earnings is another factor investors may want to chew on when deciding which strategy to adopt.

(Any dividend-yielding stocks an investor holds must be owned on or before the ex-dividend date. Otherwise, the dividend won’t be credited to the investor’s account. So, if an investor decides to get out of the stock market, they may miss out on dividend payments.)

Rebalancing a Portfolio

Sometimes, astute investors also choose to rebalance their portfolio in a downturn — by buying new stocks. It’s difficult, though not impossible, to profit from new trends that can come forth during a crisis.

It’s worth noting that this investment strategy doesn’t involve pulling money out of the stock market — it just means selling some stocks to buy others.

For example, during the initial shock of the 2020 crisis, many stocks suffered steep declines. But, there were some that outperformed the market due to certain market shifts. Stocks for companies that specialize in work-from-home software, like those in the video conferencing space, saw increases in value.

Bear in mind, though, that these gains are often temporary. For example, home workout equipment, like exercise bikes, became in high demand, leading related stocks higher. Some remote-based healthcare companies saw share prices rise. But in some cases, these gains were short-lived.

Also, for newer investors or those with low risk tolerance, attempting this strategy might not be a desirable option.

Reassessing Asset Allocation

During downturns, it could be worthwhile for investors to examine their asset allocations — or, the amount of money an investor holds in each asset.

If an investor holds stocks in industries that have been struggling and may continue to struggle due to floundering demand (think restaurants, retail, or oil in 2020), they may opt to sell some of the stocks that are declining in value.

Even if such holdings get sold at a loss, the investor could then put money earned from the sale of these stocks towards safe haven assets — potentially gaining back their recent losses.

Holding Cash Has Its Benefits

Cash can be an added asset, too. Naturally, the value of cash is shaped by things like inflation, so its purchase power can swing up and down. Still, there are advantages to stockpiling some cash. Money invested in other assets, after all, is — by definition — tied up in that asset. That money is not immediately liquid.

Cash, on the other hand, could be set aside in a savings account or in an emergency fund — unencumbered by a specific investment. Here are some potential benefits to cash holdings:

First, on a psychological level, an investor who knows they have cash on hand may be less prone to feel they’re at risk of losing it all (when stocks fluctuate or flail).

A secondary benefit of cash involves having some “dry powder” — or, money on hand that could be used to buy additional stocks if the market keeps dipping. In investing, it can pay to a “contrarian,” running against the crowd. In other words, when others are selling (aka being fearful), a savvy investor might want to buy.

The Takeaway

Pulling money out of the market during a downturn is a natural impulse for many investors. After all, everyone wants to avoid losses. But attempting to time the market (when there’s no crystal ball) can be risky and stressful.

For many investors, especially younger investors with a longer time horizon, keeping money in the stock market may carry advantages over time. One approach to investing is to establish long-term investment goals and then strive to stay the course — even when facing market headwinds.

Always, when it comes to investing in the stock market, there’s no guarantee of increasing returns. So, individual investors will want to examine their personal economic needs and short-term and future financial goals before deciding when and how to invest.

While managing money during a market downturn might seem tricky, getting started with investing doesn’t need to be. It’s easy, convenient, and secure to set up an investment account with SoFi Invest.

SoFi Invest® is a secure app where users can take care of all their investment needs — including trading stocks, investing in IPO shares, and more. It also gives SoFi members access to complimentary financial advice and actionable market insights. Ready to start investing?

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Should you pull out of the stock market?

Ideally, you don’t want to impulsively pull your money out of the market when there is a crisis or sudden volatility. While a down market can be unnerving, and the desire to put your money into safe investments is understandable, this can actually expose you to more risk.

When is it smart to pull out of stocks?

In some cases it might be smart to pull your money out of certain stocks when they reach a predetermined price (you can use a limit order to set those guardrails); when you want to buy into new opportunities; or add diversification to your portfolio.

What are your options for getting out of the stock market?

There are always options besides the stock market. The ones that are most appealing depend on your goals. You can invest in safe haven investments (e.g. bonds or precious metals), you can put your money into cash; you can consider other assets such as real estate.

Sep

2022

Tracking Down Lost Bitcoins and Other Cryptos

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

It’s a common crypto problem: Because people tend to forget the private keys that give them access to their crypto investments, countless coins — e.g. Bitcoin, Ethereum, Litecoin, Dogecoin — have been lost. As much as 20% of the entire supply of Bitcoin might be lost owing to lost private keys.

Does that mean your lost Bitcoin or other crypto are truly irretrievable?

In many cases, unfortunately, recovering lost Bitcoin or any other crypto is impossible. There are, however, some ways to try and recover an old or lost crypto wallet along with the crypto stored there. The best methods for doing so — and whether or not it will work — depends on how you lost the wallet.

This guide will take you through the process of finding lost crypto, if it’s possible.

What Does It Mean for Crypto to Be Lost?

Crypto is generally considered “lost” if it’s irretrievable, unrecoverable, or otherwise out of circulation. But how you lose your crypto can determine whether you can ever recover it.

Lost Keys

Most often, crypto is lost when people lose the “keys” to their wallet. That is, they have possession of their coins, but may have forgotten their seed phrase or other tools that would help them access the wallet. Their crypto is essentially stuck in the wallet, with no way to get it out.

That’s why it’s important for users who choose to hold their own private keys — a 256-bit string of numbers — to have a backup seed phrase (like a secret password) stored safely.

If you’re able to find or remember your keys, or otherwise access your wallet, you may be in luck. There are some services that may be able to help, but beware of scams.

Sent to the Wrong Address

Coins also get “lost” when they are sent to the wrong address. Sometimes people make the mistake of sending Bitcoin (BTC) to a bitcoin cash (BCH) address, for example. This often results in permanent loss of funds.

Fortunately, this has become increasingly rare, now that many wallets validate a recipient’s address (read more about what a Bitcoin address is) before allowing a transaction to go through.

Forgotten Passwords

Finally, you could lose your crypto by forgetting your password for a crypto exchange account. In most cases, however, the crypto exchange will let you create a new password.

Having a platform’s help in reaccessing your wallet and holdings if you lose your password is one of the advantages of investing in a crypto exchange. Similarly, if you lose a hardware wallet, you can get a new wallet and restore your crypto balances using your old backup seed phrase — assuming you have those safely stored away.

What Happens if You Lose Your Crypto Wallet?

Recovering unclaimed crypto isn’t easy. There are cautionary tales about people who have lost millions of dollars worth of Bitcoin and still don’t have access to it. That’s not the end of the story, though, as some people who have lost Bitcoin might still be able to recover their coins.

Recovering Private Keys

Some developers have created software programs that can help recover the private keys to a Bitcoin wallet. But this only works in cases in which the individual who lost their keys has deleted some or all of their keys. Software usually can’t help those who have forgotten their passwords, PIN numbers, or backup seed phrases.

But if the user mistakenly deleted files with the relevant information, they may be able to recover them. And if a user has a portion of the private key, it may be possible to find the rest of the key.

Recovering the Assets from a Lost Wallet

When you use a wallet, you’ll be able to unlock both the wallet and the crypto inside using your seed phrase. So, as long as you have the backup recovery seed, you can enter that into a new wallet and regain access to your crypto assets in a wallet, even if it’s lost.

But ultimately, whether you can recover assets from a lost wallet will depend on how the assets were lost.

Scammers

If you fall victim to one of the many Bitcoin scams out there, it may be possible to recover your assets. For example, if you’re somehow tricked into giving a scammer your seed phrase or wallet passwords, they can access it, change those passwords, and effectively take ownership of your wallet.

In that case, you may be able to get help from the wallet’s support team. But in many cases, keeping passwords and seed phrases secure is on the user, and no one would be able to help.

You should also be aware that some scammers may pose as crypto recovery specialists in an effort to gain access to your wallet. If you hope to hire a company to help you recover lost Bitcoin wallets, do some serious research to make sure it’s a legit operation.

Losing Cold Wallets

If you lose your cold wallet — and most cold wallets are hardware wallets — it is usually possible to recover the assets you had stored on it. It all depends on whether you have your recovery phrase. If you do, you should be able to safely and securely recover your assets and store them in a new wallet.

But again, it all comes down to whether you kept and securely stored your keys.

Prevent Lost Bitcoin by Safely Storing and Sending It

In a way, Bitcoin allows anyone to become their own bank. This has several advantages, but it also has several risks. Mainly, the risk that users might not be able to recover an old bitcoin wallet if they’ve lost their private keys.

Many people choose to store their private keys in a cold storage wallet in their personal possession. These include hardware, software, audio, and paper storage options that exist offline; cold wallets can be a more secure, long-term method of holding coins. The big tradeoff is that doing so puts 100% of the responsibility for securing those assets in the hands of the holder — if you lose them, there’s no recourse.

The best way to prevent permanent loss of Bitcoin is to make sure that you safely and securely store your coins from the get go, and avoid mistakes when sending Bitcoin.

Storing Crypto

There are a number of ways you can store your crypto for safekeeping, but most investors will likely choose to either leave it on an exchange, or transfer it to a wallet.

Exchanges

Leaving your holdings on an exchange may be worth considering if you only have a relatively small amount of crypto. The chief risks in doing so are that your holdings are out of your hands — and aren’t technically “yours” (as the saying goes: Not your keys, not your coins!) — and they could be more vulnerable to a cyberattack or theft.

Using a custodial wallet on an exchange does, generally, mean that you would be able to gain access to them again if you lock yourself out of your account.

Wallets

If you’d rather get your holdings into your own wallet so that you have full possession and control over them, you can do so by transferring them to a hardware or paper wallet. Just know that if you lose access to that wallet, it could be permanent — that’s the risk.

To ensure that you don’t, however, you can take a few steps:

• When setting up a new hardware wallet, safely store the backup recovery seed phrase.

• Create a PIN or password — not one that’s easy to guess or remember — write it down and keep it somewhere safe. Some people even get a safe or a safe deposit box where they store their passwords or seed phrases.

• Keep your wallet somewhere that you won’t forget. Some people even elect to keep their hardware wallets on their person at all times, putting it on their keychains, for example.

You might want to also consider using a paid service that helps users keep track of their private keys, and that can help you re-access your wallet if you lose your seed phrase. It’s an extra expense, but can provide peace of mind.

Sending Crypto

Making a mistake when sending a crypto transaction, whether from an exchange or from a private wallet, can result in total and permanent loss of funds. If that happens, there’s zero opportunity or chance to find your lost crypto. Here’s how to prevent it from happening:

• Whenever possible, use a QR code to get the recipient’s address. Sending coins to a QR code prevents mistakes or typos in the address. Using a string of characters can result in the funds being lost if even one character is off.

• Always double-check to make sure the currency you’re sending matches the one received. For example, that Bitcoin being sent is going to a Bitcoin wallet. Many wallets and exchanges do this automatically, but it’s worth double checking.

• When sending a large transaction, send a smaller amount first, as a test. After the transaction has at least one confirmation on the network, then send the rest of the transaction.

These simple steps will go a long way toward helping holders avoid sending erroneous crypto transactions.

Total Amount of Lost Bitcoin

We don’t fully know the total amount of lost Bitcoin, but it’s estimated that roughly 20% of the Bitcoin mined thus far is unrecoverable. It may be in lost wallets, or in accounts or wallets that people have forgotten the passwords to.

However, there’s a chance that some of it could be recoverable, as new companies with recovery methods are sprouting up in recent years.

5 Largest Bitcoin Fortunes Lost

If you truly want to make your head spin (or at least force yourself to write down your recovery phrase), read on to learn about the biggest Bitcoin fortunes that have been lost — that are widely known about, anyway.

1. Satoshi Nakamoto

Next to nothing is known about Satoshi Nakamoto, the creator of Bitcoin, including whether it’s an actual person, or a group of individuals. But what is known is that Nakamoto has, or had, a wallet containing more than 1.125 million Bitcoins. At one time, it was worth billions of dollars.

Those coins are still out there, somewhere.

2. Stefan Thomas

Stefan Thomas is a software developer from California who held more than 7,000 Bitcoins, worth, at one time, hundreds of millions of dollars. But Thomas forgot the password to the USB wallet he held them on, and has not been able to recover them.

3. James Howells

James Howell, similar to Thomas, had a laptop that stored roughly 7,500 Bitcoins. And he ended up mistakenly throwing it away, losing hundreds of millions of dollars in digital assets. He offered money to people to try and help him search nearby landfills to find it, but it remains lost.

4. Gerald Cotten

Gerald Cotten, yet another would-be Bitcoin whale, co-founded a crypto exchange called QuadrigaCX. In what’s a fairly long and complicated story, Cotten ended up dying at the age of 30, and the keys and passwords to his exchange’s cold wallets were lost. Those wallets contained more than $100 million in assets.

5. Unknown

Another strange story: Allegedly there’s a Bitcoin wallet floating around with roughly 69,000 Bitcoins in it, and nobody has been able to access it. The U.S. Department of Justice reportedly has the wallet now, after it was passed around by hackers and crackers who had been trying to open it.

Does Lost Bitcoin Affect the Network?

Bitcoin that is lost and deemed irretrievable is presumably out of the market forever. It’s as if you took a $100 bill and burned it — it doesn’t exist anymore. The difference being that there is no particular limit to the supply of $100 bills, but Bitcoin has a capped supply of 21 million (meaning there can never be more than 21 million BTC).

Other types of crypto that have a capped supply include: Litecoin, Stellar, Chainlink.

For that reason, lost Bitcoin shrinks the maximum or existing supply of the asset on the market. Since it makes other Bitcoins more rare, these losses can, in effect, increase the value of the remaining Bitcoin or other capped crypto on the market.

The Takeaway

No matter what type of cryptocurrency you’ve lost, it can be almost impossible to recover — especially if you’ve lost the private keys that gave you access to that crypto.

The easiest way to avoid losing crypto is to make sure it never gets lost in the first place. Doing so involves securing your private keys and other passcodes; setting up and backing up a secure wallet; and being careful when sending transactions. While there are services that may claim to help you recover lost crypto, beware of scams and high fees.

FAQ

Is it possible to recover lost Bitcoin?

Depending on the circumstances, it might be possible to recover lost Bitcoin (for example, if you lose a hardware wallet, but still have your private keys and passwords). However, much of the Bitcoin that has been lost over the years is effectively lost forever.

What is the total amount of Bitcoin that has been lost?

While no one knows the exact amount, it’s estimated that roughly one-fifth, or 20% of the Bitcoin that’s been mined has been lost, chiefly because investors lost their private keys.

Is it possible to lose Bitcoins forever?

Yes, you can lose Bitcoin (or any crypto) forever. You can put your coins in a wallet and forget the passwords, for example, or have your crypto stolen — you could even send them to the wrong crypto address. In those cases, it’s typically impossible to recover your crypto.

Photo credit: iStock/anilakkus

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High	Bonus Payout
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

SOIN0822014

Sep

2022

Tips for Investing in Tech Stocks

By Matthew Zeitlin | Growing Wealth, invest, Investing | No Comments

It’s almost become a trope at this point. Your friend’s aunt bought some Apple stock way back when and now lives full-time on a yacht. Or your cousin knows somebody who knows somebody who bought some Microsoft stock for a few dollars a share in the ’80s, and now they’re a multimillionaire.

These stories are practically the stuff of urban legend. But if you’re looking to buy a first tech stock or want to add some diversity to your portfolio, you may find the reality to be slightly different from the stories. There are many kinds of tech stocks, each with its own performance trends, pros, and cons. Here are a few fundamental truths worth knowing about investing in tech stocks.

Why Investors Are Investing in Technology

Much of the recent growth in the stock market overall has been concentrated in the shares of technology companies. Technology stocks, as measured by the S&P Technology Select Sector Index, rose 129.8%, or 18.11% annually, during the past five years. In contrast, during that period, the broad S&P 500 Index grew by 60.2%, or 9.9% annually.

The top five most valuable companies in the S&P 500 are technology-related companies. These firms — Apple, Microsoft, Alphabet (the parent company of Google), Amazon, and Tesla — have an average market capitalization, or overall stock value, near $1 trillion or more. And during the past five years, the stocks of these companies have experienced substantial growth.

Five Largest Companies in the S&P 500 Index
Company	Ticker	Market Cap^*	5-year growth^*
Apple	AAPL	$2.5 trillion	302.5%
Microsoft	MSFT	$1.9 trillion	256.0%
Alphabet	GOOGL	$1.4 trillion	134.7%
Amazon	AMZN	$1.3 trillion	170.6%
Tesla	TSLA	$868.5 billion	1,104.6%
^*As of Sep. 2, 2022

Investors flock to technology companies, especially the previously mentioned tech giants, because they’re often considered solid businesses.

The products of technology companies — especially software companies — are relatively cheap to reproduce but can be quite expensive to buy. Apple, for example, prices iPhones ahead of their competitors, sells a lot of them, and then operates an ecosystem of apps and services that generate steady revenue. Amazon’s success is attributed to the effectiveness of its operations and low prices. For Alphabet, the sheer scope of its networks and the popularity of its services allows them to sell more ads than its competitors.

Aside from the giants that have established business models, many investors pour money into tech companies due to the promise of future earnings. Even when tech companies are not profitable or see regular cash flows, investors will still support the stocks because of the potential for future earnings. Companies like Amazon and Tesla took years before they turned steady profits.

Popular Technology Stocks to Own

The technology industry is incredibly diverse. Beyond the five companies mentioned above, these are some of investors’ most widely held technology stocks.

Companies in the S&P Technology Select Sector Index
Company	Ticker	Technology Sector	Market Cap^*	5-year growth^*
Nvidia	NVDA	Semiconductors	$539.4 billion	233.8%
Broadcom	AVGO	Semiconductors	$198.7 billion	104.7%
Adobe	ADBE	Software	$219.7 billion	137.0%
Cisco Systems	CSCO	Communications Equipment	$187.5 billion	41.6%
Salesforce	CRM	Software	$153.5 billion	59.9%
^*As of Sep. 2, 2022

How Can You Invest in Tech Stocks?

At the most basic level, you can invest in tech stock by buying the individual stocks of an appealing company.

Another way to invest in tech is by trading technology-focused exchange-traded funds (ETFs) or mutual funds. Tech ETFs and mutual funds allow investors to diversify their investments in a single security, which may be less risky than buying a specific company’s stock.

If you are interested in a particular tech sector — like artificial intelligence or green tech — you can invest in more targeted funds rather than broad-based technology-focused ETFs.

Different Sectors for Technological Investment

The technology industry is vast, filled with companies specializing in different areas of the market. For an investor, this means it’s possible to diversify, investing in tech stocks across various sectors.

Artificial Intelligence

Artificial intelligence (AI), which refers to ways that computers can process data and automate decision-making that humans would otherwise do, is a burgeoning tech sector. Many companies are operating in this sector, using new technologies to support fields like finance and healthcare. Artificial Intelligence, along with the related field of Machine Learning (ML), has long been one of the most exciting technology areas.

Transportation

Another bustling sector of the industry is transportation. Tech underlies all transportation, and some of the most exciting companies are building electric cars, creating the batteries and software that support the navigation and operational systems in automobiles, or using software to connect drivers and passengers.

💡 Recommended: Investing in Transportation Stocks for Beginners

Streaming

Streaming companies have completely revolutionized the entertainment industry. These companies offer direct-to-consumer content, including shows and movies, that is bundled in a monthly subscription. There are standalone streaming companies, companies that include streaming as an ever-growing part of their business, and companies that build digital and physical infrastructure to support streaming services.

Information Technology

Information technology (IT) is one of the broadest and most valuable sectors of the technology industry. It typically refers to how businesses store, transmit, and use information and data within and between networks of computers.

Semiconductor Technology

Semiconductors are arguably the foundation of all technology. Semiconductor companies make components found in phones, computers, and other electronic devices. The manufacturing process for semiconductors is incredibly precise and expensive, making the industry ruthlessly competitive.

Web 3.0

In recent years, cryptocurrency, blockchain technology, and Web 3.0 have been the focus of many investors. That’s because computer engineers and companies are now developing new technologies that will allow users to interact with the web in a more interactive, personal, and secure way. These new technologies, like blockchain, crypto, and the metaverse, may usher in new opportunities for investors.

💡 Recommended: Web 3.0 Guide for Beginners

Evaluating a Tech Stock Before Investing

When investing, you must carefully evaluate the stocks you’re interested in.

Technology companies, in particular, tend to have high price-to-earnings (P/E) ratios, meaning that the company’s profits may seem low compared to the price of their shares. This is often because investors are expecting rapid future growth.

Other key metrics include price-to-sales, which compares the stock price to the company’s revenue. This is something to consider in the case of a fast-growing company that doesn’t yet have substantial profits.

Another critical factor is the company’s overall revenue growth — the pace at which revenue increases year-over-year or even quarter-over-quarter.

A more detailed metric that can be useful for tech companies is “gross margins,” which is the difference between a company’s revenue or sales and the cost of generating those sales, divided by total revenue. The resulting percentage indicates whether the company can make money on the actual product it sells and how much. If the company’s other costs can go down as a percentage of total revenue, profits can grow more quickly.

💡 Recommended: The Ultimate List of Financial Ratios

Pros of Adding Tech Stocks to a Portfolio

There are many benefits to investing in tech stocks, most notably attractive returns. With artificial intelligence, blockchain, and Web 3.0 technologies on the horizon, there are increasing opportunities to invest in this sector. These are some possible benefits of adding tech stocks to a portfolio.

• There are many blue chip tech companies. Blue chip stocks typically refer to stocks from long-established companies with good returns. Today’s blue chips include huge tech companies like Apple, Alphabet, and Amazon.

• Some tech stocks pay dividends. There can be benefits to dividend-paying stocks, including consistent earnings, which might indicate that the company is positioned to deliver strong performance.

• Investors can buy shares in things they use. Most people use some tech in their daily routines. You might have a smartphone, or a laptop, hop on a social network, or order groceries or clothing online. With a tech stock, investors can buy a little piece of the companies they know and like.

• It’s easy to diversify in tech. Tech stocks aren’t a monolith. Investors can add diversity to their portfolio by purchasing different aspects of the tech sector, for example, buying stock in social media companies, smartphone glass manufacturers, hardware makers, software companies, and even green tech companies.

A great thing about the tech sector investing space is that there’s so much of it out there, and investors should be able to find something that works for their goals, ambition, and knowledge base.

💡 Recommended: How to Invest in Web 3.0 for Beginners

Cons of Investing in Technology

All stocks come with their own risks and potential downsides. Tech stocks are no different. As with any stock purchase, it’s helpful to do a good amount of research before buying a stock. Take these considerations into account before deciding to pull the trigger on a tech stock.

• The potential for tech backlash. Some experts think increased regulation and government scrutiny could lead to a backlash against tech stocks that could affect their prospects. They cite 2018’s passage of the European Union’s General Data Protection Regulation (GDPR) and Facebook’s hearings before Congress as evidence that even more regulation might be coming in the future. But like many other sectors of the stock market, various tech stocks react differently in the face of volatility.

• Buying what you know can be complicated. You might have a solid grasp on some social media giants, for example, but some of the nuances of emerging semiconductor firms might be a little harder to wrap your head around. You may have to ask yourself if you want to invest in a company that you might not fully understand.

• Stocks may be priced too high. Some tech companies, like Amazon and Google, often have shares that venture into the four figures, so for a first-time tech stock investor, those companies may feel out of reach. However, many tech companies occasionally engage in a stock split to decrease their share prices.

Do You See the Most Returns When Investing in Tech Stocks?

Most returns when investing in tech stock can vary depending on the specific company and the current market conditions. Nonetheless, many investors believe that tech stocks generally have a higher potential for growth than other types of stocks, making them a good choice for those looking to generate returns. During the past five years, technology stocks rose a total of 129.8%, while the broad S&P 500 Index grew by 60.2%.

But just because tech stocks have outperformed other industries, it doesn’t mean that it will always be that way. During 2022, for example, tech stocks have declined 22.7% through Aug., while the S&P 500 fell 16.8% year-to-date.

💡 Recommended: Lessons From the Dotcom Bubble

How Frequently Should You Invest in Tech Stocks?

The frequency you invest in tech stocks will depend on your individual investment goals and risk tolerance. Some investors may choose to trade tech stocks monthly or quarterly to take advantage of any short-term price fluctuations. Others may invest in tech stocks on a more long-term basis, holding onto their shares for several years to benefit from any potential long-term growth.

What Percentage of Your Portfolio Should Be Tech Stocks?

The percentage of a portfolio allocated to tech stocks differs for every investor. Some experts recommend that investors allocate no more than 20-30% of their investment portfolio to tech stocks, but this percentage may be higher or lower depending on the investor’s risk tolerance, investment goals, and other factors.

Mistakes to Avoid When Investing in Tech Stocks

Many investors are drawn to tech stocks because of the potential for a significant return. But the allure of large gains may cause investors to take on too much risk or lose sight of their overall investment goals.

For example, you don’t want to invest in a tech stock just because it’s popular. It’s easy to fear you are missing out when you see a particular stock’s price skyrocket. You may hear about a tech stock lot in the financial media, and you know many people who say they own it, but that doesn’t mean it’s a good investment.

Additionally, you should avoid investing in a stock just because the company is a household name. While sometimes the stocks of well-known companies do well, there are other cases of these companies not being well run and thus not being a good investment.

The Takeaway

The tech sector is vast and getting bigger by the moment as blockchain, artificial intelligence, and other technologies push boundaries. New founders are working on startups in garages and basements, potentially developing the next new thing that could change the world. Investors looking to invest in tech stocks can find a stock or ETF out there that could meet their needs. For instance, SoFi ETFs can remove some of the headache from picking individual stocks by allowing you to invest in a bundle of companies all at once.

SoFi makes it easy to invest in tech stocks and more with an online brokerage account. With the SoFi app, you can trade stocks, ETFs, and fractional shares with no commissions for as little as $5. You’ll also get real time investing news, curated content, and other relevant data for the stocks that matter most to you. For a limited time, funding an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is open and fund a SoFi Invest account.

Get started trading technology stocks and ETFs with SoFi Invest® today

FAQ

Why is investing in tech stocks so popular?

Tech stocks are popular because they are some of the largest and best performing assets in the financial markets. As a whole, the technology sector is one of the fastest growing sectors in the economy. This means that there are a lot of new and innovative companies that are constantly coming out with new products and services. This provides investors with a lot of growth potential.

How can you start investing in tech stocks today?

You can start investing in tech stocks by trading individual stocks, invest in a tech-focused mutual fund or ETF, or invest in a more general stock market index fund that includes a mix of tech and non-tech companies.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0822023

Sep

2022

Will Dogecoin Ever Be Capped?

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

When evaluating a cryptocurrency, such as Dogecoin, it’s important to know whether it has a supply cap, since that can have an impact on the long-term value of the coin.

Bitcoin, the first and largest cryptocurrency by market cap, is known for having a 21 million coin hard cap, meaning there will only ever be 21 million BTC in existence. Similarly, XRP has a cap of 100 million. However, all cryptocurrencies are different and many do not have a supply cap.

Here’s what you need to know when it comes to the Dogecoin cap.

What Is a Cap in Crypto?

A supply cap, or cap, refers to the upper limit of the amount of new cryptocurrency coins that can be created.

Once miners have mined a certain number of coins, the protocol will stop distributing block rewards, and miners will only collect transaction fees. For Bitcoin, this point is estimated to be reached by about the year 2140, for other types of crypto the cap will be reached at different times.

💡 Recommended: How Many Bitcoins Are Left?

Does Dogecoin Have a Cap?

No, Dogecoin does not have a cap, meaning there is no Dogecoin supply limit. But there is a fixed reward of 10,000 DOGE for each block of transactions added to the Dogecoin blockchain (more on that below).

Thus, miners have an incentive to mine for Dogecoins. After they mine Dogecoin, they can move it from their wallets onto a crypto exchange where other investors can buy it. But as more miners come online, more of them will dump new coins onto the market, causing the price to fall.

Either way, it’s important to understand how the lack of a Dogecoin cap (i.e. the fact that there is no Dogecoin supply limit) can affect this crypto’s long-term value.

How Dogecoin Works

Developers Billy Marcus and Jackson Palmer launched Dogecoin as a low-stakes way for people to learn about cryptocurrency. The meme coin or joke coin, with its famous Shiba Inu logo, traded at a tiny fraction of a penny so people could send it to each other for fun while learning how to use crypto wallets.

In 2018, as cryptocurrencies caught the attention of mainstream investors, the altcoin reached more than $0.01. In 2021, Dogecoin attained record highs around $0.70 before crashing down to about $0.06, as of September 7, 2022.

DOGE is a proof-of-work (PoW) crypto, which means that mining Dogecoin involves running powerful computers known as nodes that process transactions for the network. In exchange for this work, miners receive block rewards of 10,000 newly minted DOGE.

A new block of transactions is mined roughly every minute on the Dogecoin network. The block reward is 10,000 DOGE, or about $600 as of September 7, 2022. Unlike Bitcoin, which has a hard cap of 21 million and releases fewer coins over time, there is no Dogecoin supply cap.

Is There a Limit to the Dogecoin Supply?

Is Dogecoin unlimited? Yes, as of September 7, 2022, there is no Dogecoin supply limit. But the reality is that 10,000 DOGE are mined every minute, which adds up to about 14.4 million DOGE per day, and over 5 billion DOGE per year added to the supply.

Although some argue that the vast number DOGE may depress the price.

Will Dogecoin Ever Have a Cap?

It’s hard to say for certain whether there will ever be a Dogecoin cap. In theory, DOGE developers could choose to implement a cap on the creation of new coins, but to date there hasn’t been much discussion about this.

Sometimes the crypto community decides to alter the protocol of a currency. An active cryptocurrency needs periodic upgrades to its software to remain functional, relevant, and secure.

For now, it seems reasonable to work from the assumption that there might never be a Dogecoin cap limit.

Has Dogecoin Ever Been Capped?

In the eight years since Dogecoin’s creation, there’s never been a cap on the crypto. In fact, for much of those eight years, no one thought much about DOGE at all and it traded for less than a penny.

In 2017 when cryptocurrency began reaching the masses in a big way, the valuation of DOGE hit $1 billion. Many investors considered this a sign of irrational exuberance in the crypto markets, as DOGE had no special features (it’s simply a clone of Litecoin, which is a clone of Bitcoin), and hadn’t had a developer update in three years at that time.

Nonetheless, in 2021 DOGE took a seat among the top 10 cryptocurrencies by market cap, a feat few would have thought possible just a year earlier.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

3 Reasons Why Dogecoin Doesn’t Have a Cap

Some say the decision to not cap the supply of DOGE was intentional on the part of developers. They wanted to create a currency that people would be more likely to spend. DOGE was created as a joke, but it was also intended to be used for transactional purposes.

The DOGE developers set out to create a cryptocurrency that would differ from Bitcoin in several key ways. Most if not all of those ways stem from the fact that there is no Dogecoin max supply.

Here are three reasons that are thought to have been big factors contributing to the decision to never implement a cap on Dogecoin.

1. Cheap Transactions

Dogecoin is an altcoin that developers created for spending meant to be spent, so they intentionally made it inflationary (meaning that the supply of DOGE increases, or inflates over time).

By contrast, Bitcoin is deflationary (the supply of BTC decreases over time), which makes its value relative to inflationary currencies likely to continue rising. As a result, BTC has become more of a store of value investment, making many investors want to HODL it.

If you think your Bitcoin might be worth twice as much next year, you’re less likely to use it to make purchases in the short term. But a currency like DOGE, with no supply cap, is more likely to be spent. People will use it today, while it still has value, and be less likely to hold it for the long-term as they know it’s unlikely to increase in price.

2. New Coins Forever

It’s estimated that about 20% of all the Bitcoins mined to-date have been lost forever. This happens when people forget their wallet password or lose a piece of physical hardware they used to store Bitcoin. This makes the supply of BTC even more deflationary, as those coins won’t be replaced. Meaning: A deflating supply means that the value may rise over time, assuming demand doesn’t decrease.

With Dogecoin, there will always be plenty of new coins. Even if someone loses millions of DOGE, the long-term impact is minimal, since there are constantly new coins going into circulation. With no supply cap, lost coins don’t matter as much.

3. Mining Longevity

At some point, there will be no more Bitcoins left to mine. When that happens, the only monetary incentive for mining BTC to keep the network secure will be transaction fees.

In theory, this could sustain miners interest in mining DOGE.

Pros and Cons of a Capless Cryptocurrency

Should there be a Dogecoin cap? It’s a good question, given the relative successes and failures of DOGE thus far. Here are some advantages and disadvantages.

Pros

By keeping DOGE as an inflationary currency, it’s more likely that people will spend it rather than hold it as a store of value.

With no Dogecoin cap, theoretically miners will always be able to mine more DOGE and keep earning Dogecoin as a reward.

Cons

Because it’s inflationary, DOGE has less appeal for buy-and-hold investors.

With its unlimited supply, the value of DOGE may never rise much above $1.00. At its peak in May of 2021, it was worth about $0.70.

Pros	Cons
DOGE has value as a transactional currency.	Low demand from buy-and-hold investors.
Miners can always mine more DOGE and get rewards.	Price unlikely to rise above historic high of $0.70.

How Many Dogecoin Are in Circulation?

According to CoinMarketCap data, there are about 132.6 billion DOGE in circulation as of Sept. 7, 2022. Keep in mind, 10,000 new DOGE are mined every minute, so the number will be higher by the time you read this.

It’s also worth noting that more than half of DOGE’s total supply is held by only about 20 different wallet addresses, making it one of the most unevenly distributed of the different types of cryptocurrency.

How Many New Dogecoin Are Created Every Day?

Every time a new block of transactions is added to the Dogecoin blockchain, 10,000 DOGE are mined. That’s about 14.4 million DOGE added per day, or about 5.26 billion per year.

How Much Dogecoin is Left?

There is an unlimited amount of DOGE left to be mined. Just like U.S. dollars or any other national fiat currency, there’s no upward limit on the creation of Dogecoins.

There are some key differences between DOGE and fiat currencies, of course, like the fact that anyone can mine Dogecoin, but only central banks can print money.

The Takeaway

The answer to the question, Will Dogecoin ever be capped? is likely a “no.” Nothing is for certain, as developers could decide to alter the Dogecoin protocol, but the history of the coin and the ethos of the community surrounding it suggest that they will not enact a cap.

Just as the Bitcoin community tends to value scarcity and a fixed supply cap, the Dogecoin community tends to value low transaction fees, large block rewards, and the other benefits that can arise from not having a supply cap. For investors, there may be a place for both types of cryptocurrency in their portfolio.

FAQ

Is there a cap on the supply of Dogecoin?

No, Dogecoin does not have a cap on its supply.

Will DOGE be capped at $1?

At the moment, there are no signs that DOGE will have a price cap or a supply cap.

Is the supply of Dogecoin infinite?

In theory, the supply of Dogecoin could be infinite. In reality, though, the annual supply is somewhat limited by the block reward, which is 10,000 DOGE per minute.

Photo credit: iStock/Amax Photo

²
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High	Bonus Payout
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

SOIN0822018