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41 Things to Do With Your Tax Refund

If you got a tax refund this year, you may be tempted to spend it on something fun. And, there’s certainly nothing wrong with that.

But before you get too impulsive, you may also want to think about how that refund might be able to help you get to the next level in life. In fact, smart use of your tax refund check may draw you closer to your short- and long-term financial goals.

What follows is a mix of smart, practical, and also fun, ways to spend your tax refund.

How Should I Spend my Tax Refund?

With the average taxpayer getting a refund of roughly $3,000 each of the past several years, you may have a nice lump sum of money to play with. Here are a whopping 41 “how should I use my tax refund?” ideas to consider.

1. Unloading Your High-Interest Debt

If you have credit card or other high interest debt, a tax refund can be a great way to reduce your balance, or even wipe it out completely.

Doing this will help you stop throwing money away just on interest charges each month. And, if you manage to wipe out that debt completely, you’ll have one less financial responsibility to deal with each month.

2. Starting an Emergency Fund

How are you fixed for life’s unexpected emergencies? If you were to lose your job, would you have about three-to-six months of living expenses at the ready? How about a car or home repair? Taking that tax refund and stashing it away for emergencies may save you in a pinch. Your future self may thank you.

3. Saving for Your Kid’s College Education

If you have kids, using your tax refund to start a 529 college savings plan could be a great first step toward dealing with the rising cost of college education. Money in these funds grows tax-free.

Additionally some states and 529 savings plans enable you to deduct your contributions from your state income taxes, so these contributions could save you tax dollars in the future.

4. Improving Yourself

When you get your tax refund, you could use it to make yourself more marketable to future employers. That could mean investing in additional or new career training, attending conferences, joining professional organizations, earning an MBA, or pursuing networking events.

This could all work toward creating a new you, and possibly a bigger paycheck with bigger tax refunds in the future.

5. Planning for Retirement

Does your company offer to match your retirement savings in your 401(k)? If so, you could take advantage of this “free money” by increasing your contributions with your tax refund. Doing this can maximize the benefit your employer offers.

If you don’t have a 401(k), you could use your tax refund to start an Individual Retirement Account (IRA), or add to an existing one, keeping in mind that there are annual limits to how much you put into a retirement account each year.

6. Becoming a Homeowner

You could also use your tax refund to help fund or boost a down payment on a new home. Offering a larger down payment will reduce your mortgage, which means you’ll pay less in interest. That can translate into lower monthly payments and paying less for the home overall.

7. Making Much-Needed Repairs

Already own? You might consider using your refund to make repairs and/or upgrades that could make your home more functional and also more re-sellable.

8. Starting an Investment Plan

If you’ve been putting off any serious investing until you have some available cash, now might be your chance. Of course, it’s a good idea to do your research first, but now could be the time to ramp up your savings to accomplish short or long-term financial goals.

9. Paying Monthly Fees Up Front

Do you have subscriptions to streaming services? How about a gym membership, or a phone app subscription? If possible, you could pay the annual fee in one fell swoop, which is often cheaper than paying month-to-month. It will also mean one or two less bills to pay each month.

10. Gifting a Loved One

The IRS sets a limit on the gifts you are able to transfer to family members and others without having to pay a gift tax. As of 2021, that limit is $15,000 per recipient.

This means that you can send up to that much without triggering taxes for the person you are gifting.

11. Going on Vacation

If you’re thinking about what to do with a tax refund that might also be fun, consider taking a trip with some of the money. Then, you won’t get stuck paying for your vacation on a credit card like you might have in the past–and potentially paying even more due to interest charges.

12. Buying Things That Will Save You Money

If only you had a smart thermostat in your home, you could save on your electricity, A/C, and heating every month. Or, if you got a good oven, you would cook more and wouldn’t eat out as much. If you purchased a set of weights, you could cancel your expensive gym membership. You may want to think about ways you can spend your tax refund that will end up saving you money on an everyday basis, and then make those investments.

13. Making Appointments You’ve Been Putting Off

When thinking about what to do with your tax refund, you might consider spending it on services that you may have been delaying but could improve your life. For instance, if you’ve had some back pain and need to get it checked out, you could use the money to your doctor or chiropractor. Using your tax refund to take care of yourself is always a good idea.

14. Funding Your Business Idea

Have you always wanted to start a small business? Then now may be the time. When you’re thinking about what to do with a tax refund, you might want to put it towards getting your business up and running. You may be able to avoid taking out high-interest loans to start your venture.

15. Donating It

If there’s an organization you believe in and want to support, you might consider donating your tax refund to that group. You’ll not only be doing good, but may also be able to deduct your donation on your taxes next year for a win-win.

16. Making Extra Mortgage Payments

If you’re contemplating what to do with your tax return, you could always make extra payments towards your mortgage (making sure it goes toward the principal, not interest). Reducing your principal can help you save significant money in interest over the long haul.

17. Purchasing Life Insurance

Signing up for a term life policy when you have the resources to do so can be a smart idea, especially if you are married and/or have children. That way, you will know that your loved ones are protected should anything happen to you.

18. Hiring an Estate Planning Attorney

This is another way you can plan for the future. If you have a spouse or young children, an estate planning attorney can help you devise an estate plan that protects them in the event that you pass away. This could include designating guardians and setting up a trust for your children.

19. Purchasing Renter’s Insurance

While your landlord is protected if something happens to their property, you are not. If you’re thinking about what to do with your tax refund that could save you money in the long run, you might consider buying a renter’s insurance policy.

This kind of policy will cover the cost of your belongings should anything happen, and also protect you if someone gets injured in your home, since they can make a claim with the insurance company instead of coming after you.

20. Paying for a Subscription-Canceling Service

A subscription-canceling service like Truebill can help you figure out which subscriptions you can cancel, as well as negotiate with your service providers to lower your monthly bills. The fee for this service can ultimately save you money–not to mention all that time you would have spent on hold trying to do this yourself.

21. Taking a Class

Education can improve your life in so many ways. You could take a class in a subject that interests you, or to learn a new hobby, like photography or watercolor painting. If you look for courses at your local community college or adult ed program, you may be able to save significantly on tuition.

22. Hiring a Financial Advisor

If you don’t know what to do with money when it comes to saving, investing, and becoming financially stable, you may want to use your tax refund to hire a financial advisor. To find an advisor, you can ask family and friends for recommendations. You can also check out The Garrett Planning Network , which offers a list of financial advisors in your area that are fee-only (meaning they don’t charge a commission).

23. Signing Up for a Meal Subscription Service

Do you eat out all the time? Then it might make sense to put your tax refund towards a meal service that sends you ingredients and simple recipes each week. While it’s typically not as cheap as going to the grocery store, these services can make cooking at home easy and convenient. Eventually, after you learn some good recipes, you can likely cancel and switch to completely DIY meals instead.

24. Saving for Holiday Gifts

During the holidays, are you always short on cash to buy gifts for your family and friends? Even if get your tax refund early, you might want to put some of it aside in an interest-bearing account until your favorite stores and websites are running sales. For example, you can save big by waiting for Amazon Prime Day, Black Friday, Memorial Day, or Cyber Monday.

25. Investing in Your Health

When it comes to what to do with a tax refund, you might want to use it to improve your health and wellness. You might sign up for a gym, hire a nutritionist, purchase exercise equipment, or get a personal trainer. You could end up saving much more in the long run on your healthcare bills.

26. Investing in Your Children’s Needs

If your children need new clothes or school supplies, or you think they could benefit from summer camp or after-school lessons, then you may want to put your tax refund towards those costs.

27. Investing in Your Pets

Does your dog need a teeth cleaning? Have you been putting off getting your cat an MRI because it’s too expensive? Then you could finally take care of some of their needs with your tax return. You could also purchase pet insurance, which could save you money on your vet bills.

28. Purchasing a Car

Is your car always breaking down? Is it terrible on gas? Do you normally use Ubers all the time? Then purchasing a new or used car with your tax refund could save you big bucks over time. If you currently rely on public transportation, owning a car can also open you up to new job opportunities that may have been inaccessible before.

29. Paying Off Your Car Loan

If you’re wondering what to do with a tax refund, you could always make advance payments on your car loan. You could be paying high interest every month, and paying the loan off early could save you significant money. And, if you pay it off in full, you won’t have to worry about that annoying monthly payment anymore.

30. Investing in a Second Income Stream

You can take your tax refund and start making money with it by investing in a new income stream. For example, you could start drop shipping with Amazon, which involves buying items at a discount from a wholesaler then selling them at a profit. Or, you could fix up your spare bedroom and start renting it out on Airbnb.

31. Investing in REITs

If you want to start investing in real estate but don’t have the funds to buy a property, you can invest in real estate investment trusts (REITs) instead. REITs are companies that own, operate, and finance real estate that produces an income. If you put your money into the right REIT, you may see healthy returns.

32. Investing in Crowdfunded Real Estate

Another way to get into real estate with your tax refund is to invest in crowdfunded real estate. On platforms like CrowdStreet and DiversyFund , you can invest for less and potentially reap the benefits of buying into the real estate market.

33. Funding a Startup

While investing in startups can be risky, the rewards can potentially be high. When you’re looking into what to do with a tax refund, you might want to check out sites like Wefunder and NextSeed , which let you invest in small businesses.

34. Saving for Next Year’s Tax Payment

If you do freelance work or you’re an independent contractor, you may have to make estimated payments every quarter. You could get a head start on your taxes by saving your refund and then using it to make those estimated payments on time.

35. Hiring an Accountant

If you believe you could have gotten a higher tax refund this year, then you may want to put aside your refund so you can use it to hire a good accountant to help you file next year’s tax return. The additional tax savings could far exceed the accountant’s fee.

36. Moving to a Better Rental

In the past, it may have been hard to move to a better rental because you didn’t have the funds necessary — like the first and last month’s rent and security deposit — to make it happen. Now that you have your refund, you might be able to make it a reality. You’ll want to make sure, however, that the rent works with your budget.

37. Getting Dental Insurance

You may have been delaying going to the dentist because it’s too expensive. Or, you may need dental work done, but can’t afford it. If so, you may want to put your tax refund towards purchasing dental insurance for the year. Then, you can take care of your teeth and stay healthy.

38. Buying New Clothes

The right clothes can make a big difference in your day. You not only have to wear the right clothes in a professional setting, but being comfortable in what you’re wearing can give you more confidence as well. It can be a good idea to look for deals, however, so you don’t spend your entire tax refund on a fancy pair of shoes or designer coat.

39. Purchasing Stocks

While investing in the stock market can be risky, if you buy shares in a company with a solid track record, you may end up making money on dividends as the company grows. You can always talk with your financial advisor about how to carefully invest in stocks.

40. Investing in Bonds

If you want to invest your tax refund, but don’ts have much tolerance for risk, you might consider investing the money in bonds. These are fixed-income investments and typically make regular interest payments to investors. On the maturity date, your principal investment will be returned to you.

41. Pampering Yourself

Whether you filed on time or missed the deadline and filed late, tax time can be stressful. If you have some tension to work out, you may want to use some of your refund to reward yourself for getting it all done. You could get a massage to help release tension in your shoulders, or splurge on a day at the spa.

The Takeaway

While your tax return may feel like “free money,” it’s really your money given back to you by the government. Uncle Sam was merely holding on to it for a while. It’s yours, so it can be a good idea to be smart with it.

If you are interested in investing the money, you may want to investigate the benefits of the SoFi Invest® brokerage platform. This account lets you invest your tax refund in multiple ways, without having to pay commission. You don’t need a lot of money to get started either. You can begin building a portfolio with as little as $5.

Curious about investing your tax refund? Check out SoFi Invest.


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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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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.
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.
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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Guide to Eco-Friendly Cryptocurrencies

Guide to Eco-Friendly Cryptocurrencies

Although there are many benefits to Bitcoin, the cryptocurrency has come under scrutiny due to the significant electricity use involved in mining and keeping the blockchain network running. This issue is one of the reasons Bitcoin has not become more widely adopted than it has so far.

Bitcoin miners globally use thousands of computers to solve complex algorithms in order to mine new bitcoins and verify transactions. This computational work keeps Bitcoin decentralized, secure, and available for use 24/7, but it also has a relatively large carbon footprint. However, not all digital currencies use as much electricity as Bitcoin, and there are ways that Bitcoin can be made into a more eco-friendly cryptocurrency as well.

The crypto industry recognizes Bitcoin’s electricity use, and is taking steps to reduce it. Some crypto miners use renewable energy sources in an effort to keep their costs down. The Bitcoin Mining Council claims that more than half of Bitcoin mining uses sustainable electricity, but some scientists have found that the Bitcoin network could consume nearly as much electricity as all global data centers combined.

Still, leaders in the crypto industry signed the “Crypto Climate Accord ,” an agreement to power 100% of global blockchains by renewables by 2025.

Why Does Bitcoin Require So Much Energy?

Bitcoin requires so much electricity because it uses a “proof-of-work” system that requires “work” using computing power in order to keep it running. The proof-of-work system essentially uses the proof of work as a way of validating transactions, mining new bitcoins, and keeping the blockchain working.

In addition to using more renewable energy for Bitcoin mining, there are other ways that Bitcoin can reduce its energy use in the coming years, such as the introduction of the lightning network, cloud mining, and off-chain transactions. But for now, Bitcoin’s electricity use continues to be high.

Recommended: How Much Energy Does Bitcoin Use?

14 Most Sustainable Cryptocurrencies

Are any cryptocurrencies eco-friendly? Yes, there are other types of cryptocurrencies and proof systems that don’t use as much electricity. These include “proof-of-stake (PoS),” “proof-of-storage,” and “proof-of-space.” Rather than relying on energy-intensive work, these proof systems use other types of verification and incentive structures. Even among proof-of-work cryptocurrencies, some are more energy-efficient than others, depending on the type of devices used for mining and the way the algorithm works.

There are alternative cryptocurrencies, or altcoins, that use far less electricity than Bitcoin. Some coins simply have fewer transactions, while others are actually designed in ways that are more energy efficient. Some popular cryptocurrencies that may be more eco-friendly than Bitcoin include:

1. Ethereum (ETH)

Ethereum is in the process of switching over to a PoS model, which will drastically cut its electricity use.

2. Algorand (ALGO)

ALGO has a partnership with ClimateTrade, an organization encouraging emissions traceability and transparency, so being an eco-friendly cryptocurrency is a large focus of its mission. It uses a PoS protocol that doesn’t involve mining. The cryptocurrency network recently announced that it is completely carbon neutral.

3. Cardano (ADA)

In recent months, Cardano has been getting a lot of attention based on its low energy usage and green blockchain. It only uses 6 gigawatt hours of energy each year. Created by Ethereum co-founder Charles Hoskinson, Cardano uses Proof-of-Stake instead of Proof-of-Work for its mining process, requiring only one miner for each transaction and making it less energy intensive. The goal of the cryptocurrency is to be more scalable than Bitcoin and also offer the smart contract features of Ethereum. These features enable the creation of tokens and decentralized applications on the network.

4. Nano

Nano is very energy efficient because it doesn’t even use mining, it uses a different form of proof-of-work system. It offers instant transactions with zero fees.

5. Chia (XCH)

Touted as one of the most eco-friendly cryptocurrencies, Chia uses a unique “proof of space and time” model that utilizes storage space on users’ personal computers to keep its network running. It creates “plots” of numbers, which it “farms” over time. Bram Cohen, the creator of BitTorrent, created Chia. The coin’s only environmental downside is that it requires the use of solid-state drives, burning through them quickly and creating a lot of e-waste.

6. Stellar (XLM)

A popular cryptocurrency that uses a small amount of electricity, Steller has a unique consensus model that uses nodes instead of a proof algorithm. It is a network created to be a bridge between cryptocurrencies and traditional financial institutions, similar to PayPal. Users like Stellar because it is fast, simple, and cost-effective for sending large transactions all over the world across any currency.

Recommended: What is Stellar Crypto and How Do You Buy Stellar Lumens?

7. Polkadot (DOT)

Another Ethereum co-founder, Gavin Wood, created Polkadot, which uses a multi-chain network to go between different blockchains. It uses a nominated proof-of-stake (NPoS) model that requires holding or staking coins in the network instead of a mining process that would use more electricity.

8. Hedera Hashgraph (HBAR)

Like Nano, HBAR doesn’t use mining, and has quick, low-fee transactions. Large corporations such as Google, Boeing, and IBM support this cryptocurrency, which is used for micropayments and transaction fees.

9. Holo (HOT)

Holochain doesn’t use mining or much electricity, and it is scalable and less expensive than many other cryptos. Instead of a proof system, the cryptocurrency enables users to earn “HoloFuel” in exchange for sharing computing power and space on their personal computers to host peer-to-peer (P2P) apps on the network. This creates a very large network that can scale over time without centralization or huge increases in energy use.

10. Ripple (XRP)

Another popular cryptocurrency designed to use less electricity than Bitcoin, Ripple has its own calculator which determines the environmental impact of events and assets on its blockchain network.

Recommended: What Is Ripple (XRP)? How Does It Work?

11. IOTA

Iota doesn’t use mining, but instead uses a network of smaller devices that use less electricity.

12. Solarcoin (SLR)

This unique eco-friendly cryptocurrency promotes the creation and use of solar energy. Users who create solar energy are rewarded with Solar coins.

13. Bitgreen (BITG)

Similar to Solarcoin, Bitgreen rewards users for eco-friendly activities such as volunteering or carpooling.

14. EOSIO (EOS)

Another eco-friendly cryptocurrency. EOS uses proof-of-stake along with pre-mined tokens, rather than energy-intensive mining. Users like this crypto because it is very easy for developers to use, is low cost and highly scalable.

The Takeaway

Crypto evangelists may appreciate the many benefits of investing in digital assets, but worry about the impact on the environment and question whether blockchain is environmentally friendly. However, there are many other cryptocurrencies besides Bitcoin, many of which have a much smaller carbon footprint, and may make sense as one type of investment in a diversified portfolio.

If you are looking to start building your crypto portfolio, one easy way is using an app like SoFi Invest®. Using the online platform, you can research, track, and buy and sell cryptos right from your phone with just a few clicks. You can also invest in stocks, ETFs, and other assets all in the same place, and you can add in your banking and other investment accounts to easily see your financial information in a single dashboard.

Photo credit: iStock/MicroStockHub


SoFi Invest®
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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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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Top 30 Cryptocurrencies (Based on Market Cap)

Top 30 Cryptocurrencies (Based on Market Cap)

Since the pseudonymous Satoshi Nakamoto penned a white paper for bitcoin in 2009, an estimated 7,400 cryptocurrencies have been unleashed into the world.

Cryptocurrencies have become wildly popular trading vehicles. At one point, the entire cryptocurrency market ballooned to as much as $2.2 trillion in size, and the advent of digital coins has prompted even central banks to look into virtual versions of fiat currency.

For potential cryptocurrency investors, it may be daunting to sift through the thousands of digital currencies and try to pick one to trade. But one way to go about it may be looking at the market capitalizations of a virtual currency.

Recommended: What is Cryptocurrency? The Ultimate Beginner’s Guide

Here’s a closer look at what the market cap of a digital coin tells you and a list of the top cryptocurrencies by market cap.

What Is Crypto Market Cap?

Calculating the market cap of a cryptocurrency involves taking the price of the digital currency and multiplying it by the number of coins in circulation.

Crypto Market Cap = Number of Coins in Circulation X Coin Price

The market cap of a cryptocurrency allows investors to gauge the total value of all the coins that are out there. In other words, measure the size of that cryptocurrency’s market value.

What Is Bitcoin’s Market Cap?

Let’s take a look at Bitcoin, which was the very first cryptocurrency and has a price of $34,260.40 and about 18.7 million coins in circulation. That puts its market cap at $642 billion, after multiplying the price by the number of coins in circulation.

To put that into perspective, that means the size of the Bitcoin market is more than double the size of the next largest cryptocurrency Ethereum, which has a market cap of $246 billion.

The market cap of Bitcoin is roughly equivalent to that of Tesla Inc. in the stock market, which has a market cap of $659 billion.

Why Does Crypto Market Cap Matter?

The reason market cap is so important is because it gives investors a way to compare the value of one cryptocurrency network to another. Cryptocurrency A’s price might be $600 a share and Cryptocurrency B’s $6. But these prices don’t tell you much about the size or value of the entire market or network.

Let’s say the number of Cryptocurrency A coins in circulation was 1 million, while the number of Cryptocurrency B coins was 150 million. The market cap of Cryptocurrency B is actually higher than A’s, making its total market value much higher.

Cryptocurrency A’s Market Cap = $600 X 1 million = $600 million
Cryptocurrency B’s Market Cap = $6 X 150 million = $900 million

In the stock market, larger market caps can also be an indication of stability. Companies with the biggest market caps tend to be blue-chip stocks that have been publicly trading for longer.

But that same logic can’t be exactly applied to the cryptocurrency market yet, since digital currencies themselves are so new, untested and volatile. Even bitcoin, which has been in existence since 2009 and has the largest market cap, is prone to wild price swings.

What Is Fully Diluted Value?

Fully diluted value refers to the market cap of the cryptocurrency if all the coins in its total supply were mined.
For instance, as mentioned, there are 18.7 million Bitcoin in circulation. However, the maximum number of Bitcoin that can be mined is 21 million. Therefore, the fully diluted value of Bitcoin is 21 million multiplied by its current price.

Crypto Market Cap Categories

According to the cryptocurrency exchange Coinbase, here are the categories for market caps in the cryptocurrency market.

•  Large-cap cryptocurrencies: Cryptocurrencies that have a market cap of $10 billion or more.

•  Mid-cap cryptocurrencies: These virtual currencies have market caps between $1 billion and $10 billion.

•  Small-cap cryptocurrencies: These cryptocurrencies have market values of less than $1 billion.

How Cryptocurrency Supply Works

The price of a cryptocurrency is dictated by the market forces of supply and demand. So how does the other part of the equation in market cap–number of coins in circulation–come about?

With cryptocurrencies, transactions are cleared by the blockchain technology. So-called “miners” can generate new coins by solving complex computer puzzles. Solving a puzzle leads to one block–a group of transactions–getting registered to the blockchain.

Because they earn one or a couple fresh coins for their computational work, miners are often motivated to mine cryptocurrencies like Bitcoin that are trading at higher prices. So the higher the cryptocurrency’s price, the greater the incentive to mine it.

So when it comes to the formula for crypto market cap, one part of the equation can influence the other. The price of a cryptocurrency can influence the number of coins in circulation.

Top Cryptocurrencies by Market Cap in 2021

Below is a list of the biggest cryptocurrencies by market cap, according to data from website
CoinMarketCap . Cryptocurrencies that are available on SoFi Invest® are noted with an asterisk.

1. Bitcoin*

Market Cap $641,505,573,940
June 30, 2021 Price $34,260.40
Circulating Supply 18,745,206

Bitcoin (BTC) was designed to be a digital form of money that is independent of any government or central bank that controls its supply. Instead, the supply of Bitcoin was capped at 21 million by Satoshi Nakamoto.

Bitcoin relies on a network of computers to facilitate transactions. The transactions are logged permanently on the blockchain–an open ledger that everyone on the network can see.

Bitcoin holders have two “keys:” a public one that proves they own Bitcoin, and a private one that acts as a password and ensures only the holder can access their currency.

2. Ethereum*

Market Cap $246,294,041,853
June 30, 2021 Price $2,117.16
Circulating Supply 116,503,783

Ethereum (ETH) was developed in 2013 by a Russian-Canadian teenager named Vitalik Buterin. He aimed to create a cryptocurrency that could utilize smart contracts–ones that self execute based on the defined terms of the agreement.

Similar to Bitcoin, Ethereum aims to connect a decentralized network of computers and record transactions on the publicly available blockchain. Like Bitcoin, Ethereum relies on proof of work for its mining, which means miners perform complex calculations in order to verify transactions, earning new coins in the process.

Ethereum helped fuel initial coin offerings (ICOs) of 2017, since many of the ICOs used Ethereum blockchain. Ethereum has also been behind the boom in non-fungible tokens (NFTs)–digital versions of art or collectibles that are linked to a blockchain and made one-of-a-kind.

3. Tether

Market Cap $62,463,121,114
June 30, 2021 Price $1
Circulating Supply 62,455,415,418

Tether (USDT) was the first cryptocurrency marketed as a “stablecoin”–virtual money designed to maintain a fixed value. In the case of Tether, the value of the coin is pegged to a fiat currency–the U.S. dollar. Hence, its ticker is USDT.

In February 2021, the New York attorney general’s office settled a two-year investigation on tether and its sister crypto exchange Bitfinex. The companies agreed to pay a $18.5 million fine for overstating their reserves and covering up $850 million in losses. Tether had claimed that all its tokens were backed on a one-to-one basis by U.S. dollars in cash reserves.

4. Binance Coin

Market Cap $43,791,396,392
June 30, 2021 Price $284.65
Circulating Supply 153,432,897

Binance is the world’s largest cryptocurrency exchange–popular because of its low trading fees. Binance Coin (BNB) is the cryptocurrency “native” to the exchange, which means that it was designed specifically to be used in the Binance ecosystem. Binance Coin launched in 2017 with an ICO.

Binance tries to incentivize investors to use Binance Coin by allowing them to get a 25% discount on trading fees if they use BNB to pay for trades. That means if your trading fee total $1 for a trade, it’d only be 75 cents if you paid with BNB.

Another key fact for investors to know about BNB is that every quarter, Binance uses 20% of its profit to buy back and “burn” Binance Coins–a process that involves erasing them forever. Originally spelled out in a whitepaper, this system is designed to keep the supply of BNB low and will be done until 100 millions coins–50% of the total–are destroyed.

5. Cardano*

Market Cap $41,876,184,686
June 30, 2021 Price $1.31
Circulating Supply 31,946,328,269

Cardano (ADA) was created by Charles Hoskinson, a co-founder of Ethereum who also has a popular YouTube channel. Cardano can’t yet run decentralized finance (DeFi) projects that let users lend, trade and borrow money with each other. But it recently had an upgrade in March, and smart-contracts are expected to later in 2021.

While Cardano lacks some features, it’s considered by some market participants to be a work in progress and has potential to be a cheaper alternative to Ethereum in being a basis for DeFi and NFT projects. It’s developed a loyal following on social-media platforms like Reddit, similar to so-called meme stocks.

A key feature of ADA is that it has a proof-of-stake blockchain. This means the complicated proof-of-work calculations and high electricity usage required for mining coins like Bitcoin aren’t necessary. Instead, all ADA coins are pre-mined. That could make Cardano appealing to investors who have been critical of the environmental costs of cryptocurrencies like Bitcoin.

6. Dogecoin*

Market Cap $31,646,744,193
June 30, 2021 Price $0.2429
Circulating Supply 130,234,209,886

Dogecoin had a meteoric rise in 2021, surging through the month of May. The cryptocurrency was started as a joke by its founders in 2013. One of Dogecoin’s most notable features is that it has a Shiba Inu dog on its symbol.

Dogecoin enjoyed popularity in a pattern similar to the way meme stocks did in 2020. Tesla CEO Elon Musk was an advocate of Dogecoin, touting it on social media. On June 1, cryptocurrency exchange Coinbase said it would accommodate Dogecoin, signaling more mainstream acceptance of the cryptocurrency.

7. XRP

Market Cap $30,462,825,137
June 30, 2021 Price $0.6577
Circulating Supply 46,146,927,647

Ripple XRP was developed by Ripple Labs Inc. Unlike Bitcoin and many other cryptocurrencies, XRP is not on a blockchain network. Instead, it’s based on what’s called a “hash tree.” This means XRP can’t be mined and instead there are a limited number of coins–100 billion to be exact. Ripple network can process 1,500 transactions per second.

In 2020, the Securities and Exchange Commission sued Ripple and its executives for allegedly misleading investors in XRP by selling more than $1 billion of the virtual tokens without registering with the regulator.

8. USD Coin

Market Cap $25,203,864,990
June 30, 2021 Price $1
Circulating Supply 25,202,767,808

USD Coin (USDC) is a stablecoin powered by Ethereum blockchain that is pegged to the U.S. dollar. USD Coin is also linked to the cryptocurrency startup known as Circle. After the stablecoin Tether came under regulatory trouble for how much it actually backs in reserves, Circle has said its reserves are evaluated and audited by Chicago-based accounting firm Grant Thornton LLP.

In March 2021, Visa announced that it would allow the use of USDC to settle transactions on its payment network–a sign of mainstream acceptance of the crypto market. The move allowed for customers to pay for purchases using a Visa credit card without digital currencies first needing to be converted into traditional money.

9. Polkadot

Market Cap $14,624,503,052
June 30, 2021 Price $15.30
Circulating Supply 956,244,736

Polkadot’s coin is called dot (DOT). Polkdot’s creator Gavin Wood is also the co-founder of Ethereum. He wrote the original white paper for Polkadot in 2016.

Central to Polkadot are “parachains”–blockchains that can run higher transaction throughput than Ethereum through design. “Parallel blockchains”–transactions that are spread across multiple computers, similar to parallel processing–have also been touted as having potential as an alternative to Ethereum.

10. Binance USD

Market Cap $10,109,402,513
June 30, 2021 Price $0.9998
Circulating Supply 10,109,425,905

Binance USD (BUSD) is a stablecoin that is issued by Binance, the world’s largest cryptocurrency exchange. It’s pegged to the U.S. dollar on a one-to-one basis. It runs on the Ethereum network so can be accepted everywhere for payments or loans where other ERC-20 tokens are.

11. Uniswap*

Market Cap $9,995,097,737
June 30, 2021 Price $17.32
Circulating Supply 575,244,185

Decentralized exchanges (DEX) are trading platforms that require users to hand over the keys of the coins, so without depositing or withdrawing cryptocurrencies. The system relies on smart contracts and is a feature of the DeFi movement.

Uniswap is estimated to be the largest DeFi exchange, and it’s popular for strategies like “yield farming,” where cryptocurrencies are lent out in exchange for interest. Founded by Hayden Adams, Uniswap is an exchange that has raised money from venture-capital firms like Andreesen horowitz and Union Square Ventures.

Uniswap (UNI) is the token native to the platform. While market cap growth has been tremendous, it also hasn’t been without hiccups. In August 2020, an anonymous group copied Uniswap’s code and crimped the DEX’s liquidity.

12. Bitcoin Cash*

Market Cap $9,472,408,895
June 30, 2021 Price $503.84
Circulating Supply 18,777,488

Bitcoin Cash (BCH) launched in August 2017 after a controversial fork in which a faction of coders criticized the original Bitcoin’s network for being too slow and expensive.

The technology underpinning Bitcoin Cash is similar to that of Bitcoin, but changes were made during the fork to make transactions faster and lower fees. For instance, the BCH network can support more than 23 million transactions in a single day. That’s smaller than the 2 trillion transactions that Visa can handle, but far more than the 600,000 transactions that Bitcoin can facilitate.

However, this increased transaction capability hasn’t been taken advantage of by the market. In general, while it was created to rival Bitcoin, BCH hasn’t had the same popularity and has suffered deep declines in its price. Bitcoin Cash’s market cap is still a fraction of Bitcoin’s. However, it’s also still one of the most successful coins that has developed from a hard fork.

13. Litecoin*

Market Cap $9,193,856,401
June 30, 2021 Price $137.72
Circulating Supply 66,752,415

Created in 2011, Litecoin was one of the earliest altcoins. New blocks on the Litecoin network are generated every 2.5 minutes, four times as fast as the Bitcoin network, where blocks are mined in 10 minutes.

Founder Charles Lee has said he designed Litecoin to be a compliment to Bitcoin, not as a replacement. In 2019, Litecoin rallied ahead of a halving. Charles Lee cashed out on his holdings in 2017, the last time cryptocurrencies peaked.

14. Solana

Market Cap $8,731,513,592
June 30, 2021 Price $32.12
Circulating Supply 272,637,428

Consensus is reached on various blockchains when members solve a mathematical puzzle, a process called “proof of work.” Miners are then rewarded coins for their work, a process that’s energy intensive and has been criticized for its environmental impact. It’s why Elon Musk did a U-turn on Tesla accepting Bitcoin as payment.

As mentioned, some coins are switching to “proof of stake,” a less energy-intensive process. But Solana creator Anatoly Yakovenko, a former engineer at Qualcomm, had an idea for “proof of history,” which timestamps transactions and disables the ability of miners to decide which transactions get recorded on the blockchain. Yakovenko has claimed the network can be as fast as “the speed of light.”

15. Chainlink*

Market Cap $8,038,538,683
June 30, 2021 Price $18.49
Circulating Supply 435,509,554

Chainlink’s blockchain network aims to provide a link between real world data and smart contracts. Its cryptocurrency is known as LINK, and it’s used to pay for smart contract transactions. As mentioned, smart contracts are agreements on the blockchain that automatically complete upon the filling of necessary preconditions.

In cryptocurrency markets, outside data sources are called oracles. Chainlink helps connect those outside data sources and the blockchain.

16. Polygon

Market Cap $6,920,008,608
June 30, 2021 Price $1.10
Circulating Supply 6,303,422,325

Polygon, formerly known as Matic Network, is an India-based cryptocurrency that was created in 2017. It aims to solve issues found on the Ethereum network, such as congestion and high transaction fees.

17. Wrapped Bitcoin

Market Cap $6,650,827,175
June 30, 2021 Price $34,290.76
Circulating Supply 194,125

Wrapped Bitcoin (WBTC) is a token that represents Bitcoin on the Ethereum blockchain. One Wrapped Bitcoin equals one Bitcoin.

However, WBTC tokens can be used with Ethereum’s decentralized apps and decentralized finance ecosystem. Another feature of Wrapped Bitcoin is its transaction speed, since it runs on the Ethereum blockchain.

18. THETA

Market Cap $6,551,813,342
June 30, 2021 Price $6.57
Circulating Supply 1,000,000,000

Theta posted massive gains in 2021. The Theta Network describes itself as a “decentralized streaming video protocol”–in essence, aiming to use blockchain technology to allow users to contribute excess bandwidth and computing resources in exchange for tokens.

Theta.tv was slated to be included in future Samsung Galaxy phones and the software added to 75 million existing devices.

19. Stellar*

Market Cap $6,271,627,310
June 30, 2021 Price $0.2722
Circulating Supply 23,207,246,068

The Stellar network’s cryptocurrency is called lumen and trades under the symbol XLM. Stellar is a blockchain-based ledger that aims to connect banks and payment systems to facilitate low-cost, cross-border transfers.

Created by a co-founder of Ripple, Stellar says its focus is bank loans in developing economies or providing services to individuals outside the traditional banking system.

20. Ethereum Classic*

Market Cap $6,089,904,070
June 30, 2021 Price $52.45
Circulating Supply 116,313,299

Ethereum Classic (ETC) maintains the original, unaltered history of the Ethereum network. The new Ethereum network (ETH) was created in 2016 after a hack.

Daily active users of ETH far surpasses that of ETC, roughly close to 1 million versus in the tens of thousands. Ethereum Classic’s network has also experienced 51% attacks, suggesting it’s less secure. While lacking any standout technology, Ethereum Classic experienced a resurgence in 2021 speculated that it may come back in favor if Ethereum or ETH moves to a proof-of-stake protocol, as opposed to the more traditional proof-of-work.

21. Internet Computer

Market Cap $6,067,833,949
June 30, 2021 Price $45.02
Circulating Supply 135,173,634

Internet Computer’s creator Dfinity Foundation is backed by Silicon Valley venture-capital firm Andreesen Horowitz. The basis for Internet Computer is to create apps and websites, recreating the web in a more decentralized form.

For this reason, some argue that Internet Computer is more useful as a blockchain technology network that powers apps than as a cryptocurrency. The platform allows anyone to create software on the Internet using its blockchain technology.

Market Cap $5,386,070,570
June 30, 2021 Price $1
Circulating Supply 5,383,336,912

Dai is another stablecoin with a one-to-one ratio to the U.S. dollar. Unlike some other stablecoins however, Dai aims for an even greater degree of decentralization.

For instance, Tether tries to back cryptocurrencies backed by a reserve, which is managed by a central body. Dai aims to use smart contracts instead to maintain the peg to the U.S. dollar.

23. Vechain

Market Cap $5,346,751,563
June 30, 2021 Price $0.08354
Circulating Supply 64,315,576,989

Founded in 2015 by the former chief information officer of Louis Vuitton China, VeChain focuses on improving supply chain management and business operations with blockchain.

It has two tokens: VeChain (VET) and VeChainThro Energy (VTHO). The former is designed to transfer value across the blockchain network, while the latter aims to use energy or “gas” to power smart contracts.

24. Filecoin*

Market Cap $4,820,709,413
June 30, 2021 Price $58.11
Circulating Supply 83,612,398

Filecoin aims to be a decentralized storage network that maximizes data storage and retrieval. The Filecoin network aims to connect storage and retrieval miners with clients who pay to store and retrieve data.

Participants in the Filecoin network send tokenized rewards in the form of Filecoin for providing services on the network. The network uses specialized proofs to verify the quantitative and types of files on the network. Grayscale, a manager of cryptocurrency investment trusts, added Filecoin to one of its products in March.

25. TRON

Market Cap $4,638,835,632
June 30, 2021 Price $0.06478
Circulating Supply 71,659,657,369

Tron is the cryptocurrency of Tron Foundation, a blockchain company that on its website says it is “dedicated to building the infrastructure for a truly decentralized Internet.” A report from the media outlet Verge reported that much of Tron’s original white paper overlaps with the white paper for Ethereum.

Tron uses something known as a delegated proof-of-stake to reach consensus on its ledger, unlike the traditional “proof-of-work” methods used by many cryptocurrencies including Bitcoin. Twenty-seven “super representatives” achieve consensus, with the representatives rotating regularly. The process is designed to be less energy intensive.

Tron’s founder Justin Sun is known for acquiring BitTorrent, a peer-to-peer file-sharing service.

26. Monero

Market Cap $3,826,701,458
June 30, 2021 Price $212.77
Circulating Supply 17,942,846

Bitcoin leaves a visible trail of transactions on its blockchain. Monero is a privacy coin, hiding the senders, receivers as well as the transaction amount. Monero is increasingly used by criminals for illicit payments and money laundering. It’s also popular when hackers are cryptojacking.

The original white paper for Monero in 2014 argues that Bitcoin’s visibility of transactions was a “critical flaw.” Monero could come under greater regulatory scrutiny especially after high-profile ransomware incidents like the Colonial Pipeline and meatpacking plants hacking in the U.S.

Monero has outperformed Bitcoin since the beginning of 2020. The US Internal Revenue Service has offered a $625,000 award for any one able to develop tools to trace Monero. It’s tougher to trade on bigger cryptocurrency exchanges, given authorities insisting they have higher Know Your Customer (KYC) standards.

27. EOS

Market Cap $3,722,430,916
June 30, 2021 Price $3.91
Circulating Supply 954,781,934

EOS is a blockchain-based system that aims to allow the development of dApps on its platform. It’s sometimes seen as a competitor to Ethereum, which remains more popular. It has a platform focused on smart contracts and tries to eliminate transaction fees and conduct millions of transactions per second.

28. Shiba Inu

Market Cap $3,276,672,704
June 30, 2021 Price $0.000008292
Circulating Supply 394,796,000,000,000

Created in August 2020 by an anonymous person known as Ryoshi, Shiba Inu is on the ERC-20 token on the Ethereum blockchain. While Shiba Inu is inspired by Dogecoin, which features a Shiba Inu dog on its logo, the cryptocurrency also calls itself a “Dogecoin killer.”

Shiba Inu does not have smart contract capability nor is it backed by any assets or rights. There’s also no defining technology or limited supply. Instead, Shiba Inu has enjoyed popularity in the cryptocurrency market during 2020 in the pattern that some meme stocks do.

29. Aave*

Market Cap $6,153,754,357
June 30, 2021 Price $482.36
Circulating Supply 12,754,905

Aave is on the Ethereum network and focuses on DeFi lending. It basically aims to let users lend and borrow a range of crypto assets, while sometimes earning interest.

30. Crypto.com Coin

Market Cap $2,780,265,388
June 30, 2021 Price $0.11
Circulating Supply 25,263,013,692

Crypto.com Coin is the native token of Crypto.com, an exchange that tries to be a network to payment cryptocurrency projects. Crypto.com tends to be much cheaper than exchange competitors like Coinbase.

The Takeaway

Altcoins, Privacy Coins, Stablecoins, DeFi Coins–the cryptocurrency market has proliferated and diversified since Bitcoin was first introduced in 2009. One way investors can evaluate different coins and tokens in the cryptocurrency world is by looking at market cap, which can give a sense of the size and popularity.

On the SoFi Invest, investors can trade cryptocurrencies like Bitcoin, Ethereum, Cardano, Uniswap and Chainlink 24/7: weekends, holidays, middle of the night. Furthermore, on the mobile app, investors can trade cryptocurrencies alongside the company stocks, exchange-traded funds (ETFs) and fractional shares that they already own.

Learn more from SoFi about the different types of cryptocurrency and open an account today.

Photo credit: iStock/salarko


SoFi Invest®
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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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 or products 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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What is a Crypto Bear Market? When to Buy & Sell Crypto

What is a Crypto Bear Market?

Since Bitcoin’s launch in 2009, several crypto crashes have occurred, including some that have completely wiped out specific altcoins. Since those crashes happened in lesser-known forms of crypto or without extensive media coverage, not all investors are aware of them.

Despite the crashes, however, there haven’t been any sustained bear markets in Bitcoin, which is the de facto benchmark for cryptocurrencies.

What Is a Crypto Bear Market?

A crypto bear market is one in which the value of major cryptocurrencies, such as Bitcoin, have fallen at least 20% from their recent highs, and are continuing to fall. By contrast, a crypto bull market is one in which the major cryptocurrencies are on the rise.

One of the most famous crypto crash occurred in December 2017, when Bitcoin fell from almost $20,000 per coin to just over $3,200 in a matter of days. After that, it rallied, reaching a price of nearly $65,000 per coin in April of 2021, before dropping again to below $32,000 in May.

Recommended: When Is Bitcoin’s Next Bull Run? 2021 Predictions

Traders aiming to time the markets aim to purchase cryptocurrencies or other assets at the bottom of a bear market, but it’s often difficult to know when a bear market has actually ended.

Why Is It Called a Bear Market?

The terms bull and bear markets come from stock trading, and according to some accounts their origins come from the style of attack each animal uses – a bull will charge with its horns pointed upward. A bear, on the other hand, towers over its opponents and swipes down.

Similarities Between Crypto and Stock Bull & Bear Markets

Investors don’t have experience with the performance of cryptocurrency during a stock bear market. The last true, sustained stock bear market occurred in 2007-2009. At the time, Bitcoin had just launched, gaining attention, if not yet acceptance. While calling a bull or a bear market in stocks or in cryptocurrency requires technical analysis of values, there are several other that both markets have in common:

Volatility

The value of both stocks and cryptocurrencies fluctuate over time, but cryptocurrencies tend to gyrate more severely due to liquidity constraints within the market and a less established derivatives market.

Recommended: Why Is Bitcoin So Volatile?

Trader Sentiment

In both the stock market and cryptocurrency negative trader sentiment can portend a bear market. However, contrarian traders in both cases may see market dips as an opportunity to buy cryptocurrency at a discount.

Outside Influences

Bear markets, in both stocks and cryptocurrency, can reflect external factors that change the way that investors value a particular asset. Those factors can include overall economic strength, interest rates, or geopolitical factors.

What Are the Signs of a Crypto Bear Market?

One of the most famous maxims in all of investing is “buy low, sell high.” In four words, it’s how investors make money. And it’s why, for crypto investors, knowing when a bear market is coming, or when one is just about to end, can make all the difference.

This is where the relative youth of the crypto market makes things difficult. With the stock market, economists, analysts and traders have decades and even centuries of data to sift through to find the trends and triggers that occurred just before a bear market turned to a bull and vice versa. Bitcoin, on the other hand, was launched in 2009.

Some warning signs of a crypto bear market include:

•  Lower trading volume: This could indicate that people have begun holding their coins amid market uncertainty.

•  “Backwardation”: This occurs when the price of an asset in the futures market is lower than its current market price.

•  Death cross: This is a technical indicator in which an asset’s 50-day moving average crosses its 200-day moving average.

What Are Indicators of a Crypto Bull Market?

Even though crypto’s history has essentially been a very lengthy bull market followed by a short, terrifying market free-fall, and another market bull run, some trends have popped up for investors to watch.

•  Liquidity. Crypto took a hit at the beginning of the lockdowns in spring of 2020, when investors needed cash. But so did everything else. Then it rose, as the crisis receded and the Fed pumped trillions into the economy, aiding in Bitcoin’s liquidity and other cryptos alike.

•  Adoption: If more companies and financial institutions adopt crypto, then it should move more in step with the economy, and be subject to less violent fluctuations. It’s a sign that the Wild West is being tamed. But adoption is a double-edged sword. If it’s your cab driver and barber who are talking about crypto, then it could mean that the market is oversaturated.

Should I Invest in Crypto?

There is also a baseline level of uncertainty with crypto that doesn’t exist in many other asset classes. While nobody thinks that regulators will shut down or curtail the stock market or that hackers will breach a stock exchange, these are common concerns with Bitcoin and other forms of cryptocurrency.

In addition to concerns about cryptocurrency regulation and blockchain security, there is also a growing debate about the energy costs of Bitcoin and other cryptocurrencies, which adds to the question mark over the long-term viability of crypto as a whole, at least in its current form. Those existential doubts rear up whenever Bitcoin, or other major cryptos, take a steep decline, or fall for too long.

Recommended: How Much Electricity is Needed to Mine Bitcoin?

That existential doubt can also be a major plus for investors, however. The shadows over crypto means that their declines are often incredibly steep. That creates regularly occurring opportunities to buy the crypto of your choice at a very steep discount, if you believe in the long-term growth of crypto as a whole, and if you can wait for the dip. Proponents of cryptocurrencies, including Bitcoin, believe that its growing adoption and use make it a smart long-term investment.

Recommended: Investing in Cryptocurrency: What You Need to Know

The Takeaway

Like all assets, cryptocurrencies go through cycles in which their value rises and falls. For short-term investors, especially, knowing the signs of a bear market can help you create a portfolio strategy that makes sense for your risk appetite and financial goals.

One easy way to start building a portfolio that includes crypto is by opening an account on the SoFi Invest® brokerage platform. You can use the active investing option on the app to purchase stocks, exchange-traded funds, and cryptocurrency.

Photo credit: iStock/Eva-Katalin


SoFi Invest®
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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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.
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Is Inflation a Good or Bad Thing for Consumers?

Is Inflation a Good or Bad Thing for Consumers?

What Is Inflation?

Inflation is an economic trend in which prices for goods and services rise over time. The Federal Reserve uses different price indexes, including the Consumer Price Index, to track inflation and determine how to shape monetary policy. Generally speaking, the Fed targets a 2% annual inflation rate as measured by pricing indexes.

Rising demand for goods and services can trigger inflation when there’s an imbalance in supply. This is known as demand-pull inflation. Cost-push inflation occurs when the price of commodities rises, pushing up the price of goods or services that rely on those commodities.

Recommended: 7 Factors That Cause Inflation

Inflation can have both pros and cons for consumers and investors. Understanding the potential effects of inflation can maximize the positives while minimizing the negatives.

Is Inflation Good or Bad?

Answering the question of whether inflation is good or bad means knowing more why inflation matters so much. The Federal Reserve takes an interest in inflation because of how it relates to the broader economic and monetary policy.

Some level of inflation in an economy is normal, and an indication that the economy is continuing to grow. While inflation has remained relatively low over the past decade, it has historically seen the most change during or right after recessions.

The Fed believes that its 2% target inflation rate encourages price stability and maximum employment.

Broadly speaking, high inflation can make it difficult for households to afford basic necessities, such as food and shelter. When inflation is too low, that can lead to economic weakening. If inflation trends too low for an extended period of time, consumers may come to expect that to continue, which can create a cycle of low inflation rates.

That sounds good, as lower inflation means prices are not increasing over time for goods and services. So consumers may not struggle to afford the things they need to maintain their standard of living. But prolonged, low inflation can impact interest rate policy.

The Federal Reserve uses interest rate cuts and hikes to keep the economy on an even keel. For example, if the economy is in danger of overheating because it’s growing too rapidly or inflation is increasing too quickly, the Fed may raise rates to encourage a pullback in borrowing and spending.

Conversely, when the economy is in a downturn, the Fed may cut rates to try to promote spending and borrowing. When both inflation and interest rates are low, that may not leave much room for further rate cuts in an economic crisis, which may spur higher employment rates. If prices for goods and services continue to decline, that could lead to a period of deflation or even a recession.

So, is inflation good or bad? The answer is that it can be a little of both. How deeply inflation affects consumers or investors–and who it affects most–depends on what’s behind rising prices, how long inflation lasts, and how the Fed manages interest rates.

Who Benefits from Inflation?

The Federal Reserve believes some inflation is good and even necessary to maintain a healthy economy. The key is keeping inflation rates at acceptable levels, such as the 2% annual inflation rate target. Staying within this proverbial Goldilocks zone can result in numerous positive impacts for consumers and the economy in general.

Inflation Pros

Sustainable inflation can yield these benefits:

•  Higher employment rates and steady paychecks for workers

•  Continued economic growth

•  Potential for higher wages if employers offer cost-of-living pay raises

•  Cost-of-living adjustments for those receiving Social Security retirement benefits

The danger, of course, is that inflation escalates too rapidly, requiring the Federal Reserve to raise interest rates as a result. This increases the overall cost of borrowing for consumers and businesses.

Who Is Inflation Good For?

Inflation can benefit certain groups, depending on how it impacts Fed shapes monetary policy. Some of the people who can benefit from inflation include:

•  Savers, if an interest rate hike results in higher rates on savings accounts, money market accounts or certificates of deposit

•  Debtors, if they’re repaying loans with money that’s worth less than the money they borrowed

•  Homeowners who have a low, fixed-rate mortgage

•  People who hold investments that appreciate in value as inflation rises

Who Does Inflation Hurt the Most?

Some of the negative effects of inflation are more obvious than others. And there may be different consequences for consumers versus investors.

Inflation Cons

In terms of what’s bad about inflation, here are some of the biggest cons:

•  Higher inflation means goods and services cost more, potentially straining consumer paychecks

•  Investors may see their return on investment erode if higher inflation diminishes purchasing power, or if they’re holding low-interest bonds

•  Unemployment rates may climb if employers lay off staff to cope with rising overhead costs

•  Rising inflation can weaken currency values

Inflation can be particularly bad if it leads to hyperinflation. This phenomenon occurs when prices for goods and services increase uncontrolled over an extended period of time. Generally, this would mean an inflation growth rate of 50% or more per month. While hyperinflation has never happened in the United States, Zimbabwe experienced a daily inflation rate of 98% in 2008.

Who Is Inflation Bad For?

The negative impacts of inflation can affect some more than others. In general, inflation may be bad for:

•  Consumers who live on a fixed income

•  People who plan to borrow money if higher interest rates accompany the inflation

•  Homeowners with an adjustable rate mortgage

•  Individuals who aren’t investing in the market as a hedge against inflation

Inflation and higher prices can be detrimental to retirees whose savings may not stretch as far, particularly when health care becomes more expensive. If the cost of living increases but wages stagnate, that can also be problematic for workers because they end up spending more for the same things.

How to Invest During Times of Inflation

While inflation is an investment risk to consider, smart investing can minimize its impact on your portfolio. While savings accounts may yield more interest if the Fed raises interest rates, investing in stocks, exchange-traded funds (ETFs) or mutual funds could generate even higher returns.

Real estate and Treasury-Inflation Protected Securities (TIPS). Government-issued securities designed to generate consistent returns regardless of inflationary changes, can also be good buys during periods of rising inflation. If prices are rising, that can increase rental property incomes. You could benefit from that by investing in real estate ETFs or real estate investment trusts (REITs) if you’d rather not own property directly.

Recommended: Pros and Cons of Investing in REITs

In general, compounding interest and the benefits of dollar-cost averaging over time can also help offset inflation. Compounding interest allows you to earn interest on your interest, which is key to building wealth. Dollar-cost averaging means investing continuously, whether stock prices are low or high. When inflationary changes are part of a larger shift in the economic cycle, investors who dollar-cost average can still reap long term benefits, despite rising prices.

The Takeaway

Inflation is unavoidable but you can take steps to minimize the impact to your personal financial situation. Building a well-rounded portfolio of stocks, ETFs and other investments is a smart strategy for keeping pace with rising inflation.

You don’t need a lot of money to get started either. With SoFi Invest® brokerage platform, you can begin building a portfolio with as little as $5. Learn more about how you can start investing now to offset inflation’s negative impacts.

Photo credit: iStock/AJ_Watt


SoFi Invest®
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 . 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.
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