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Q: What Is Enjin Coin?

Enjin Coin, or ENJ, is the native token to the Enjin network. Enjin’s software allows users to create virtual goods — like NFTs, or non-fungible tokens — on the Ethereum blockchain network.

Oct

2021

What Is Enjin Coin (ENJ)? A Beginner’s Guide

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Crypto investors have an increasing number of choices lately — including Enjin Coin (ENJ), which launched during the summer of 2018.

Unlike many other crypto investing options on the market, Enjin Coin (also referred to as ENJ crypto) is a bit different in that it was designed for a specific purpose: To help the gaming community and to manage digital or virtual assets.

Here’s everything curious investors and crypto fans need to know about Enjin Coin.

What Is Enjin Coin?

Enjin Coin , or ENJ, is a cryptocurrency created and designed by a software company called Enjin . Enjin’s software allows users to create virtual goods — like NFTs, or non-fungible tokens — on the Ethereum blockchain network.

While that may require some background reading about Ethereum’s blockchain network and NFTs, what you should know is that Enjin’s software is designed to create and manage in-game goods and assets. In effect, Enjin makes it easier and more efficient for participants in certain virtual worlds to create in-game assets, and to transact them.

Enjin Coin, or ENJ, then, is the native token to the Enjin network.

Recommended: What is a Crypto Token?

How Does Enjin Work?

The basic idea behind Enjin Coin is that blockchain can smooth out the process of transacting in-game or virtual assets. Much like blockchain can do the same in the real world with other assets (think of Ripple and XRP, which is designed to help facilitate financial transactions), ENJ is used to manage virtual inventories.

If it all sounds a bit meta — a virtual currency designed for virtual assets — that’s because it is. As for how it actually works, Enjin has software development kits (SDKs) that allow game developers to “mint.” Using SDKs, developers can create virtual items inside of games or applications. These created items are given a corresponding value in ENJ, which makes it easy to trade and or sell them via Enjin’s marketplace.

Because each asset has a value in ENJ, which is a traded cryptocurrency, it also has a real-life value, too. These digital assets are, in effect, NFTs, and can be traded for many times their initial values.

Developers who want to create in-game assets can start out by purchasing ENJ from an exchange, “minting” an item, trading or selling it in-game, or even “melting” it — which means turning the item back into ENJ.

While Enjin Coin is designed to function and incorporate blockchain-backed swapping systems in video games or virtual worlds, it can be used in other ways, too. For instance, sports teams or clubs may be able to use it to mint digital assets to hand out as rewards.

Example of ENJ Crypto in Action

Here’s a simplified, hypothetical example of how Enjin coin works in the real (well, virtual) world:

Say you’re a game developer, and you’re actively playing, participating in, and developing an MMORPG (massively multiplayer online role-playing game). You want to create a special weapon for the game, a longsword, and decide to buy some ENJ from a crypto exchange to do so.

You make the purchase, and with your ENJ, you “mint” the longsword using an SDK, a corresponding programming interface created by Enjin to help build and deploy the asset into the game.

Once created, the longsword also has a value equal to, say 10 ENJ. You sell the longsword to another player on Enjin Coin’s marketplace, banking 10 ENJ. You decide you’d like to accumulate more ENJ, so you trade a shield in your inventory for a spear that you plan to “melt” — which is, as you might remember, like liquidating an asset for its ENJ value.

You melt the spear and collect 5 ENJ. Now, you have 15 total ENJ, that you can either use to create more in-game assets or sell on an exchange.

While this is a very simplified version of Enjin Coin in action, it should give you the gist of the cryptocurrency’s use cycle.

Enjin Coin: Benefits and Disadvantages

As with any cryptocurrency, Enjin has its benefits and drawbacks. Here are a few:

Benefits of Enjin Coin

• Potential for Growth: The gaming industry (and virtual world-building in particular) is big and growing. That means there’s a lot of potential runway for Enjin Coin ahead.

• Relatively affordable price: For crypto investors, ENJ is still affordable for almost anyone — unlike Bitcoin or Ethereum. (See more on price in the next section.)

• A large, built-in community: Enjin already has marketplaces operating and integrated, with many participants. The fact that it’s been so widely adopted may be an indication that won’t just disappear overnight.

Disadvantages of Enjin Coin

• No easy mining: Enjin doesn’t operate on its own blockchain, so it can’t be mined directly — at least not easily.

• No physical backup: As with all other cryptocurrencies, there’s no physical asset or commodity to backup Enjin Coin.

• Technical know-how: Crypto isn’t easy to understand, and Enjin Coin is no different. That’s particularly true if you plan to use it to create NFTs or assets — you’d need to do some studying before you could put it all together.

Enjin Coin Price

While Enjin Coin isn’t dirt-cheap like some coins on the exchanges, it hasn’t reached astronomical levels, either. As of mid-to-late September 2021, it’s trading at around $1.25.

Over the past year, its price has fluctuated in a big way. At the end of 2020, Enjin Coin’s price hovered around $0.15, then it saw a big spike in the spring, topping $3.45 at one point. Since then, it’s come down and has mostly stayed between $1 and $2.25 ever since.

Enjin Coin Staking

Further, some exchanges and platforms do allow users to stake Enjin Coin, if you know where to look. But by and large, it seems that most larger exchanges don’t give users and investors the option to stake ENJ.

Recommended: What is Staking Crypto?

That said, Enjin is rolling out a new ecosystem called Efinity, which will also have its own cryptocurrency, Efinity Token (EFI). As a part of that ecosystem, Enjin Coin can be staked to earn Efinity Tokens.

How to Invest in Enjin

For most investors, investing in Enjin Coin is pretty much the same as any other cryptocurrency. You start by picking a crypto exchange, opening an account, funding it, then placing an order and transferring your holdings to your crypto wallet.

You can also swap your ENJ tokens for others on some decentralized exchanges, but again, for most investors, sticking to a large, trusted exchange is probably the way to go.

The Takeaway

There are many types of cryptocurrencies out there, and the list seems to be growing each and every day. Enjin Coin is a relatively new coin with some fairly unique use cases, and it may be of particular interest to crypto investors who are into gaming and the gaming industry.

Photo credit: iStock/svetikd

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.

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.

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Sep

2021

What Are Vanilla Options? Definition & Examples

By Susan Guillory | Growing Wealth, invest, Investing, Terminology | Comments Off

Once you’ve started investing, you may want to learn about different assets beyond stocks and bonds. Among the alternative assets you might consider, are options, and vanilla options are a great way to get started with this type of investment.

Options give investors the — you guessed it — option to purchase or sell a stock at a certain price over a certain period. Options are derivative financial instruments, which means they are based on an underlying asset. Vanilla options are the most basic type of option contract, and they’re often standardized and traded on exchanges.

Vanilla Option Definition

Vanilla options, in contrast to exotic options, which have customization features, have simple and straightforward terms of the strike price, or the price for which an investor buys or sells a stock, and the period in which they can exercise their option. The last day that an investor may exercise an option is known as the expiry date.

How Do Vanilla Trades Work?

Let’s look at how options trading works with vanilla trading.

Each option has a strike price. If that price for purchase is lower than the market value of the stock, investors call that option “in the money.”

Investors pay a premium to own an option. This premium reflects several factors, including:

• How close the strike price is to the market price

• The stock’s volatility

• How length of time before the option expires

Investors don’t have to wait until the option expires to complete the trade, and they are typically under no obligation to exercise the option.

What are the Different Types of Vanilla Options?

When it comes to options for vanilla stock options, there are two types, calls and puts.

Calls

A vanilla call option gives an investor the option to buy an asset at a certain price within a certain period. A call option is a bit like a down payment; the investor pays the premium so that, later, they can buy the stock at a good price and profit from it.

However, an investor can pay the premium and never exercise the option. If they decided not to exercise it, they would either lose what they paid for the premium, or they could sell the call option to someone else before it expires.

Puts

In contrast, a put option allows an investor to sell an asset at a fixed price within a certain time period. If a stock tanks in value over the period that option is exercisable, the investor can still sell it for the put price and not lose as much of his investment. But if the stock’s value goes higher than the put price in the market, the vanilla options are worthless because the investor could sell it at the market price and realize more of a profit.

Characteristics of Vanilla Options

Like all investments, vanilla options include a level of risk and volatility. But they can also provide the opportunity for profit.

Premiums

Whether you are interested in a vanilla call or put, you will pay a premium, in addition to what you would pay to purchase the stock with a call. The premium isn’t refundable, so if you don’t exercise the option, you’ve lost what you paid for the premium.

Volatility

The volatility of an option determines its price. The higher the volatility of the option, the higher the premium because there is more opportunity for profits (as well as the risk of loss).

One way to reduce volatility is to use an options trading straddle where you buy a put and call option simultaneously.

Risk Level

Like most other types of investments, options are not without risk. If a stock is lower in price on the market than a call option, the option is worthless. And if a stock has a higher price on the market, the put option won’t net more return on investment.

However, a vanilla option may be less risky than buying a stock outright, since the only thing you’re guaranteed to spend is the premium.

Pros and Cons of Vanilla Options Trading

Trading vanilla options can have potentially great returns…or large losses. Here are the pros and cons.

Pros	Cons
Minimizes risk; no obligation to exercise	Risky; may lose premium investment and more
Option to control more shares than buying them outright	May be complex to understand
May offer large returns	Fluctuations in market may render option worthless

Pros

Options may be less risky than buying a stock outright, since you’re only buying the option to purchase or sell a stock at a certain price. The premium is all you invest initially.

Typically you can purchase more shares through options than you could buying them on the market, so if you’re looking for larger investment opportunities, options could provide them.

And while they’re volatile, there is the potential for larger returns.

Cons

That being said, you don’t always see large returns. You can lose your entire investment if the option is out of the money when it expires.

Options can be complicated or confusing for new investors. Not only should you fully understand the risks you take with this investment tool, but you also should understand options taxation.

Examples of Vanilla Options

If you’re considering vanilla options as part of your options trading strategy, here are a few examples to illustrate how they work for both calls and puts.

Example of a Vanilla Put Option

A put is a bit like insurance in case your stock you’re holding goes down in value. It’s one way that investors might short a stock. Here’s an example.

Let’s say you own 100 shares of a stock that is currently trading at $25 per share. You buy a put option at a premium of $1 per share that expires in two months at a strike price of $25. So in total, you paid $100 for a premium for 100 shares.

In a month, the stock price drops to $18 per share. This is a good time to exercise that premium because your strike price allows you to sell the shares for $25 rather than $18. You wouldn’t gain any money because you’re essentially selling the stocks for what you paid for them ($25), and you would even lose a little (that $1 per share premium), but the alternative would be to lose even more if you waited and the price dropped more or you didn’t have the option.

Example of a Vanilla Call Option

A call option allows you to purchase a stock at a certain price within a specified time period. Bullish investors who expect a stock to go up in price typically purchase call options.

For our example, let’s say you’re interested in a stock that trades at $53, and you can buy a call option for this stock within one month to purchase the stock at $55 per share. The option is for 100 shares of this stock.

The premium for this option is $0.15 per share. So you would pay $15 for the premium. You aren’t obligated to purchase the stock. If the stock trades at more than $55.15 (option price plus premium), you can realize a profit.

Let’s say in two weeks, that stock is trading at $59. It is, as they say, “in the money.” Now would be a great time to exercise your option because you can realize $3.85 per share and $385 for 100 shares. You can sell the shares immediately to cash in on that profit or hold onto it to see if the stock price continues to rise.

The Takeaway

Vanilla stock options can be a way to diversify your investment portfolio and increase your investing savvy. When it comes to options trading, it helps to have a platform like SoFi’s, which boasts an intuitive design. Plus, you’ll have access to educational resources to learn about any other terminology that comes up on your options trading journey.

Trade options with low fees through SoFi.

Sep

2021

What is MANA (Decentraland Coin)? How to Buy MANA

By Matthew Zeitlin | Growing Wealth, invest, Investing | Comments Off

There are layers to cryptocurrency. Services, products, even nascent legal systems can be built on top of and within blockchains. For example, a whole range of cryptocurrency types are built on Ethereum and its blockchain, including something that combines services, products, and legal system — in fact, it’s a whole virtual world.

That’s the idea behind LAND, a non-fungible token (NFT) that’s the basis of the “land” in Decentraland, a virtual game world built on cryptocurrency. To get LAND you need MANA, the cryptocurrency of Decentraland — and quite literally the coin of the realm. Except this realm is governed by…well not by any one person exactly. After all, it’s Decentraland, not Centraland.

What is Decentraland (MANA)?

MANA is the currency that is used in Decentraland . Decentraland is made up of LAND, non-fungible digital plots of virtual space (or land) that make up the game. The developers of Decentraland created a fixed amount of land, encouraging users to “develop” what they have and thereby creating a market for the currency used to transact with it, MANA. Also, because LAND is a type of NFT, any individual parcel can not be replicated or duplicated. LAND first went up for sale in December, 2017 and since January the land has been owned by “participants” in Decentraland.

LAND isn’t the only asset available within the Decentraland universe — one can also buy virtual goods using MANA in the Decentraland Marketplace. These include “wearables” like virtual clothing as well as names that are unique within Decentraland.

MANA Price

As of late September 2021 the price of MANA was around 70 cents.

Like many cryptocurrencies, the value of MANA is quite volatile, with the price changing substantially over time. Anticipating and dealing with the rapid and extreme change in prices is one of the basics of investing in crypto.

According to CoinMarketCap , MANA is the 78th most valuable cryptocurrency with a “market cap” or total value of just under $1.2 billion. Like many cryptocurrencies, MANA shot up in price earlier this year, jumping from 25 cents to just over a dollar in less than a month starting in late February. It fell and rose again, getting as high as $1.57 in early May.

History of Decentraland

The Decentraland white paper — the official founding document of the cryptocurrency that explains its purpose and the technical specifications for it — was published in early 2017, several months before the virtual universe and its MANA cryptocurrency came into being.

The main idea behind Decentraland is that thanks to the proliferation of cell phones and computers, many people are in a kind of “virtual world” most of the time anyway. Decentraland positions itself as a 3D as opposed to 2D interface.

True to the ethos of cryptocurrency that animates everything from how Bitcoin mining works to the skepticism around some crypto regulations, let alone crypto taxes, another animating concept behind Decentraland was that as opposed to other virtual worlds — think Second Life, World of Warcraft, Fortnite — there would be no central authority in charge of it.

The group behind the white paper got started in 2015 and started working on a 2D grid that they referred to as Decentraland’s “Stone Age”. Another prototype was the “Bronze Age” and the public launch would be its “Iron Age”. Soon after the white paper, Decentraland was able to raise over $20 million in an initial coin offering.

A total of 2.8 billion MANA tokens have been in circulation since September 2017. There’s a maximum total supply of about 2.2 billion MANA coins; this, combined with the fixed amount of LAND tokens, is designed to avoid runaway or unpredictable devaluation of the assets within Decentraland, as can be an issue with other “currencies” like airline miles, for example. Instead of devaluation through inflation, there’s actually been some increased valuation of MANA through deflation.

How Does the MANA Coin Work?

The MANA coin works as a token on the Ethereum blockchain. This means that the Decentraland token MANA requires Ethereum and its token, Ether, to be purchased and exchanged.

To do this, the first step is connecting your crypto wallet holding Ether to the Decentralized marketplace . Once you exchange Ether for MANA, you can then use MANA to purchase items within Decentraland, including parcels of land.

How and Where to Buy MANA Crypto

There are a few different ways to buy MANA — both of which will be familiar to anyone who’s looked into investing in most other types of crypto.

Centralized Exchange

On a central exchange, you can swap your fiat currency like U.S. dollars for a crypto coin, which is then stored using a crypto wallet. The following exchanges offer MANA:

• Coinbase

• Gemini

• Binance

• Kraken

• Gate.io

Decentralized Exchange

You could also purchase MANA by purchasing Ether tokens through brokers or exchanges and then swapping for MANA. It’s possible to buy MANA in this way from:

• SoFi Invest

• Kyber

The Takeaway

Decentraland has created an entire virtual world where participants can use the cryptocurrency MANA to buy parcels of LAND, an NFT that represents actual land in that world. One can also use MANA to buy and sell goods and services within Decentraland — like virtual clothing — on the Decentraland marketplace.

For investors looking to trade crypto, SoFi Invest® offers a range of cryptocurrencies including Ethereum, Bitcoin, Litecoin, Cardano, Dogecoin, and more.

Find out how to start trading crypto with SoFi Invest.

Photo credit: iStock/RichVintage

Sep

2021

Should I Invest if I Still Have Debt?

By Susan Guillory | Budgeting & Goals, Fresh Out of School, Growing Wealth, invest, Investing, Student Loans | No Comments

As you start to establish yourself financially, you may come to a crossroads: should you pay off debt or invest in your future? It can be confusing to know what to do in this situation, especially if you have multiple financial goals you’re saving toward.

The first step is to look at the numbers, then to consider your preferences. There is no one “right” answer to this question. Let’s start by taking a look at the numbers around major financial milestones like your student loan, buying a home, and saving for retirement.

Let’s say your student loan is $75,000. Buying a new home might cost $350,000, and you might plan to need $2,000,000 for a comfortable retirement. Everyone’s numbers will look a bit different, so feel free to take some time to calculate yours.

Once you’ve put your estimated numbers on a page, what jumps out at you? It’s hard not to notice that retirement is quite a bit more expensive than the others. This isn’t too much of a surprise if you consider what retirement is: living for decades with no salary.

While you might be tempted to put all your extra income immediately into your retirement fund, it’s not necessarily the winning decision when it comes to whether to pay off loans or invest. Let’s look deeper.

How Important is Paying Off Your Student Loans?

If you’re like the average student, you’ve borrowed $30,000 or more to pursue a bachelor’s degree . If you went on to graduate school, your student loan debt may be even higher.

Most federal student loans have a repayment period of 10 to 30 years. You may opt to make the minimum payment each month for the duration of your loan repayment plan, or you might decide to pay yours off early.

One benefit to paying off a student loan early is that you reduce your debt to income ratio (that’s how much debt you have compared to how much income you have). This might raise your credit score and help you qualify for other financial solutions.

Or, you might decide to continue paying your student loan while investing in other areas of your life, like retirement or buying a home.

Know Your Student Loan Interest Rates

Before you can decide whether to pay off student loans or save for other things, look at what you’re paying in interest for your student loans. If the rate you locked in when you took out your loan is higher than current rates, you might consider student loan refinancing. If you have multiple student loans, you could potentially consolidate and refinance them for a lower interest rate.

Of course, it’s important to keep in mind that refinancing federal student loans means you’re no longer eligible for federal benefits and protections, like income-driven repayment or loan forgiveness programs, so it makes sense to weigh the potential benefits and risks of refinancing before taking the plunge.

Comparing interest rates is an exercise in opportunity cost. Any decision to pursue one goal means you’re missing out on something else, but ideally, we look to minimize opportunity costs when assessing financial trade-offs. In this instance, the opportunity cost is leaving potential investment earnings on the table.

Let’s say you recently refinanced your student loan from 5% to 3.5%. Given the competitive rate on your newly refinanced student loan, you could consider continuing to make the monthly payment on your loan and allocating the extra cash flow elsewhere — like investing for retirement or buying a home.

Remember, we want to think about interest rates in terms of opportunity cost. What would it look like if you paid off your loan early? Your student loan costs you 3.5% annually, and that’s what you’ll “save” if you accelerate your payoff by $500 per month.

Once you paid off the loan early, you could invest your money in an asset class — such as the stock market — with the potential to earn a rate of return that’s higher than 3.5%. Historically, the stock market has returned an average of 10%. This investing can be done within a retirement account, whether a 401(k) or an IRA.

That said, stock market returns are erratic, and the annualized return figures you often hear quoted are just that — an average. Investing is risky, and there is always a chance that returns over the next five, 10, or 20 years will not outpace the interest that you are currently making on your student loan payment.

No one, not even a financial planner, has a crystal ball and can see into the future. This is why we also need to take into account your personal preferences.

If you feel like you are truly missing out on investing in an IRA or saving for a home, then investing in those things might be the right path for you. If your student debt makes you feel burdened and miserable, you could focus on that instead.

Paying Off Student Loans vs. Investing

“So, should I pay off student loans or invest,” you ask.

The answer is…it’s complicated.

Student loans often come with low interest rates, which means you’re not paying a huge amount of extra money over the years (like you would with a credit card, for example). So it’s low-cost debt. That means that if you want to invest in other areas of your life, such as saving for retirement or to buy a house, you may be able to do both.

Contributing to a Retirement Account

Many Americans are vastly under-saving for retirement, and with so many employers offering a 401(k) matching program, not contributing is like throwing money down the drain.

There is no standard for match programs — they can range from meager to generous. Between your contributions and your employer’s, it is often recommended that you save between 15% and 20% of your salary for retirement. You can do this by contributing the full allowable amount to your 401(k), which is $19,500 in 2021.

If you don’t have access to a 401(k) — perhaps you’re self-employed — you can save for retirement with other investment accounts like an online IRA or a brokerage account. No matter which account you use, you might want to consider putting that money to work with a long-term investment strategy. For example, you might choose to deploy a strategy of low-cost mutual funds that invests in stocks and bonds.

Buying a Home

Financial planners don’t all agree on whether a home is a good investment. That is not to say that a home is not a good financial goal; if it’s a priority to you, then it’s great. This is simply a commentary on whether a home produces a good return on investment.

Although a house may not have as high an investment return as other asset classes, such as the stock market, a house provides something that a stock or bond cannot — immediate utility. You cannot sleep and eat inside a stock or a bond.

While home values do typically grow over time, you must also take into consideration the costs of buying and owning a home, such as the interest paid on the mortgage, property taxes, and repairs and maintenance. That said, homeownership can be rewarding, and can pay major dividends down the line. One big benefit is having no monthly housing expenses (like rent or a mortgage) in retirement.

The Takeaway

There is no hard and fast rule when it comes to investing while juggling debt. Undoubtedly, the biggest ticket item you’ll need to invest for is retirement — but whether you invest in retirement before or after paying down debt depends on your personal preferences and situation.

One thing to remember: Financial tradeoff decisions don’t always have to be all-or-nothing. You might choose to split the difference by putting a little here and a little there. For example, you might contribute $300 per month to your 401(k) and $200 to a high-yield savings account for your down payment for a house, all while paying off student loans.

With SoFi Invest®, you can invest in traditional and Roth IRAs, crypto, or ETFs, with hands-on active investing or automated investing. The choice is yours — based on your personal situation, goals, and preferences.

Find out how to invest for your future with SoFi Invest.

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.

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.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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.

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.

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.

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Sep

2021

Pros and Cons of Investing in Crypto Exchanges

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

Crypto exchanges provide a platform for people to buy and sell cryptocurrencies with their fiat currency or to trade different cryptocurrencies for one another. These companies take a small fee with each transaction. Given the increasing popularity of crypto, exchanges with a lot of customers and high trading volume can wind up becoming very profitable businesses.

Some crypto exchanges become so profitable that they issue shares of equity in their company on a public stock exchange. This happened for the first time in 2021, when one of the oldest crypto exchanges was the first in the industry to become a publicly traded company.

Why would someone invest in crypto exchange companies? What might be some of the potential benefits and drawbacks to such an investment? We’ll answer questions like these, and more.

A Word on IPOs

First, investors should be aware of the fact that many initial public offerings (IPOs) create a lot of fanfare and buzz. But they don’t always deliver right away.

It’s not uncommon for companies to make their debut on the stock market at valuations that far exceed their true market value. It’s common for IPO stocks to see their prices tank shortly after going public.

While this doesn’t have to dissuade investors from a company they would otherwise remain bullish about, it’s an important thing to keep in mind.

Private investors like venture capital funds can get in on the action before the public, so they don’t care as much about what happens to share prices post-IPO. But for retail investors, buying a lot of shares on the day a stock goes public has quite often proven to be a mistake, at least in the near-term.

Pros of Investing in a Crypto Exchange

Some of the pros of investing in crypto exchanges include potentially taking advantage of rapid growth, owning a piece of crypto infrastructure in a regulated way, and holding a security that can be subjected to more traditional valuation methods than a cryptocurrency.

Rapid Growth

The growth seen in the crypto industry has been unparalleled. In 2015, the entire cryptocurrency market cap was about $7 billion. Today that market cap has risen to over $1 trillion, peaking at over $2 trillion in early 2021.

Bitcoin was only just invented twelve years ago in 2009. To put that into context, it took companies like Apple, Google, and Amazon an average of 20 years or more to reach a valuation in excess of $1 trillion.

If this growth continues at even a fraction of its current rate, then there is a chance that broad investments in the sector like crypto exchange stocks could see substantial returns on a 5-, 10-, or 20-year timeframe. (But as with anything having to do with investing, past performance is no guarantee of future results.)

Indirect Exposure to the Crypto Market

Investing in the stocks of crypto exchanges provides a proxy for investing in cryptocurrency itself. In other words, investors can gain indirect exposure to the crypto market, without exposing themselves to the potential volatility of crypto itself. Investors who aren’t sure about cryptocurrency as an asset class, or who would rather not learn how to own and hold cryptocurrency tokens on their own, might find these stocks appealing.

Buying shares of a crypto exchange lets investors hold a piece of the infrastructure that keeps the cryptocurrency world functioning. Most exchanges also have value beyond simply being brokerages for the buying and selling of cryptocurrencies.

• Exchange-hosted wallets allow users to send crypto off-platform.

• Some exchanges have begun providing staking services, where users who hold proof-of-stake coins can earn what amounts to a crypto dividend by holding those coins in their exchange wallet.

• Exchanges are even beginning to get into borrowing and lending services, letting users lend out their crypto to earn interest or take out a loan using their crypto as collateral.

More Traditional Valuation Methods

The shares are an investment in a real company with cash flow, earnings, a board of directors, and all the things that traditional investors are familiar with. This makes it easier for some investors to grasp than cryptocurrency itself. Crypto exchange stocks can be treated as any other equity in a portfolio. They can also be scrutinized in the same way, using valuation models like the discounted cash flow model, the dividend discount model, and others.

While it seems likely that crypto exchange stocks will have some correlation to the price action and value of Bitcoin and other cryptocurrencies, the relationship might not be 1:1. Traditional company metrics like quarterly earnings will likely also impact share prices.

Cons of Investing in Crypto Exchanges

Some of the cons of investing in crypto exchanges include the potential for speculation, regulatory concerns, a lack of historical precedent, the business models involved.

Potential for Speculation

While crypto markets are often criticized as being speculative, stock markets also have their fair share of speculators. And when crypto markets rally, it’s feasible that some investors could get overly bullish on crypto exchange stocks, creating a mania that ends in a crash. This might be the exact type of thing investors are hoping to avoid by choosing to invest in crypto exchanges rather than actual cryptocurrencies.

Then again, it’s also possible that crypto exchange stocks weather the storm of a crypto market downturn better than the crypto market itself. The phenomenon of exchanges being publicly-traded securities is too new to tell for sure yet.

Lack of Historical Precedent

2021 is the first year that any crypto exchange has been made publicly tradable on a stock exchange. No one knows exactly what will happen, how the securities will trade, what will impact their prices, and so on. Much of the outlook is conjecture at this point.

The future of blockchain technology itself, which powers cryptocurrency, is only 12 years old and also has a degree of uncertainty behind it.

Regulatory Concerns

It’s widely suspected that financial regulators will tighten the noose around cryptocurrencies at some point. What form that might take, and what the impact could be, is largely unknown. Some say that greater regulatory clarity would be a good thing, as larger investors would feel more comfortable entering the space with significant amounts of capital. Others believe over-regulation could cripple the industry and the asset class as a whole. Again, this is somewhat of an unknown.

Fee-Based Business Model

Typically, most of an exchange’s revenue comes from transaction fees. It has been noted that over time, fees like these tend to see downward pressure due to competition. In the world of stock brokerages, for example, trading fees on most platforms have fallen to zero in recent years.

While this could be a possibility, others have argued against it, saying that crypto isn’t analogous to stocks in this respect. Users are also paying for additional services like custody services, or holding crypto, which is an important factor to consider. An exchange-hosted wallet also lets users send and receive crypto transactions without having to create and manage a wallet of their own.

The Takeaway

Investing in crypto exchanges isn’t that different from investing in other companies. And as always, investors should educate themselves about what they’re buying and why. An investigation into the company’s activities, management, history and earnings reports would be warranted regardless of which company an investor chooses.

Photo credit: iStock/valiantsin suprunovich

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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.

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.

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