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If you’re in search of a low-risk way to grow your money, a liquid certificate of deposit (CD) might be worth a closer look. A liquid CD gives you a fixed, guaranteed rate of interest for a specific term, but unlike standard CDs, you don’t pay a penalty if you withdraw the funds before the maturity date.

Granted, the returns you earn on a liquid CD may not compete with stock market investments, but knowing that your money is earning interest and likely won’t incur any losses can be powerful benefits.

What Is a Liquid Certificate of Deposit?

Before you think about investing in a CD, here’s a look at definitions:

•   A certificate of deposit, or CD, is a savings vehicle that usually gives you a bit of interest with virtually no risk, provided you keep the money in place for a certain term. If, however, you withdraw funds before the CD matures (or reaches the end of its term), you are usually penalized. You will likely lose some or all of the interest earned and perhaps even a bit of the principal. In other words, are certificates of deposit liquid? Usually not.

•   A liquid certificate of deposit, on the other hand, gives you flexibility. It allows the account holder to withdraw money from their account prior to the maturity date without incurring penalties. This means you can access funds in the CD should you need them without penalty. However, the rates for liquid CDs tend to be lower than other kinds of CDs.

Understanding a Liquid CD

You may wonder what liquid assets are. In the realm of finance, the concept of “liquid” means that an asset (like money in a checking or savings account) can quickly be converted to cash. A liquid CD is a time-bound deposit account where you can earn interest for a specific period of time. Compared to traditional CD’s however, liquid CDs typically will not charge you early withdrawal penalties. This means you can easily liquidate (turn into cash) your CD without taking a hit in terms of its value.

As noted above, there’s a “but” to this proposition, which you may hear referred to as no-penalty CDs: Liquid CDs typically pay less than traditional CDs. Depending on which financial institution you go to, these products can offer various terms, either as little as a few months or up to several years or longer. Your fixed interest rate will vary according to the length of the term you’ve chosen. Typically, the longer you hold your money in the liquid CD, the higher the rate of return.

What can be a big plus about CD rates is that they are locked in during the full term. This means even if interest rates decrease, your rate would not change. Some financial institutions may require a minimum deposit for these CDs, and they can be significantly higher than traditional CDs; some are at the $10,000 and up level. What’s more, the minimum deposit may go up if you are seeking a higher interest rate, while others don’t have a minimum deposit requirement at all.

How Do You Withdraw Money From a Liquid CD?

If you have decided that you need to withdraw from your liquid CD, here’s what usually happens:

•   Check with your bank about how long it will take to process a withdrawal and whether you need to withdraw a certain percentage at a time. (Some banks may require you to close the account entirely.)

•   When ready, notify your bank of your withdrawal.

•   You will likely have to wait about a week after opening the liquid CD before you can start withdrawing.

•   Wait for your funds. Withdrawal is likely not as quick as withdrawing funds from a checking or savings account; your financial institution might require anywhere from a week to a month to process the transaction.

Recommended: What Happens If a Direct Deposit Goes to a Closed Account?

Liquid CD: Real World Example

Once you have decided a no-penalty CD is right for you, you will need to go to a bank or credit union that offers this account. Once you’ve opened an account, you have to fund it.

How it grows will depend on the principal, your APY (annual percentage yield), and how often the CD compounds the interest, which could be, say, daily or monthly.

•   If you invested $10,000 in a liquid CD with a three-year at a rate of 4.00%, at the end of the three-year period with interest compounded monthly, you will have a total balance of about $11,248.64.

Pros of a Liquid CD

When evaluating liquid CDs, it’s worthwhile to review the benefits of these accounts. Some of the key upsides are:

•   Liquidity. You can access and withdraw your funds prior to the term’s end. Perhaps you’re having an emergency that requires cash, or you decide to move around your money to better meet your financial goals. It’s possible!

•   No penalties. If you dip into the account before it matures, you won’t be assessed a fee.

•   Security. Liquid CDs are safe investments. These accounts are federally insured up to $250,000 per depositor, per account ownership category, per insured institution by the FDIC or NCUA. You’ll know your money is protected when you open a liquid CD with a bank or credit union. Even in the very rare situation of a bank failure, you’re covered as noted.

•   Guaranteed returns. When you start a liquid CD account, you usually know the interest rate upfront. It may not be stratospheric, but it’s a sure thing.

Cons of a Liquid CD

Now that we’ve explored the good things about a liquid CD, we need to give equal time to the potential downsides:

•   Lower rate of return. The interest rates are significantly lower compared to certificate of deposit rates.

•   Withdrawal rules. Yes, these accounts are more accessible, but after your deposit has been in place for a week, your withdrawal guidelines may be quite specific. For instance, you may have to remove all your funds if you want to make a withdrawal, or the amount might be limited to a certain percentage that doesn’t suit your needs. Check before starting a liquid CD investment.

•   Tax implications. Earnings on your liquid CD will be taxed at your federal rate, which is something to keep in mind as that will take your return down a notch.

Recommended: How to Make Money From Home

Alternatives to a Liquid CD

If the idea of a liquid CD doesn’t sound like an appealing low-risk investment option, there are alternatives to also consider.

Traditional CDs

Traditional certificates of deposit require you to stow your money away for a certain period of time. In exchange, you receive a return at the end of that period. The catch is, you are not able to withdraw your funds during this holding period. If you have a financial emergency, for example, and need the money from your CD, you will receive penalties for withdrawing your cash before the period of maturity.

However, this might be a gamble you are willing to take, especially if you have a nice, healthy emergency fund set aside. You’ll earn a better rate of return than with a liquid CD.

Laddering

CD laddering usually involves opening CDs of different term lengths. This strategy allows you to invest long-term CDs which provide higher rates of return, while having the ability to access your funds through a shorter-term CD maturing.

Money Market Account

Another CD alternative is a money market account, which is similar to a savings account with some added benefits. Money market accounts typically require minimum balances and offer rates comparable to savings accounts, which can change over time. While the rates may be lower than a CD, money market accounts typically allow you to withdraw and transfer your money six times per month or more.

Emergency Fund

An emergency fund, or a rainy-day fund, is a savings account that should only be used in times of financial emergencies or unexpected expenses. Depending on your financial position, you can have an emergency fund in a regular savings account, money market account, CD, or liquid CD. It depends on how much you plan to access your emergency fund and how much interest you want to earn in the account.

High-Yield Savings Account

A high-yield savings account can offer a competitive rate of interest, depending on the financial institution offering it (online banks tend to pay more than traditional ones). And you’ll have more liquidity than a CD because you can deposit and withdraw from the account more frequently, though the specifics may vary with each bank. If you want easy access to your funds plus interest, a high-yield bank account may be a good option.

The Takeaway

Liquid CDs are a financial product that offers the safety and guaranteed return of a traditional CD with the bonus of not being penalized if you make an early withdrawal. For those who are comfortable locking their money into a CD but worry an emergency or other need might pop up, this accessibility can be very attractive. Worth noting: Expect lower interest rates from a liquid CD than a standard one. Alternatives to a liquid CD can include a high-yield savings account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Are CDs liquid investments?

Traditional CDs are not liquid investments. Funds held in a CD cannot be accessed until the account term is reached. If you need to withdraw money from your CD prior to its maturity date, you will have to pay a penalty. A liquid CD, however, offers flexibility to withdraw money from your account prior to its term date without the usual fees.

What is a non-penalty CD?

A non-penalty CD, also known as a liquid CD, is a time deposit that offers interest on your money. However, the rate is usually somewhat lower than the rate for a typical CD (the kind with penalties). The longer the term you choose for your liquid CD, the more you usually can earn.

How much is the penalty for early withdrawal from a CD?

Each financial institution has its own way of calculating this, but it usually involves losing some of all of the interest you have accrued. If you have a two-year traditional CD and withdraw funds early, the fee could vary considerably; it might equal two months’ or a year’s’ worth of interest. If you have a liquid or no-penalty CD, you will of course avoid these fees.

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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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If you’re getting started with cryptocurrency, one of the first things you’ll need to understand is the difference between a crypto exchange and a crypto wallet. At first they may seem similar since both let you handle your digital assets, but they actually serve different purposes.

A crypto exchange is an online platform where you can buy and sell cryptocurrencies. A crypto wallet is where you securely store and manage the keys needed to access your cryptocurrencies. Both exchanges and wallets are essential for navigating the crypto world, but knowing how they differ is key to keeping your assets safe. This guide explains how each works, what sets them apart, and how to choose the right platforms and tools for your needs.

Why Knowing the Difference Between Crypto Wallets and Exchanges Is Essential

While the terms “crypto wallet” and “crypto exchange” are sometimes used interchangeably, they aren’t the same thing. A crypto wallet is a piece of hardware or software that enables you to access your cryptocurrencies, which are technically stored on the blockchain. Crypto exchanges, on the other hand, are online marketplaces where users can buy and sell crypto.

The idea of a crypto wallet vs. exchange can be confusing for beginners, however, because many exchanges provide wallet services to account holders — these are known as custodial wallets.

Control, Security, and Risk Management

While you can use custodial wallets (which live on an exchange) to store your crypto keys and manage your assets, the wallet itself is technically owned and controlled by the exchange. A personal crypto wallet, by contrast, puts you in charge, allowing you to store and secure your private keys independently.

Dangers of Confusing Exchanges and Wallets

Leaving assets on an exchange for long-term storage (using a custodial wallet) comes with some risks. Unlike non-custodial wallets where you control your own keys, a custodial wallet requires you to trust the exchange with the security and management of your funds. If the provider encounters technical difficulties, goes bankrupt, or restricts withdrawals, users could lose access to their assets. If the exchange gets hacked, a user’s funds could potentially be lost.

What Is a Crypto Exchange?

A crypto exchange is a marketplace for cryptocurrencies. It primarily serves as a platform where crypto prices are listed and people can buy and sell crypto. Many exchanges also provide their users with wallet services, though that is not their main purpose. Some exchanges also offer other financial services such as credit and debit cards and crypto-backed loans.

Core Functions and Services

The core function of a crypto exchange is to act as a marketplace for buying and selling cryptocurrencies and other digital assets. It facilitates transactions between buyers and sellers, matching orders based on price and liquidity, and typically charges a fee for these services.

Many exchanges also provide a platform where users can convert fiat currency (government-backed currency) such as the U.S. dollar to digital assets and swap one cryptocurrency for another.

Types of Exchanges

There are two main types of cryptocurrency exchanges — centralized and decentralized. Here’s a closer look at how each one works.

Centralized (CEX)

A centralized crypto exchange (CEX) is an online platform operated by a single, for-profit company that acts as an intermediary, facilitating the buying and selling of cryptocurrencies. Different CEXs work in different ways, but generally customers deposit assets into a custodial wallet managed by the exchange and submit their trading instructions. An internal order book tracks and prioritizes these requests, which are then automatically executed to settle trades and credit users’ accounts.^[1]

CEXs typically offer user-friendly interfaces, strong customer support, and fiat-to-crypto exchanges, making them appealing to beginners.

Decentralized (DEX)

A decentralized exchange (DEX) is a peer-to-peer crypto trading platform that operates without a central authority or intermediary. Instead of a company managing funds and transactions, DEXs use blockchain technology and smart contracts (self-executing, automated contracts) to enable direct transactions between users.

Unlike most centralized exchanges, DEX users make transactions directly from their wallets, keeping full control of their assets. Without an intermediary, however, DEXs offer little or no customer support, which means that user mistakes can result in permanent loss of funds. In addition, DEXs typically don’t support fiat-to-crypto trades and require users to know their way around wallets, private keys, and smart contracts. As a result, they generally aren’t ideal for beginners.

How Exchanges Enable Buying and Selling

Crypto exchanges match buyers and sellers of specific assets and facilitate swaps between the two. However, there’s a lot that happens in the background to enable these transactions.

Account Creation, KYC, and Regulatory Aspects

Centralized exchanges require users to complete Know Your Customer (KYC) verification, which entails submitting ID documents to comply with anti-money laundering (AML) laws. While this adds legitimacy, it reduces anonymity.

DEX users can usually remain more anonymous. These exchanges generally do not require identity verification (KYC) or personal account creation, allowing users to transact directly from their own crypto wallets.

Exchange Fee Structures and Hidden Costs

Crypto exchanges typically charge fees for their services. They are the main way these exchanges make money and can vary significantly depending on the platform and type of transaction. Common types of fees include:^[2]

•  Trading fees: These are fees charged for buying or selling cryptocurrencies (sometimes referred to as maker and taker fees).

•  Deposit fees: This is the cost of transferring funds (fiat or crypto) into your exchange account.

•  Withdrawal fees: This is a fee for transferring funds out of the exchange.

•  Network fees: These are blockchain-related fees that are not controlled by the exchange.

Security Protocols and Risks on Exchanges

Reputable exchanges will employ a variety of security features. These may include:

•  Whitelisting withdrawal addresses (this means users can only withdraw to pre-approved wallet addresses)

•  Withdrawal time delays and approval requirements

•  AI-driven transaction monitoring to flag suspicious withdrawals

•  Daily or weekly withdrawal limits

•  End-to-end encryption and secure data handling

Still, crypto exchanges remain high-profile targets for hackers. If an exchange is compromised (or were to collapse or go bankrupt), you could lose your funds. Unlike bank deposits, cryptocurrency holdings in wallets are not covered by Federal Deposit Insurance Corporation (FDIC) insurance.

What Is a Crypto Wallet?

A crypto wallet is a tool — digital or physical — that stores your cryptocurrency keys and allows you to send and receive funds securely.

Main Purpose and How Crypto Wallets Work

The term “crypto wallet” is somewhat misleading because it doesn’t hold your digital assets. Instead, a wallet securely stores the private keys that prove your ownership of cryptocurrency on the blockchain. When you make a transaction, your wallet uses your private key to sign and authorize the transfer.

Types of Crypto Wallets

Crypto wallets generally fall into one of two categories: software wallets (or hot wallets) and hardware wallets (cold wallets). Software wallets can be further subdivided into custodial and non-custodial. Here’s a closer look at the different types of crypto wallets.

Hardware Wallets (Cold Storage)

Hardware wallets are small, physical devices (resembling USB sticks) that hold a user’s private keys offline or in “cold storage.” By keeping private keys separate from the cloud and connected computers, hardware wallets protect them from online threats like malware and hacking. However, hardware wallets have an upfront cost and are less convenient for making frequent transactions. They also carry physical risks like being lost, stolen, or damaged.

Software Wallets (Hot Wallets)

A software wallet, also known as a hot wallet, is a digital wallet that is constantly connected to the internet. These wallets are designed to store private keys on internet-connected devices like smartphones, desktop computers, or through web browser extensions. Hot wallets can be custodial (part of an exchange) or non-custodial, where you have control over your private keys.

Hot wallets allow for easy and quick access to your crypto, but are more vulnerable to cyberthreats, such as hacking and malware. Due to the higher security risk, they are generally best for holding small amounts of crypto.

Paper Wallets

A paper wallet is a physical document where a user writes or prints out their public and private keys. This method keeps keys away from online threats like hackers but carries risks of physical damage or loss. If you lose your keys, you may lose access to your holdings.

Custodial vs Non-Custodial Options

In a custodial wallet, a third party service holds and manages your private keys. This offers convenience and easy recovery but requires you to trust them with your assets. In contrast, a non-custodial wallet gives you complete control and ownership of your private keys. This offers more privacy and potentially higher security, but makes you fully responsible for their safekeeping and recovery.

Understanding Private Keys and Public Addresses

There are two main parts to a crypto wallet: the private key and the public key. The private key is a secret, unique code that gives you the ability to access and spend your cryptocurrency. If someone gets access to your private key, they have full control of your funds, so it must be kept highly secure.

The public key is mathematically linked to the private key but does not compromise your security when shared. The public key is used to generate a public cryptocurrency address, which is a shorter, more convenient version of the public key for sending and receiving funds. This public address is like a bank account number that anyone can use to send cryptocurrency to your wallet.

Security Features and Backup/Recovery Methods

Crypto wallets can have a number of security features, depending on the type of wallet. A software wallet will typically require two-factor authentication (2FA) for access. A hardware wallet might have biometric authentication features, so you can’t physically get into your wallet unless you can scan your fingerprints, for example.

Non-custodial wallets typically generate a seed phrase, which is also known as a recovery phrase. A seed phrase is a randomly generated list of words (typically 12 to 24) words that acts as a master key for your cryptocurrency wallet. It provides a backup mechanism that allows you to restore access to your private keys if you lose your device, forget your password, or need to restore your wallet on a new device.

Privacy and Anonymity Considerations

The type of crypto wallet you choose plays a major role in determining your level of privacy and anonymity.

Custodial wallets, such as those offered by exchanges, require users to complete identity verification (KYC), meaning your transactions are tied to your real identity and stored by a third party. Non-custodial wallets, on the other hand, give you full control over your private keys, allowing for greater privacy since no personal information is required to create or use them. However, even with non-custodial wallets, transactions on blockchains are publicly viewable, which means they generally don’t guarantee complete anonymity.

Wallet Fees and Transaction Costs

Hot wallets, which are software-based and connected to the internet, are typically free. Cold wallets, which are physical devices that store crypto offline, have an upfront cost.

Using your wallet to buy and sell cryptocurrencies will come with some transaction fees. Crypto exchanges charge fees whenever you buy or sell digital currencies on their platforms. In addition, you may be charged fees by the blockchain network to process transactions.

Crypto Exchange vs Crypto Wallet

While crypto wallets and exchanges are two different things, they do have some overlap. Here’s a closer look at how they compare.

Transaction vs Storage Functions

In simple terms, wallets are for storage, while exchanges are for buying and selling. Wallets may have some transaction features, and exchanges may have some storage features, but broadly speaking, those are the two main functions of each.

Who Controls Your Crypto? (Custody and Access)

As mentioned, custody is important to understand. If you own your wallet and your holdings are in that wallet, you are the sole custodian. If you’re using a hot wallet supplied by an exchange, a third party holds your private keys for you.

When using a custodian for your cryptocurrency, you are entrusting your assets to a third party’s honesty, competence, and financial health, rather than maintaining absolute control yourself.

Security Levels and Risk Exposure

Exchanges are online and connected to the internet. Many private wallets are, too, but not all. Cold storage or hardware wallets are the most secure, as they’re offline and untouchable by hackers or bad actors (unless, of course, someone steals the physical device). Overall, exchanges can be inherently less secure than private wallets, depending on the wallet type.

Private Key Access and Responsibility

If you store your crypto keys on an exchange (in a custodial wallet), you access your wallet and funds through an account, using credentials like a username and password.

If you’re using your own private wallet, you’re responsible for keeping it safe and keeping track of your private keys and seed phrases. If you lose those, you could lose access to your holdings — and there may be no way to get help regaining access.

Connectivity: Online (Hot) vs Offline (Cold) Storage

Crypto exchanges are always online (hot), whereas wallets can be hot (software) or cold (hardware/paper).

Regulatory Compliance and KYC Requirements

Exchanges (and custodial wallets) typically must comply with KYC/AML laws. Non-custodial wallets typically do not require submitting any personal data.

Exchange vs Wallet Comparison Table

Here’s a side-by-side comparison of crypto exchanges vs. wallets:

How to Move Crypto From an Exchange to a Wallet

If you want to move your crypto from an exchange (where it’s held in a custodial wallet) to a personal wallet, here’s a look at how the process works.

Setting Up and Securing Your Wallet

The process for setting up a wallet will depend on the type of wallet. Generally, you’ll need to:

•  Download or purchase a reputable wallet

•  Download the official wallet software or app (if applicable)

•  Create a “new wallet”

•  Set up a strong password to protect your wallet

•  Securely back up your recovery (or seed) phrase offline

Step-by-Step Guide to Transferring Cryptocurrency

The steps for transferring your cryptocurrency from an exchange to a personal wallet will vary depending on the exchange and type of wallet you’re using, but these are often the steps involved:

1.   Log into your exchange account

2.   Navigate to “Withdraw” or “Send”

3.   Copy your wallet’s public address for the specific crypto

4.   Paste it carefully in the withdrawal form

5.   Choose the correct blockchain network

6.   Confirm and send

Tips for Smooth Transfers

For safe and secure transfers, you’ll want to:

•  Avoid public Wi-Fi when transferring

•  Keep devices malware-free

•  Never share your private key or seed phrase

•  Bookmark official sites to avoid phishing

Common Mistakes to Avoid With Exchanges and Wallets

There are a number of common mistakes people make when using crypto exchanges and wallets. Here are some to be aware of and try to avoid.

Leaving Assets on Exchanges for Too Long

It can be easy to make a transaction on an exchange and then simply leave your holdings in the hot wallet supplied by that exchange — and in the exchange’s custody. While that’s not necessarily unsafe, it could mean that your holdings may be less secure than they would be in your own private wallet.

Failing to Back Up Seed Phrases

Failing to properly back up a seed phrase is a critical mistake in crypto that can lead to permanent loss of funds. A seed phrase is the master key to your wallet, and without it, there is no way to regain access to your assets if your device is lost, stolen, or damaged.

To backup your seed phrase, you’ll want to write it on durable, offline materials like paper or fireproof metal plates and store multiple copies in separate, secure locations.

Falling Victim to Phishing and Scams

Phishing and other crypto scams involve being tricked into revealing personal wallet information or sending cryptocurrency to fraudsters. To avoid this mistake, be wary of unsolicited offers of free tokens or guaranteed high returns; avoid clicking on links in questionable emails/texts; and always check the exact URL of any website to ensure it’s legitimate.

Recommended: How to Report Crypto Scams & Seek Recovery 2025

Overlooking Two-Factor Authentication (2FA)

Having to take extra extra steps to get into an account is a hassle, but neglecting to set up 2FA can be a costly mistake. This leaves your accounts vulnerable to unauthorized access and potential loss if your password is compromised.

Forgetting to Test Small Transfers First

Cryptocurrency transactions are irreversible. Once confirmed, funds sent to a wrong address or on an incompatible network are generally lost forever. Sending a trivial amount first can save you from a potentially expensive mistake. Once the test is confirmed, you can proceed with confidence and send the full amount of crypto.

The Takeaway

Crypto wallets and exchanges are different entities. Crypto wallets can be software or hardware based. And while you don’t technically hold actual crypto in a cryptocurrency wallet, these wallets are specially constructed so you can send and receive crypto via different blockchain platforms using private and public keys.

Crypto exchanges are like online marketplaces where people can buy, sell, and swap crypto. You can use a centralized exchange, which is a third-party platform that acts as an intermediary for cryptocurrency transactions, or a decentralized exchange, which allows users to buy and sell cryptocurrencies directly with each other without an intermediary.

SoFi Crypto is back — now rolling out. SoFi members can buy, sell, and hold cryptocurrencies on a platform with the safeguards of a bank. Access 25+ cryptocurrencies, such as Bitcoin, Ethereum, and Solana, with the first national chartered bank to offer crypto trading. Now you can manage your banking, investing, borrowing, and crypto all in one place, giving you more control over your money.

Learn more about crypto trading with SoFi.

FAQ

Is it better to keep your crypto in a wallet or an exchange?

It is generally safer to store your crypto in a private wallet rather than on an exchange. A private wallet gives you full control of your private keys and complete autonomy over your assets. In contrast, exchanges use custodial wallets, where the exchange holds the private keys for your assets. This means you do not have full control, and your funds are vulnerable to exchange-specific risks, such as hacking, account freezes, or platform bankruptcy. For frequent traders, exchanges may be convenient, but for long-term storage, a hardware or software wallet may be the more secure option.

Should I move my crypto from an exchange to a wallet?

If you have crypto on an exchange, it’s technically in a custodial wallet, where the exchange holds your private keys on your behalf. You must trust the exchange to keep your keys secure, manage your funds, and grant access when you need to make a transaction.

It’s a good idea to move your crypto to a personal wallet, especially for long-term holdings. Exchanges can present risks like hacks and mismanagement, whereas a personal wallet gives you sole control over your private keys and, therefore, your assets.

What should I do if I lose access to my wallet or exchange account?

If you lose access to your private wallet, recovery depends on whether you saved your seed phrase — this is essential for regaining control. Without it, your funds may be unrecoverable. For exchange accounts, contact the exchange’s customer support immediately, verify your identity, and request an account recovery.

Should beginners use an exchange or a wallet?

Beginners often start with an exchange because they offer user-friendly interfaces, built-in wallets, and simple buying and selling options. However, exchanges control your private keys, acting as a custodial third party. Once you become familiar with crypto, you may want to transition to a personal wallet, which can offer greater security.

Do wallets charge transaction fees like exchanges?

Yes, both cryptocurrency wallets and exchanges charge transaction fees, but they are for different purposes. Wallets primarily charge network fees, which compensate the miners or validators who process and secure transactions on the blockchain. In contrast, exchanges typically charge fees for executing buy-and-sell orders. They may also charge withdrawal and deposit fees.

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About the author

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Article Sources

1. changelly. Centralized Exchange (CEX) vs Decentralized Exchange (DEX): What’s The Difference?.
2. Meegle. Crypto Exchange Fees Comparison.

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Photo credit: iStock/AndreyPopov

Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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When Bitcoin launched in 2009, it was the only digital currency of its kind. By 2011, though, new types of cryptocurrency began to emerge as competitors adopted the blockchain technology Bitcoin was built on to launch their own platforms and currencies. Suddenly, the race to create more crypto was on.

Read on to learn more about the seven main types of cryptocurrency, from proof-of-work to proof-of-stake cryptocurrencies, to utility tokens, stablecoins, and more.

Understanding the Cryptocurrency Landscape: More Than Just Bitcoin

Bitcoin (BTC) may be the most recognized cryptocurrency, but it is one of thousands. It’s difficult to pin down an exact number for how many cryptocurrencies exist, since new coins continue to be developed while others become obsolete.

By some counts, close to 37 million unique cryptocurrencies have been created over time, with more on the way.1 While cryptocurrencies have been largely unregulated for much of their history, that’s been changing in recent years. A regulatory framework has begun to take shape as the Securities and Exchange Commission (SEC), U.S. Congress, and other agencies in the U.S. and abroad have passed crypto-related regulations and laws.

What Is Cryptocurrency and Why Do Different Types Exist?

Cryptocurrency is a type of digital asset that’s created, validated, and exchanged through the blockchain, without the need for any type of central clearing intermediary. What this means is that cryptocurrencies operate on decentralized networks that may be transmitted without having to go through a third party.

Transactions are publicly viewable on the blockchain, but the identities of those exchanging cryptocurrencies are not transparent (though not always untraceable), adding to its appeal for some.

Why are there so many different types of cryptocurrency? Innovation, a push towards decentralized finance, and increased market interest all play a part.

Developers have created different types of cryptocurrencies largely to support and expand the capabilities of blockchain networks. Cryptocurrencies such as Bitcoin and Litecoin were developed to support peer-to-peer payments, for example, while others, such as Ethereum and Solana, were designed to support blockchain-based decentralized apps (dApps).

Utility tokens were developed to provide access to services or functionalities on a blockchain network — governance tokens, for instance, allow users to vote on decisions being made by a certain network.

Blockchain technology is also being actively explored in areas outside of finance, such as health care, supply chain management, real estate, and art.

The Fundamental Difference: Coins vs Tokens

Although some people use the terms crypto, coins, and tokens interchangeably, they’re not the same. To gain a basic understanding of cryptocurrency, it’s important to understand how these terms differ from one another.

Cryptocurrency may broadly refer to coins or tokens, but the two have different meanings:

•   Coins: Crypto coins are native to their own blockchain network, and provide a means of exchange. They’re strings of computer code that can represent an asset, concept, or project — whether tangible, virtual, or digital — intended for various uses and with varying valuations. Examples include Bitcoin and Ethereum.

•   Tokens: Tokens are programmable assets that are created on an existing blockchain network, and allow users to access certain services or features. They’re usually created and distributed through an initial coin offering (ICO), much like an initial public offering (IPO) for stock.

While crypto coins operate on their own independent blockchain and offer a broader medium of exchange for that network, tokens are built on top of an existing blockchain and have any number of uses, such as representing an asset — a stake in a precious metal, for example — or facilitating a transaction on the blockchain. Both could potentially be bought or sold through a crypto exchange.

Crypto coins are created, tracked, and verified by their native blockchain network and essentially power the blockchain by serving as payment for the transactions that create and secure new blocks. While crypto coins are fundamentally different from fiat currencies, like the dollar, euro, or yen — fiat money is tangible, and it’s governed by central authorities — they also have some similarities, since both are designed to be a medium of exchange and a unit of value.

Tokens, meanwhile, can be used as part of a software application, such as granting access to an app, verifying identity, or tracking products moving through a supply chain. They can represent units of value, too, including for real-world items, like real estate, points, or commodities. They can also represent digital art — as with non-fungible tokens (NFTs). There have even been experiments using NFTs to represent physical assets, such as real-life art and real estate.

Numerous crypto coins and tokens have been introduced at a rapid pace since Bitcoin was launched in 2009, and while this can drive innovation, it’s important to remember that cryptocurrencies come with high risk, as well, such as from scammers counterfeiting tokens or from the high level of volatility these assets experience.

Type 1: Proof-of-Work (PoW) Cryptocurrencies – The Originals

Proof-of-work is the original framework Bitcoin was built upon, and it represents the mechanism by which new blocks are added to the blockchain. In a proof-of-work system, “miners” compete to solve complex mathematical puzzles and earn cryptocurrency.3

What Is Proof-of-Work?

Proof-of-work is a consensus mechanism, which is a standard that governs how cryptocurrency transactions are validated and information is added to a blockchain network. It allows crypto miners to compete for an opportunity to add a block to the blockchain, and receive a reward for their efforts.

With proof-of-work, crypto miners use powerful computer systems to race to solve an encryption puzzle. The winner creates a new block that contains transaction information, which is verified by the entire blockchain network as it’s added to the chain.

The rewards earned by winning miners are typically a certain number of newly minted coins, though that number varies between cryptocurrencies.

Examples of PoW Coins

Proof-of-work coins are represented by some of the most well-known types of cryptocurrency. Some of the most popular PoW coins by market cap include:

•   Bitcoin (BTC)

•   Dogecoin (DOGE)

•   Bitcoin Cash (BCH)

•   Litecoin (LTC)

•   Ethereum Classic (ETC)

Bitcoin is the largest PoW coin by market cap, with $2.34 trillion worth of coins in circulation. As of August 2025, there were just over 19 million Bitcoins being held or exchanged, out of a total distribution cap of 21 million. The last Bitcoin is expected to be mined sometime in 2140.5,6

Type 2: Proof-of-Stake (PoS) Cryptocurrencies – The Evolution

Proof-of-stake cryptocurrencies were developed as an alternative to proof-of-work coins, which are viewed as having scalability limitations given the vast amounts of power required to mine them. A proof-of-stake system relies on crypto staking, rather than mining, but it serves a similar function.

What Is Proof-of-Stake?

Proof-of-stake is a consensus mechanism that’s used to reward participants who validate transactions that are added to the blockchain.

Here’s how it works:

•   Stakers agree to lock away some of their cryptocurrency on a blockchain network through a process called staking.

•   The blockchain network can use the holdings to create a new block and validate transactions.

•   The staker with the largest “stake” has a higher probability of being chosen to validate transactions.

•   Validated transactions earn the staker a reward; stakers who violate protocols, however, could face a penalty.

Proof-of-stake is considered by some to be an upgrade from proof-of-work. It requires much less computing power, reducing strain on the energy grid, and it also allows stakers an opportunity to potentially earn passive income while holding cryptocurrency. That said, stakers face the risk that their coins could lose value while they’re locked up for staking.

Examples of PoS Coins

Compared to Bitcoin, proof-of-stake coins claim a smaller share of the market. However, the numbers are growing, and these coins represent some of the biggest movers in terms of market cap:

•   Ethereum (ETH)

•   Solana (SOL)

•   Cardano (ADA)

•   Toncoin (TON)

•   Algorand (ALGO)

Ethereum has the largest market cap overall of these, at $430.88 billion, as of August 2025. This coin has seen a 911% increase in the last five years.

Type 3: Utility Tokens – The Keys to a Network

Utility tokens, or user tokens, are a type of cryptocurrency that serves a specific purpose inside a decentralized network. They’re built on an existing blockchain and grant their holders access to distinct functions, features, or services.

What Are Utility Tokens?

A utility token is a digital asset that grants holders access to a certain product or service for a given cryptocurrency. They’re typically developed using smart contracts and may be programmed for a range of uses, such as to access storage space or to bring external data onto a blockchain network. Or, as with a governance token, they may give holders the option to vote on changes to a blockchain network.

More broadly, utility tokens can help encourage participation in and support of the crypto ecosystem they were designed for. They may serve as a loyalty bonus, for example, provide access to exclusive features, or other incentives for interacting with the network, all of which may help foster the growth of that crypto community.

Unlike other types of tokens that may confer a stake in an asset or a physical entity, utility tokens serve primarily as a key to various features offered by a cryptocurrency.

Examples of Utility Tokens

Utility tokens are designed with specific use-cases in mind. Their value is typically measured more in terms of what they allow you to do, versus what value they represent.

Here are some examples of utility tokens:

•   Ether (ETH): Ether is the native token of Ethereum, which is the second-largest blockchain network. Ether is used to pay the Ethereum “gas fee” required to process transactions on the blockchain. Given its reach, however, it’s sometimes seen as a currency (having a store of value) in its own right.

•   Chainlink (LINK): Chainlink is a decentralized oracle network that acts as a bridge between smart contracts and real-world data. Tokens are used to pay for data services and incentivize the production of accurate data feeds.

•   Basic Attention Token (BAT): BAT is an Ethereum-based token that’s used within the Brave browser ecosystem. Browser users earn tokens by opting into ads; they can use their tokens to unlock premium content.

•   Golem (GLM): Golem is a decentralized supercomputer that lets users rent their computing power to others. Tokens are used to pay for services through the platform.
9,10

•   The Sandbox (SAND): SAND is the utility token for the community-driven blockchain gaming platform, The Sandbox. Players can earn SAND and use it to purchase virtual assets, access exclusive interactions, and take part in governance, among other things.

Type 4: Stablecoins – The Price Stability Anchor

Stablecoins are digital assets whose value is tied or “pegged” to another asset. Of the $250 billion in stablecoins currently in circulation, 99% of them are pegged to the U.S. dollar. Stablecoins are an alternative to Bitcoin and other cryptocurrencies whose value may fluctuate widely due to changes in supply and demand, or market sentiment.11

What Are Stablecoins?

Stablecoins are cryptocurrencies that are stored on the blockchain, but whose value is tied to an underlying currency or commodity. For example, stablecoins may be pegged to the U.S. dollar, the Euro, or gold. Because they’re tied to underlying assets, stablecoins can be redeemed for those assets.^[1]

Stablecoins are designed with the goal of maintaining a stable price relative to the asset they’re pegged to, and in comparison to the high price volatility of cryptocurrencies in general. That said, stablecoin stability may depend on a number of factors, such as the stablecoin’s level of liquidity, market volatility, and transparency around reserves.

The regulatory landscape for stablecoins is quickly evolving, such as with the recent passing of the 2025 Genius Act, which provides oversight for issuers of payment stablecoins and rules focused on consumer protection.^[2] The European Union’s Markets in Crypto-Assets (MiCA) regulation also went into effect in 2025. Under MiCA, stablecoins issuers are regulated like financial institutions and must meet certain EU reserve requirements. Some stablecoins are choosing not to seek EU compliance, however, such as Tether (USDT), which keeps much of its reserves in U.S. Treasurys.^[3]

As the industry shifts, there are still risks to be aware of, such as a stablecoin losing its peg value, technology or operational risks, or the potential for scams or fraud.

Common uses for stablecoins include:

•   Paying for goods and services

•   Making cross-border payments

•   Offering potential protection against price instability in cryptocurrency markets

Crypto users may use stablecoins to buy other cryptocurrencies in lieu of cash, and more payment processors are allowing the use of these coins to pay for transactions online.

Examples of Stablecoins

Stablecoins represent a growing share of the total cryptocurrency market. Some of the most well-known stablecoins by market cap include:

•   Tether (USDT)

•   USDC (USDC)

•   USDS (USDS)

•   Dai (DAI)

•   PayPal USD (PYUSD)

The total market cap of stablecoins was $268.27 billion as of August 2025. With a few exceptions, stablecoins have a relatively low price point compared to other types of cryptocurrency.

Type 5: DeFi Service Providers – The Future of Finance

DeFi service providers represent a subset of the cryptocurrency landscape. They operate on decentralized, blockchain-based frameworks in order to offer services that allow individuals to conduct transactions directly. For example, a DeFi coin is similar to a physical coin in that it transfers value, but it does so without going through a central intermediary.

What Is Decentralized Finance (DeFi)?

Decentralized finance, or DeFi, describes financial services that are executed through the blockchain. By allowing for direct, peer-to-peer transactions, DeFi advocates note that it could help reduce barriers to entry for those who traditionally have a harder time accessing financial services, and allow for potentially faster, cheaper transactions.

Some of the top providers building out the decentralized finance landscape are developing decentralized peer-to-peer exchanges, borrowing and lending protocols, data services through decentralized oral networks (DONs), and stablecoins, which may help provide a bridge between blockchain systems and traditional assets.

Most, though not all, DeFi protocols and applications are built on Ethereum. DeFi tokens can be used to access services and goods through decentralized apps. Though DeFi tokens represent a smaller share of the cryptocurrency market, their popularity is growing.

DeFi, of course, is in its early stages, and while the blockchain technology itself helps to safeguard information, the other apps, systems, and entities that interact with the network could pose risks. It’s important to be cautious when considering options, especially as crypto regulations continue to develop.

Examples of DeFi Tokens

Here are some of the largest DeFi tokens by market cap:

•   Stellar (XLM)

•   Hyperliquid (HYPE)

•   Uniswap (UNI)

•   Polkadot (DOT)

•   Aave (AAVE)

The total DeFi token market was valued at $111.94 billion as of August 2025. It’s essential to distinguish between DeFi tokens and DeFi coins. The difference, again, between tokens and coins is how they relate to the blockchain.

Type 6: Privacy Coins – The Anonymous Transactions

Privacy coins offer anonymity by obscuring certain details about their users. These coins can be sent and received anonymously, without disclosing the location of the parties involved in the transaction.

What Are Privacy Coins?

Privacy coins enable the secure transfer of cryptocurrency without revealing either its origin or destination. This is a key departure from the more public nature of transactions conducted on the blockchain. Public blockchains were designed with the idea that information be transparent and immutable, allowing participants to view and validate the data. With Bitcoin, for example, Bitcoin users can access transaction data (though not identity information) through public Bitcoin addresses used to make payments.

A privacy coin blocks certain information from view through the use of different strategies, including:

•   Protocols that generate stealth addresses

•   Mixing of transactions to make the routing of coins more difficult to trace

•   Tools that allow for the validation of transactions without requiring the disclosure of any identifying information

Privacy coins aren’t accessible in every country or crypto market. Some countries have banned them outright, while others have taken steps to remove some of the secrecy surrounding them.15
For example, recent anti-money laundering regulations passed by the European Union will, starting in 2027, ban financial and credit institutions as well as crypto-asset service providers from managing cryptocurrencies that offer anonymous accounts.

Examples of Privacy Coins

The market for privacy coins is smaller than other types of cryptocurrencies, and your ability to buy them may depend on where you live. Examples of popular privacy coins include:

•   Monero (XMR)

•   Zcash (ZEC)

•   Beldex (BDX)

•   Decred (DCR)

•   Dash (DASH)

As of August 2025, the privacy coin market was valued at $7.16 billion. A glance at pricing charts shows that privacy coins have the potential to be exceptionally volatile.

Type 7: Meme Coins – The High Risk, High Reward Speculation

Meme coins are a type of cryptocurrency whose popularity is driven by memes or trends.

What Are Meme Coins?

Meme coins are coins that gain attention because they align with a trend or newsworthy event. Any coin can become a meme coin if someone or something pushes it into the spotlight. Some of the most popular meme coins can develop cult-like followings, which can help drive demand.

Compared to other types of cryptocurrency, meme coins tend to be more volatile because their value is often tied to their popularity. A coin that’s hot today may not be tomorrow, and its value could quickly fizzle if the trend dies down, or the meme that the coin is associated with loses popularity.

Examples of Meme Coins

Meme coins can sometimes be some of the most recognizable cryptocurrencies if they grab the attention of the broader population. Examples of popular meme coins include:

•   Dogecoin (DOGE)

•   Shiba Inu (SHIB)

•   Pepe (PEPE)

•   Pudgy Penguins (PENGU)

•   Bonk (BONK)

Meme coins often have lower prices than other cryptocurrencies. As of August 2025, meme coins had a market cap of $76.2 billion.

The Critical Impact of Tax Treatment

The IRS treats cryptocurrency and other digital assets as property, meaning that any gains you generate from them are taxable. If you have digital asset transactions during the year, you’re required to report them on your tax return.

The sale of digital assets, including cryptocurrency, can trigger capital gains if you sell at a profit, or capital losses if you sell for less than the original purchase price. Selling off crypto assets after seeing huge gains in value could significantly increase your tax liability for the year.

You can offset gains with losses through a process known as tax loss harvesting. That can reduce what you owe in federal taxes for the current year.

Income earned through cryptocurrency activities, such as from mining rewards, is considered ordinary income. Depending on your circumstances, the tax rules applying to your digital assets could get complicated. You may want to talk to a certified public accountant (CPA) or another tax professional about how crypto assets could affect your overall tax picture.^[4]

The Takeaway

Cryptocurrencies are all digital assets built upon a distributed network and, likewise, upon the principle of decentralization. It’s important to remember, however, that there are several types of cryptocurrencies, and each one — be it proof-of-work, proof-of-stake, stablecoins, DeFi, or utility tokens — has myriad options within it.

Different cryptocurrencies have different goals, functionalities, markets, and prospects. By the same measure, cryptocurrencies are also not created equally in terms of risk, both in their own right, and in terms of how they may align with your financial goals. Understanding the different types of cryptocurrencies can help you better understand the role they may play in crypto markets and potentially in your portfolio.

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FAQ

How many types of cryptocurrencies are there?

Broadly speaking, cryptocurrencies can be grouped into coins and tokens. Beyond those two main types, there are millions of different types of crypto being exchanged, with new currencies entering the market regularly.

What is the most common type of cryptocurrency?

Bitcoin is likely the most common type of cryptocurrency, or at least the one people are most familiar with. It’s also the crypto asset that holds the lion’s share of market capitalization. As the first blockchain coin, Bitcoin opened the door for the introduction of other cryptocurrencies, including Ethereum and Litecoin.

What is the difference between a coin and a token?

The main difference between a coin and a token is their relationship to the blockchain. Coins are the native digital currency of their blockchain, while tokens sit on top of an existing blockchain. Tokens are often associated with digital currencies, but they can also represent other digital assets, like NFTs, or something intangible, like voting rights.

Are NFTs a type of cryptocurrency?

NFTs or non-fungible tokens are not a type of cryptocurrency, but they share space with crypto on the blockchain. An NFT represents ownership of a unique digital or physical asset, such as a drawing, image, or piece of artwork.

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Article Sources

1. U.S. Securities and Exchange Commission. Statement on Stablecoins.
2. Congress.gov. S.1582 – GENIUS Act.
3. World Economic Forum. The GENIUS Act is designed to regulate stablecoins in the US, but how will it work?.
4. Intuit Turbotax. Your Crypto Tax Guide.

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Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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Due to advances in artificial intelligence (AI) technology, as well as significant economic shifts and demographic changes, there are five top investing trends to know about in 2025.

These include the proliferation of AI and digital infrastructure; the impact of longevity on health care and other sectors; a continued interest in alternative assets; the importance of risk management; and renewed signs of life in the real estate sector.

As the 2025 SoFi Investor survey reveals, investors may or may not follow these specific trends, but respondents seem optimistic about investing overall, and interested in developing aspects of their own long-term strategies.

Investor Sentiment in 2025: A Shift in Strategy

In the last few years, investors have faced geopolitical turmoil, higher-than-average inflation and interest rates — and more recently, global trade and tariff issues. Nonetheless, the investors who responded to the 2025 SoFi Investor survey revealed a sense of optimism, and an ability to manage stress in light of these volatile times.

Investor Confidence

Of the 1,000 individuals surveyed, over two-thirds (68%) plan to expand or shift their investing strategies in the coming months, and 65% feel optimistic or content about their strategies — both signals of investor confidence.

In a similar spirit, although inflation has been at historic highs, only 19% of investors said they were investing less in their portfolios — and 82% either wanted to invest more or maintain their holdings.

And a striking 40% said they didn’t experience stress in relation to market ups and downs.

Following are some of the leading investment trends that investors may be watching as 2025 draws to a close and 2026 comes into focus.

1. The Rapid Advance of Artificial Intelligence

As artificial intelligence technology has continued to skyrocket, the impact of these innovations and the widespread adoption of AI across industries has presented opportunities for investors, as well as challenges.

While global assets in AI funds reached a record $5.5 billion in Q2 of 2025, according to Morningstar, this rapid growth has also been met with concerns about capacity, energy needs, and the possibility of a bubble.

Nonetheless, AI has a strong appeal for investors, owing to its potential for growth. Investors must also consider the volatility in this industry, as well. This may be one reason investors seem to favor U.S. AI-focused ETFs than, say, stocks, according to Morningstar — given that AI ETFs may provide greater diversification as well as access to thematic investing.

2. A Renewed Focus on Alternative Investments

Investors were pursuing alternative assets at a record pace throughout 2024 and into early 2025, according to Morningstar. This trend is echoed by the sentiment reflected in the SoFi Investor Survey, where some 47% of respondents said that they invest in alternatives.

The Accessibility of Alts

Alternatives tend not to be correlated with traditional assets like stocks and bonds, and as such they can offer some portfolio diversification. Alternative assets were once restricted to qualified investors, but are increasingly available to ordinary investors through certain types of ETFs and other instruments.

Examples of alternative investments include tangible assets like real estate and commodities, as well as collectibles like art and antiques.

But alternative assets may also refer to the use of specific strategies: e.g., hedge funds, derivatives, and venture capital, as well as private market investments.

These assets may deliver higher returns when compared with conventional assets, but they are considered higher risk, owing to the lack of transparency, lower levels of regulation, lack of liquidity, and other risk factors investors may want to consider.

3. The Implications of Greater Longevity

People are living longer, with adults over age 65 projected to reach nearly a quarter (23%) of the U.S. population in the coming 30 years, according to the Pew Research Center. The result of this increased longevity has been a steady expansion of the science, technology, and business of living longer — with some estimates putting the global longevity market at $600 billion by the end of 2025.

While many investors are aware of advances in health care and medicine, the longevity market has expanded to include consumer goods, travel, computer and mobile technologies, caregiving services, housing developments, and more. Investing in longevity has obvious societal benefits, many of which may enable people to live longer as well as healthier and more rewarding lives.

That said, for all its focus on aging, the longevity sector itself is young — and from an investing perspective, it may be difficult to predict the winners and losers in the years to come. Nonetheless, this is a trend that’s unlikely to reverse, and investors may want to keep an eye on the opportunities emerging here.

Recommended: Investing in Commodities

4. New Approaches to Portfolio Risk Management

In the face of market swings, the majority of investors surveyed by SoFi (73%) chose to hold onto their assets rather than sell. This focus on staying the course is an important component of overall portfolio risk management, especially in light of ongoing volatility in many sectors.

Some tried-and-true strategies for managing portfolio risk factors include diversification, using dollar-cost averaging, and lowering overall portfolio volatility by rebalancing and similar approaches.

It’s also possible to gain a deeper understanding of one’s actual risk tolerance by seeking out a professional portfolio risk analysis, which can stress-test the holdings in your portfolio, and may provide insights about ways to adjust your investments.

5. Navigating a Shifting Real Estate Market

The real estate market will continue to be an area of focus for investors and potential homebuyers in 2025 and into 2026, largely owing to pent up demand while interest rates were high.

If interest rates continue to decrease as anticipated, the real estate and home building markets may see renewed growth — although the ongoing impact of tariffs on sector supplies such lumber, appliances, metals, and other goods could be significant.

As the SoFi Investor Survey revealed, some investors are intrigued by real estate opportunities, with 15% saying they have real estate investments, and 11% specifically invested in real estate investment trusts (REITs).

Recommended: Pros & Cons of Investing in REITs

How to Approach These Investing Trends

As noted above, investing trends are not a guarantee of success; they’re simply broader market movements that a wider swath of investors may be participating in at the moment. But as with trends in fashion or music or politics, investors must decide for themselves whether an investment trend is worth considering.

Do Your Own Research

One important way to evaluate investment trends is by doing your own research. Basic reading helps to keep investors informed about relevant news and industry factors that could impact a trend.

It’s also wise to compare a current trend in light of a company’s or fund’s actual performance and fundamentals. Some investments are poised to benefit from a trend, whereas others are not.

Align Trends With Your Long-Term Goals and Risk Tolerance

Above all, investing in a certain trend only makes sense when it aligns with your overall goals, your financial circumstances, and your risk tolerance.

By their very nature, trends are not necessarily going to last. There may be short-term opportunities investors can consider, or a trend may evolve in such a way that an investor may find it worthwhile to stick with it. That will depend on the trend and on the individual.

The Takeaway

Putting hard-earned dollars into any investment — whether it’s trendy or traditional — requires careful thought and due diligence. Investors should be aware that, while momentum can feed investment fads for long periods, some market trends can become vulnerable because of frothy valuations and turn on a dime.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How can I add AI exposure to my portfolio?

There are many ways to invest in artificial intelligence, including individual stocks as well as ETFs. Investors may also want to consider the range of industries involved in AI and/or using this technology, from big data analysis to large language models to sectors such as media and healthcare, which are integrating AI technology.

What are the risks of investing in trends?

Trends can be higher risk in many cases, simply because most trends are driven by investor emotion, not company financials.

How are investors coping with market stress?

According to the SoFi Investor Survey, while 40% of investors say the markets don’t stress them out, others have multiple coping strategies, including talking to their broker, doing market research, and not checking their account balances.

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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 emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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