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What is Store of Value?

A store of value is any asset that retains its value over time. The ideal store of value would be one that has little risk and can be trusted to stay valuable well into the future.

One of the reasons that it’s important to understand the idea of a store of value is that cash always depreciates. Due to inflation, which central banks often try to keep at or around 2% per year, money loses purchasing power constantly. To see this in action, look at official Consumer Price Index (CPI ) numbers.

Store of Value Definition

A store of value will most appeal to those who have a low tolerance for risk. Store of value assets are defined as those that have a history of maintaining their value throughout time.

Speculative assets can produce tremendous returns but tend to be volatile and often come with high risk. Stores of value, on the other hand, tend to have lower volatility and lower risk, while often producing lower returns.

Store of value assets have a lot in common with safe haven assets, and sometimes the two are interchangeable. There are times when certain “safe-haven” assets can outperform many other sectors of the market, such as during times of volatility in the market when investors are fearful and seeking shelter.

Examples of Poor Stores of Value

A store of value definition wouldn’t be complete without considering what doesn’t work when it comes to retaining value.

Cash

As mentioned, fiat currency (national currencies created by central banks like the Federal Reserve) does not retain its value. Every year, the price of many goods and services rises relative to the dollar and other fiat currencies. Cash loses purchasing power steadily.

Bonds

For most of history, low-risk bonds like U.S. Treasuries have been considered the holy grail of safe havens. There was a time not too long ago when government bonds were one of the best stores of value available.

But recently, something unprecedented has been going on in bond markets all over the world: negative interest rates. Japan, Germany and several other countries, many of which are in the European Union, have had negative interest rates for years now.

Never before in recorded history has there even been a discussion of interest rates going negative. What does it mean to have a negative interest rate?

It means that investors are 100% guaranteed to lose money. Why would anyone agree to this?

There are a number of theories. Investors might want to take a small guaranteed loss as opposed to having to deal with the uncertainty of a potentially much bigger loss. Or they might believe that at some point in the future interest rates and yields will have to rise.

One logical explanation could be that investors don’t plan on holding the bonds at all, but instead are buying them with the intention of selling them for a higher price at a later date (a bond’s price is the inverse of its yield, so if yields are going down, that means bond prices are going up).

Speculative Stocks

Speculative stocks like penny stocks (stocks trading under $5 a share) are generally not considered to be good stores of value.

The value of a penny stock can rise or fall by a large amount very quickly and suddenly. Many even see their values drop to zero when a company goes bankrupt, causing shareholders to usually lose everything they had invested.

Shares of these stocks also tend to be highly volatile because of their low market caps, making it less certain whether they will hold their value during stormy periods in the equity market.

Commodities

Most commodities don’t make for practical stores of value, even though some might remain valuable for a time.

In the past, during periods of scarcity, oil was considered by some as a good store of value. But crude oil’s value is really derived by supply and demand forces. It’s price can actually be quite volatile. For instance, during periods of economic uncertainty, investors anticipate demand for oil will dip as fewer people need to drive cars or send goods, driving down the price of crude.

More recently, fracking in the U.S. has also led to much more supply of oil, which has further pressured prices–making oil not a good store of value.

Agricultural commodities like corn, wheat, or soy are impractical for similar reasons. Commodity prices in general can be volatile depending on weather and what’s happening in the world.

Examples of Potential Stores of Value

There are several assets that can serve as a store of value. Which asset class serves this purpose best is a matter of constant debate within the investment community. Much of it comes down to an investor’s individual preference, as well as the market dynamics at the time.

Gold

Gold is perhaps the most tried-and-true store of value, with a history going back thousands of years. The yellow metal has a long track record of retaining its value against other forms of money. Throughout much of modern and ancient civilization, gold served as a universal form of money and was used as both a store of value and a currency.

Today, gold is generally considered a commodity, an inflation hedge, and a safe haven asset. During times of uncertainty, gold tends to perform well. During the coronavirus crisis of 2020, for example, gold reached a record in August amid unprecedented stimulus programs across the globe, negative real rates in the bond market and a falling U.S. dollar.

Silver and platinum are other precious metals that investors have turned to as a store of value.

Gemstones

Gemstones can serve as a store of value in much the same way that gold does. Some ultra-high net worth individuals might prefer stones like diamonds, rubies, emeralds, sapphires and others to gold because they might consider these rarer and easier to transport.

For instance, a million dollars’ worth of gold might require storing several large, heavy bars of metal. The same amount of money held in diamonds might fit in a small pouch.

Bitcoin

Once considered a purely speculative asset, investing in bitcoin has increasingly been considered by some investors as a store of value (despite constant price fluctuations). Some investors consider Bitcoin to be a scarce commodity, because its supply is capped at 21 million BTC. Bitcoin’s limited supply is thought to be one reason behind Bitcoin’s rise in value since it launched in 2009. In late 2021, Bitcoin prices hit a peak of over $65,000, compared with $200 just five years earlier — and about $16,000 a year later.

Bitcoin is also relatively liquid because cryptocurrency markets trade 24/7, and there is steady demand for BTC. Also, a growing number of merchants have begun accepting Bitcoin as a form of direct payment, although widespread adoption of BTC as payment has yet to occur.

Index Funds/ETFs

Index funds and exchange-traded funds (ETFs) provide an easy way for investors to gain exposure to equity markets while getting automatic diversification.

Index funds in particular can be good stores of value because they attempt to track the performance of a market index over time. Historically, over longer time periods, financial markets have almost always gone up.

The Takeaway

In short, a store of value is something that tends to maintain or increase its price over time. The law of supply and demand very much applies here, and in itself can be used to determine whether or not something might be a good store of value.

SoFi Invest® offers investors multiple ways to participate in the markets, whether they’re looking for short-term speculative gains or long-term stores of value.

Get started with SoFi Invest today.


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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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What Is Cryptojacking? How to Detect Mining Malware

Cryptojacking is a type of cybercrime that occurs when hackers hijack the processing power of unsuspecting internet users in order to generate new cryptocurrencies.

Rising Bitcoin prices often lead people to get into “mining”–the process of using specialized computer hardware to create units of digital currencies. The energy-intensive nature of mining increases the number of individuals looking to steal computing power. Some of the most private cryptocurrencies–Monero and Zcash–are involved in many cryptojacking cases.

Cryptojacking attackers work surreptitiously. Affected users are usually unaware when crypto mining malware runs complex calculations on their computers, sucking up vast amounts of power. People may notice their computers overheating or working much more slowly. But in general, cryptojacking goes undetected much more often than other cybercrimes.

Here’s a guide to how cryptojacking works and what internet users can do to prevent mining malware from infecting their computers.

How Cryptojacking Works

There are three ways that crypto mining malware can become embedded on a victim’s computer:

1. Phishing Scam: People fall prey by clicking a link in a phishing e-mail, unintentionally loading crypto mining malware onto their computers.
2. Infected Website: Attackers inject a malicious code or “script” onto a website. The script mines new cryptocurrencies on any computers that visit the website.
3. Worms: There have also been cases of cryptojacking worms–malware that can replicate itself onto other computers, devices or servers. Such scripts are also more difficult to detect and remove.

Once placed, the malware runs in the background of victims’ computers while the unknowing victim goes about their business on the device. After the crypto mining script solves complex mathematical problems, the results are sent to the hacker, who then pockets them in what is their cryptocurrency wallet.

Some experts say that streaming and gaming websites tend to be popular venues for cryptojacking codes to lurk. Data has found a single crypto mining malware on more than 35,000 websites.

Risks of Cryptojacking

Cryptojacking is popular because the risk of being caught is so much lower than with other forms of cybercrime like ransomware, which requires that victims pay up in order to be successful.

Those impacted by cryptojacking may see their computer systems slow down dramatically and their electricity bills skyrocket. Because that’s how Bitcoin mining works: the costs of computer hardware and electricity are often the biggest drags on the profits of cryptominers.

Meanwhile, even bigger risks exist: once a hacker has infiltrated a victim’s computer, they may be able to jump to other areas of the network and steal data or intellectual property.

Famous Cryptojacking Incidents

Crypto mining malware has been known to be around since at least 2011, but cryptojacking ramped up in late 2017 as more people started investing in cryptocurrencies. The more valuable a cryptocurrency, the greater the incentive to mine it.

Cryptojacking became so prevalent that in April 2018, Google announced it would stop listing extensions for its Chrome browser that mines cryptocurrency. The internet giant found that 90% of such software on its webstore violated policies.

Several media outlets have reported that a number of companies and organizations have been victims of cryptojacking. In February 2018, security firm Redlock spotted that electric carmaker Tesla’s cloud was infected by cryptojacking malware.

Other cases have included code-collaboration website Github, said security company Avast in March 2018, U.K. insurer Aviva Plc and Britain’s National Health Service, according to an April 2018 article by the Financial Times. Meanwhile, the Harvard Crimson reported back in 2014 that the university’s research network was used for mining Dogecoin.

Coinhive, which made software that allowed websites to use visitor’s computers to mine anonymous cryptocurrencies, shuttered in 2019. While some users were legitimate and upfront to their visitors about using Coinhive, its software was also popular among hackers.

A dramatic decline in Monero prices prompted Coinhive’s closure. However, a July 2020 cyber threat report found that even after Coinhive ceased operations, its software was still found to be working. Meanwhile, some cryptojacking activity had shifted to other mining providers.

How to Detect Cryptojacking

Cyber security experts say that it can be difficult to detect cryptojacking because such malware operates differently from other types of malware. That’s why surreptitious mining can go undetected on an internet user’s computer, even if they have anti-virus software installed.

People can try to detect cryptojacking by paying attention to their computer’s performance. Signs of cryptojacking could include the device’s fan making noise, a spike in the computer’s Central Processing Unit (CPU), as well as overheating.

Cyberjacking has been known to be more prevalent on movie-streaming and gaming websites, where the code can mine for an hour or more uninterrupted, while the victim is unaware.

Tips to Prevent Crypto Mining Malware

1. Avoid certain websites. Browser extensions can help with avoiding websites that host the crypto mining code.
2. Monitor computer performance and look for signs of overheating. Pay attention to the behavior of the computer’s CPU.
3. Take training on how not to fall prey to phishing attempts. This step is particularly important to corporations looking to prevent employees from clicking on phishing e-mails.
4. Update devices with the latest patches that help prevent attackers from taking advantage of vulnerabilities in computer systems.
5. Frequently change computer and device credentials, making them less likely to see unauthorized access.
6. Lastly, it’s important that investors familiarize themselves with cryptocurrency rules and regulations to keep abreast on the latest trends and practices of hackers.

The Takeaway

Cryptojacking is a relatively new form of cybercrime that has exploded as more people learn what is Bitcoin. Cryptojacking involves embedding malware onto an internet user’s device and stealing computing power in order to mine new digital currencies.

It’s an example of how as more investors buy cryptocurrencies, new forms of criminal activity have also cropped up, as perpetrators gravitate toward the anonymous nature of digital currency transactions. Anyone can be a victim of cryptojacking. Those affected have included everyday individuals, government organizations and mega-corporations.

Internet users can take steps to protect themselves from cryptojacking by being wary of phishing attempts and installing anti-crypto-mining web extensions. They should also monitor for any overheating or decrease in performance by their computer.


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

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

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

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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A Beginner’s Guide to DeFi

The future is here, and while the flying cars that were promised haven’t arrived yet, the finance world is speeding full-force into the future with everything from wireless payment apps on our phones to entirely decentralized finance systems.

Decentralized finance, known as DeFi for short, is a fundamentally new financial system that moves monetary control away from centralized banks and towards public blockchains.

Put more simply, DeFi has the potential to change the underlying mechanics of financing and banking, as well as how people access financial services, by using the internet and smart devices instead of going through a centralized bank.

What Is Centralized Finance?

In order to understand DeFi, it is helpful to understand how the traditional financial system works. In general, the current US financial system is largely controlled by central authorities.

For example, some aspects of the financial system are controlled by the Federal Reserve (sometimes referred to as “The Fed”). The Federal Reserve, which serves as the nation’s central bank, was created in 1913 after several financial panics caused people to withdraw their money from decentralized banks. Mass withdrawals of money caused banks to fail and incited more financial crises.

In response to these crises, the US government created the Federal Reserve, which acts as a centralized banking system and attempts to stabilize the economy through means such as managing national monetary policy and regulating banks. Banks, which are regulated by the Fed, also have their own controls and regulations on how finances are conducted.

For example, a bank might require a driver’s license to open a checking account or a certain credit score to take out a loan.

Simply stated, whether buying groceries with a debit card or saving for retirement, most of our financial transactions go through a bank, lender, investment company, or financial institution that is highly regulated.

Why DeFi?

While centralized banking was created in order to foster economic stability, it has come with restrictions on how people can access financial options, and with criticisms that putting financial control in the hands of a central body can create more risk if that central body gets it wrong. For example, what if the Fed decides to print too much money and inflation explodes or interest rates shut out people from accessing credit lines?

Or what about credit rates in general—if people take financing out of regulated contexts, could consumers see higher interest rates on their investments?

For example, as discussed above, most financial transactions take place through intermediaries: A bank account is required in order to use a debit card. An account at a financial institution is required in order to earn interest on money.

A broker is required in order to invest in the stock market. Each of these intermediaries is a product of the centralization of the nation’s financial system—and each intermediary potentially minimizes consumers’ financial earnings.

In the most elemental way, when money is deposited in a savings account, it earns interest. The interest that money earns is funded by the financial institution where the account is located. That financial institution earns money by lending depositors’ money to borrowers, who pay interest to the financial institution.

But the interest rate earned on a savings account is not the same as the interest rate the financial institution charges the borrower. Because it is acting as an intermediary between saver and borrower, the financial institution controls both interest rates.

But would both savers and borrowers get a better deal if it was possible to make secure financial transactions without an intermediary like a bank or other financial institution?

These are some of the questions about centralized finance that supporters of decentralized finance think that DeFi can answer without necessarily losing the stability created by a centralized bank.

What Is Decentralized Finance?

At its most basic, the idea behind decentralized finance is that it would truly put money in an individual’s control. While it might seem like there is individual control over money though robust banking options, checking and savings accounts, financial management apps, and ATM access, each of those things actually requires turning over that money to an institution and trusting that intermediary to manage it. The underlying goal of DeFi is to give actual control by using blockchain technology and open source coding to do the same types of transactions that currently take place largely through financial institutions.

Blockchain technology is a term commonly used in relation to cryptocurrency. At its most basic, blockchain can be thought of as a secure logbook that records transactions but is not controlled by a centralized institution. Rather, accountability in the blockchain is ensured because the “chain” is not editable and is stored in many places instead of in one centralized institution.

If this sounds familiar, it may be because blockchain serves as the “building blocks” of cryptocurrency like bitcoin. To understand DeFi, however, it is only important to understand that blockchain is secure, automatically generated, and able to be examined and tracked, just like a physical ledger. And unlike banks, blockchain is stored on users’ computers, which means that it’s not controlled by a central authority like the Fed.

In order for cryptocurrency like bitcoin to exist, it needs a secure ledger to track it—that’s blockchain. So is DeFi just a synonym for bitcoin and other cryptocurrencies? Not exactly. While cryptocurrencies are decentralized when it comes to issuance, transfer, and storage, they are still centralized when it comes to access and management.

Specifically, you still need to access cryptocurrencies through centralized exchanges, and many cryptocurrency projects are managed through companies which functionally act as that intermediary that DeFi seeks to eliminate. Some cryptocurrencies even tie their worth to physical currencies like the US dollar to attempt to provide stability.

DeFi takes crypto to the next level by attempting to give the benefits of cryptocurrency without the need to tie access and management through centralized access points or companies, which can obscure the open nature of these transfers and potentially lead to abuse of the system.

DeFi is a network of open-source apps based on blockchain that allow users to engage in financial acts in an entirely peer-created, peer-reviewed, open-source world, which is all based on the security of blockchain.

Because everything within the DeFi crypto universe is open source, users theoretically have the control to engage in a wide variety of financial transactions with the assurance provided by the underlying blockchain technology.

How Can Decentralized Finance Be Used?

There are many ways that DeFi crypto is and could be used. One popular way that it is being used currently is with open lending protocols. While the name sounds complicated, open lending protocols essentially seek to eliminate the centralized middleman between lenders and borrowers.

For example, instead of one person putting their savings in a bank and another person applying for a loan from that bank, two people could use a DeFi open lending protocol to lend and borrow money with open-sourced, agreed-upon contracts created by the DeFi system and stored in unalterable public blockchains.

DeFi can also be used for things like international and peer-to-peer payments. Currently, if one person wants to send money to another person, options may be limited to a third-party service or a bank in order to transfer the funds. Currently, these services take time—it may be hours or even days between when a sender transfers money and when someone else receives it.

Additionally, these services can be expensive. Whether paying a fee to a bank for a money transfer or paying to use wire services, sending money from place to place can add up.

DeFi is one possible answer to routing money from person to person because it allows individual people to transfer money to each other securely and instantly without relying on centralized third-party providers.

Getting Started With DeFi and Cryptocurrencies

DeFi is starting to take off, but it remains to be seen whether it will truly become an alternative to traditional banking. One sure thing, however, is that cryptocurrencies are becoming cemented in the financial system. An easy way to buy cryptocurrencies without needing to be a financial expert is with SoFi Invest®.

SoFi Invest® empowers members to trade stocks, ETFs, and even cryptocurrency. SoFi’s crypto offerings currently include Bitcoin, Etherium, and Litecoin, and can be accessed directly in the SoFi app.

Easily add cryptocurrencies to your savings plan with SoFi Invest® along with traditional investments like stocks and ETFs. A separate cryptocurrency wallet, or even cryptocurrency experience, is not necessary before getting started.

Learn more about getting started with crypto using 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.

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

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

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6 Things to Know Before Investing in Crypto

Not long ago, the idea of investing in cryptocurrency was hard to grasp. Instead of a traditional, government-backed currency, cryptocurrency is a digital one. But in a relatively short amount of time, an entire ecosystem has formed, focused on making transactions, trading, and investing in cryptocurrency.

Potential cryptocurrency investors might want to familiarize themselves with the basics before diving in—including how crypto works, how it’s used, the different types of cryptocurrency, and how investing in cryptocurrency differs from other types of investments.

Crypto Fundamentals

Cryptocurrency (or “crypto”) is digital money. It can be traded, exchanged, and transacted like other types of currency, but the key difference is that it’s a completely digital asset—cryptos have no physical body, whether that be a metal coin or paper bill. Crypto is enabled by blockchain technology, which is more or less a distributed ledger that records transactions and ownership details.

Cryptos can be obtained in a number of ways: They can be purchased with a credit card—thereby exchanging traditional currency for a cryptocurrency—or through a process called “mining,” which generally requires high-end computers. Once cryptos have been obtained, they’re securely stored in a digital wallet, which are offered by many different companies. Some brokerages give investors the option to invest in cryptocurrencies, too.

Because cryptocurrencies are not backed by any government—unlike the U.S. dollar, which is insured by the U.S. government—they’re inherently speculative and riskier than traditional currencies or investments.

This investment type is still new—Bitcoin first emerged in 2009, followed by other cryptocurrencies. With roughly a decade of crypto trading to look back on, and with little or no guardrails, investing in cryptocurrency is far from what experts would call a “safe” investment.

Despite the risks, crypto can be particularly appealing to intrepid investors. Here are some tips for investors who are considering adding cryptocurrency to their portfolios.

1. There Are Different Types of Cryptocurrency

Before investing in cryptocurrency, it’s important to know what types are out there. These include Bitcoin, the original cryptocurrencies, as well as other “altcoins” like Ethereum, Litecoin, and Ripple.

While most of these cryptocurrencies were built on the same framework as Bitcoin, some have their own separate systems and protocols. Altcoins may claim to have improved on Bitcoin, with attributes such as low or no fees and shorter transaction times.

2. Investing in Cryptocurrency is Risky

Cryptocurrency is still a largely unregulated and relatively unproven sector. For this reason, some say that to call investing in crypto “speculative” is an understatement.

So why invest in cryptocurrency? Certain digital assets and cryptocurrencies, like Bitcoin, have a fixed supply limit — the number of bitcoins that exist in the world will not grow larger. In that way, some crypto proponents consider it immune to inflation compared with investments denominated in fiat currency, like stocks or bonds. For these reasons, it is considered a hedge against inflation, though this theory has yet to be proven.

And then there’s plain old performance. In the decade or so since it was founded, Bitcoin has performed better than any other asset. That said, prices and exchange rates for Bitcoin and other currencies have varied wildly. For example, Bitcoin was valued at more than $14,000 per coin in 2017 before dropping to less than $3,500 per coin by the beginning of 2019. And as always, past performance is not an indication of future success.

Other risks include potential government interference or regulation, and some cryptocurrencies have collapsed already , leaving investors unable to access their investments. There’s always the possibility that could happen again, or that investors might be taken in by a crypto scam .

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

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*Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

3. Crypto Value Hinges on Supply and Demand

Crypto prices fluctuate a bit differently than more mainstream investments. A blockbuster earnings report isn’t going to send crypto prices soaring, as it might in the case of a stock.

The value of a cryptocurrency is largely, if not completely, contingent upon supply, demand, and the public’s faith that it carries value. For example, when demand for Bitcoin increases, the price or value of Bitcoin goes up. Conversely, when demand drops and many people are selling Bitcoins, the price or value falls.

💡 Recommended: A look at Bitcoin’s price history throughout the years.

4. Diversification Logic Applies

Many investors know the value in diversifying their investments. That means that an investor’s asset allocation is spread across a number of different investments—stocks, foreign stocks, bonds, precious metals, etc.—rather than, say, solely in a single company’s stock. The basic idea is to reduce risk; a portfolio with an outsized allocation to a single company or commodity is riskier than a diversified one.

The same logic could also apply to crypto investing. There are numerous types of cryptocurrencies available for investment, and sticking with only one, like Bitcoin, may be riskier than investing in several different cryptos.

5. Crypto Investments Are Taxed as Property

When is cryptocurrency not currency? When the Internal Revenue Service (IRS) is classifying cryptocurrency earnings for tax purposes. In that case, it’s considered a “capital asset” , much like a stock or bond, and because of that designation, cryptocurrency is considered property.

As a result, investors may have a tax liability against their holdings, and may owe capital gains taxes if they turn a profit on their investment. For more on this, we’ve put together a comprehensive guide to taxes and cryptocurrency.

6. It Can Be Hard to Predict Crypto Returns

Given cryptocurrency’s speculative nature and the fact that it’s a relatively new option for investors, it’s hard to know just what to expect in terms of returns. Investors don’t have decades of stock performance data to look back on, or quarterly earnings reports to sift through, for example. For that reason, it’s best to keep expectations in check when investing in crypto—profits can be had, but catastrophic losses are also a very real possibility.

The Takeaway

Cryptocurrency is an alternative form of currency that isn’t backed by a government or a tangible form like gold or paper money. With the general public and financial world becoming more accustomed to the idea of digital currencies, cryptocurrency may be here to stay.

For crypto investors, getting in early may reap rewards, but in the near-term, those investors are taking on outsized risks. But before investing in cryptocurrency, it’s important to remember that the basic rules and guidelines of investing still apply. To help minimize risk, crypto shouldn’t play an outsized role in a portfolio.



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.

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.

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Are We in a Double-Dip Recession?

The COVID-19 pandemic and social-distancing strategies used to curb the virus’ spread plunged the US economy into recession in February 2020, marking the end of the longest bull market in American history. The stock market took a tumble, hitting a low in late March. But since then, amid government stimulus designed to minimize the economic impact of the pandemic, stocks have taken back much of the ground they lost.

Will rising stocks, the easing of social distancing restrictions, and the return of millions of people to work spell a quick end to the recession? Possibly. But it’s also possible that we could be in for a double-dip recession. A double-dip recession is one in which the economy enters recession, with a brief recovery before the economy enters recession for a second time. Here’s a look at what that could mean.

Economic Recessions 101

Generally speaking, a recession is a period of economic decline. It can be accompanied by a rise in unemployment, a loss of consumer confidence, drops in income and spending, increased business failures, and, of course, falling stock markets.

There have been 13 recessions since the end of World War II, including the current recession, which began at the end of February and early March as COVID-19 spread across the United States. The economy began to contract as states issued stay-at-home orders, stores and restaurants closed, and travel nearly ceased.

Recession is a natural part of the economic cycle and, historically speaking, the economy has always recovered.

What Shapes Can Recovery Take?

Recovery from recession can take a few different forms, including V-shaped, U-shaped or the double-dip (W-shaped) recovery.

A V-shaped recovery is the best case scenario in which there is a sharp downturn and then the economy rebounds quickly. If you were to graph this type of downturn and recovery it would look like the letter V.

A U-shaped decline and recovery represents a slow economic growth, in which the economy takes months, if not years to return to pre-recession heights. Imagine taking the graph of a V-shaped recession and spreading the bottom out. The Great Recession of 2007–2009, which lasted for 19 months, is a good example of a U-shaped recession.

A double-dip, or W-shaped recession and recovery occurs when the economy enters recession twice in quick succession. An initial recovery occurs relatively quickly, spurred on by government stimulus. However, a second dip occurs that disrupts the recovery process. This second dip could be spurred on by a number of factors, including the end of monetary and fiscal stimulus, ongoing unemployment, a drop in industrial output, falling GDP, or other economic shocks.

When Was the Last Double-Dip Recession?

The last time a double-dip recession occurred in the US was between 1980 and 1982. The scene was set for the first recession of 1980 by monetary policy of the 1970s. Policymakers believed that they could lower unemployment by controlling inflation. This belief led to what was known as “stop-go” monetary policy, which alternated between fighting high unemployment and high inflation.

When the Fed was in “go” time, it would lower interest rates to free up cash for businesses, which could theoretically start to employ more people. When it was in “stop” mode, the Fed would raise interest rates to try and fight inflation. Unfortunately, this strategy didn’t work, and unemployment and inflation rose together during the period.

In 1979, Paul Volcker became the chairman of the Fed and helped squash the cycle of inflation and unemployment by raising the interest rate to 20%. Though this move had some benefits, it also aided in the recession of 1980.

The economy recovered relatively quickly heading into 1981. Though GDP rose, unemployment and inflation remained hig. In response, the Fed tightened the monetary supply and the country plunged back into recession in late 1981. Volcker was determined not to back down from his monetary policy despite increasing criticism from Congress and the Treasury Department, saying “We have set our course to restrain growth in money and credit. We mean to stick with it.”

Eventually, the economy recovered after inflation was brought under control and unemployment fell, ushering in a new era of relative economic stability.

Are We Headed for Another Double Dip?

The movements of the market and the economy can be difficult to predict. No one knows for certain how the recovery will shape up. But some experts say that a double-dip recession is possible again. For example, if states reopen too quickly, relaxing social distancing rules, there could be a resurgence of COVID-19 that leads to another government shutdown.

Congress provided trillions of dollars in aid to help prop up the economy through the CARES Act, which offered direct payments to citizens and loans to small businesses to help keep them afloat.

Yet, experts worry that the government could withdraw its economic aid programs too soon, which would leave the recovery too weak to stand on its own.

Other experts believe that while monetary and fiscal stimulus from the federal government may encourage a short-term, V-shaped recovery, such a recovery would not factor in damage to business balance sheets, sales and profitability, which may take longer to show up and for investors to notice the damage.

It’s unclear what would happen should another dip occur. Would Congress be prepared for a second round of bailouts, for example? Do businesses have enough cash to support them through a second dip, or would more businesses fail? Will consumer confidence fall, making it even more difficult for the economy to bounce back?

Preparing for a Double-Dip Recession

While a double-dip recession can be hard to predict, there are things investors can do to make sure they are prepared.

First, it may be prudent that investors have enough saved in an emergency fund. It is recommended to put away at least three to six months worth of expense. This may help ride out difficult financial periods and make it less likely they’ll need to withdraw money from the market while stocks are down.

Second, investors may want to evaluate how diversified their investment portfolios are. Not all investments will perform the same way during a recession. Some may be up, even as others are down. A diversification strategy allows individuals to spread their money out across asset classes—such as stocks and bonds—and sectors to help reduce the risk that poor performance from any given stock will drag their portfolio down.

Finally, talking to a financial advisor can go a long way in helping create a financial plan to help weather the current and future big recessions. SoFi financial planners are available to members—at no additional cost—to advise them according to their individual financial needs.

Visit SoFi Invest® to learn more.


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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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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

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