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What Is After-Hours Trading?

After-hour trading is stock trading that occurs after the normal close of the trading session. Ordinarily, stock trading begins at 9:30 am ET and ends at 4 pm ET, Monday through Friday. The after-hours trading period begins following the close of regular trading at 4 pm and ends at 8 pm. Trading after hours may appeal to investors who have limited time to trade during the day or want to take advantage of overnight market movements.

If you’re new to trading stocks or even if you know some of the investing basics, aftermarket trading can still be a confusing concept to understand. Understanding what happens with the stock market after hours can help answer those questions.

Why Is Access to After-Hours Trading Important?

After-hours trading allows investors to respond to news and events that occur after regular stock market hours. This can be important because it will enable investors to take advantage of opportunities that may not be available during regular trading hours.

For example, if a company announces a significant acquisition after the markets have closed, investors who can trade after-hours will be able to buy shares of the company before the news is reflected in the stock price during regular trading hours.

Market Hours Schedule

Stock exchanges operate on a regular schedule during which investors can buy and sell securities. The New York Stock Exchange (NYSE) and Nasdaq are open between 9:30 am and 4 pm ET. Most stock trading occurs during these normal business hours.

After-hours trading does not follow this schedule.

How Does After-Hours Trading Work?

After-hours trading is what it sounds like: buying and selling stocks after the stock market has closed. However, unlike standard hours trading, after-hours trading is conducted through computerized trading systems called electronic communications networks (ECNs). Traders generally access ECNs through their preferred brokerage.

After-hours trading generally lasts four hours, from 4-8pm ET on weekdays. However, the precise time of after-hours trading depends on the brokerage that an investor uses.

Pre-Market Trading

Pre-Market trading occurs from 4 to 9:30 am ET on weekdays. After-hours and pre-market trading is sometimes called “extended-hours trading.”

Some online brokerages take after-hours trading a step further and offer 24/7 stock trading. This allows investors to make trades during the gap between after-hours trading and pre-market trading. The advantage of 24/7 trading is that investors are not bound by the regular market hours schedule for making trades.

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Potential Advantages of After-Hours Trading

After-hours trading provides investors with several advantages over regular trading alone.

Convenience

One of the benefits of trading later in the day is convenience. If you’re busy with other pursuits during business hours or live in a different time zone, this might be a more optimal time to buy and sell stocks.

Leveraging New Information

Another potential advantage is the opportunity to take action based on new information, such as a company’s earnings report or a major news event, without having to wait for the market to reopen.

Potential for Cheaper Prices

Investors can sometimes find lower prices for individual stocks or exchange-traded funds (ETFs) during after-hours trading. This may reflect lower competition since fewer people are trading, but it’s far from guaranteeing you’ll get better prices.

Cons of After-Hours Trading

Buying and selling stocks outside regular trading hours come with risks and disadvantages.

Fewer Transactions Happen After-Hours

There are fewer transactions happening after-hours than while the stock market is open, which can affect the market’s liquidity.

Since there are fewer people buying and selling stocks, finding someone who wants to trade at the price you have in mind can be challenging. Likewise, getting a hold of a stock you want can be hard when trading volume is low. The trade will be canceled if there is no counterparty available for a trade you want.

Prices Are More Volatile

Another drawback is that prices are more volatile after-hours. Although it’s normal for the stock market to fluctuate, you tend to see much wider swings in price after-hours than during the typical trading day.

This is partly a result of lower liquidity: Since fewer people are participating in the market, trades may significantly affect a stock’s price due to wider bid-ask spreads.

Stock price volatility can also result from many people reacting quickly to major news or announcements. A company’s share price can climb in response to a news event after-hours and then fall dramatically as soon as markets open. Prices adjust after more information becomes available, or investors get the chance to digest it more thoroughly. And with major ups and downs, of course, comes greater risk and potential for losses.

Best Prices May Differ

Another thing to consider is that you might not be able to confirm the best available price during after-hours trading. During regular hours, brokerages must offer the best possible price at that time. However, this doesn’t extend into after-hours, and the share price you see in one place may differ from the one you see in another.

After-Hours Trading vs Standard Trading

After-Hours Trading

Standard Trading

Trading occurs between 4 and 8 pm ET Trading occurs between 9:30 am and 4 pm ET
Trades conducted through ECNs Trades conducted through stock exchanges and market makers
Trades may not be completed due to low volume and liquidity Trades are generally executed quickly because of large trading volume and liquidity
Only certain stocks and ETFs available for trading A wide range of assets, like stocks, ETFs, mutual funds, and options, are available for trading

Is After-Hours Trading the Same Thing as Late-Day Trading?

Investors should be aware that after-hours trading differs from late-day trading. Late-day trading is an illegal practice in which mutual fund managers allow hedge funds to record some trades made after-hours as having happened right before closing during regular hours.

Late-day trading pushes up the mutual fund’s net asset value, which summarizes how much the fund is worth at the end of the trading day. When the net asset value (NAV) increases the following day to reflect those late-day trades, the hedge funds can sell the shares they bought at a higher price.

After-hours trading itself is considered ethical and is legal.

💡 Recommended: What Is Market Manipulation?

Access to Features When Trading After-Hours

After-hours trading typically only allows limit orders. Limit orders generally protect investors from unexpectedly bad prices, which are more likely to occur during after-hours trading than standard trading.

Stop, stop-limit, or orders with special instructions are not usually accepted. Moreover, orders are typically only good for the after-hours trading session in which they’re placed; if a trade is not executed during the session, it is usually canceled.

Additionally, only certain stocks and ETFs are available for after-hours trading. Trading bonds, mutual funds, and options are not allowed during after-hours.

Is It Bad to Trade After Hours?

Trading stocks after hours is neither bad nor good. But whether it makes sense for you to engage in after-hour trading can depend on your risk tolerance and investment goals.

As mentioned, the stock market after hours can be more volatile than regular trading hours. You could expose yourself to greater risk by trading stocks after the closing bell. Increased volatility can also make it more difficult to gauge how likely limit orders are to be executed.

Pricing risk could also cause you to pay more for securities after hours than during the regular trading day. In that scenario, you’d get less value for your investment dollars. So it’s important to consider how much of your time you’re willing to devote to watching the after-hours market and how much risk you’re willing to accept.

Specialist recommend that only highly active traders participate in after-hours trading — not average investors who intend to hold onto their stocks for a long time. Most everyday investors would be wise to remember the old adage: “Time in the market beats timing the market.”

Does After-Hours Trading Affect Opening Price?

After-hours trading can affect a stock’s opening price. Buying and selling activity can influence a stock’s price during normal market hours. The same is true for aftermarket trading.

A stock could close at one price point during regular trading hours but have a different open price once the new trading day begins. Whether this price difference is negligible or significant depends on how much trading activity occurred after hours and what motivated the activity.

For example, price fluctuations between the regular day’s closing and the next day’s opening could be more substantial if investors get wind overnight that a company is planning a merger or has a scandal brewing. Likewise, if a company’s earnings miss expectations or the Federal Reserve makes an announcement about interest rates, those things could affect stock pricing after hours.

💡 Recommended: What Determines Stock Price?

Is After-Hours Trading a Good Indicator of Market Sentiment?

After-hours trading activity could help investors gauge where the market will start on the next trading day. But it’s important to remember that this is a short-term prediction at best, as pricing can change at a moment’s notice.

Investor attitudes and behaviors can quickly shift the market’s momentum and stock prices along with it. Again, something as simple as the release of an earnings report or the announcement of an acquisition could affect a stock’s price. So rather than focusing on aftermarket trading as a sole indicator of what a stock may do next, it’s important to look at the bigger picture.

If you’re primarily a day trader, learning some technical analysis basics can help you become more attuned to market trends and how to interpret them when making investment decisions.

💡 Recommended: Day Trading Strategies

The Takeaway

If you are a hands-on investor and want to experiment, exploring after-hours trading may be an additional way to make trades. However, for most investors who don’t actively manage their investments and want to minimize risk, there may be better strategies than after-hours trading. Instead, they may want to feel confident that they’re investing their money with less risk, building wealth for long-term financial goals.

A great way to start building a portfolio to meet long-term financial goals is by opening an online brokerage account with SoFi Invest®. With SoFi, you buy and sell stocks and ETFs with no commissions for as little as $5.

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

FAQ

When does after-hours trading for SoFi start?

SoFi offers extended-hours trading, where investors can place limit orders during after-hours starting at 4 pm.

When does after-hours trading for SoFi end?

SoFi offers extended-hours trading, where investors can place limit orders after-hours ending at 8 pm.

What are the benefits of trading after-hours?

Some benefits of trading after-hours include the convenience of trading when the markets are closed and having the opportunity to make trades right after an important news event breaks.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.
Claw Promotion: 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.
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5 Bitcoin Scams to Avoid in 2021

7 Bitcoin Scams to Avoid in 2023

The crypto market is rife with fraud, and Bitcoin scams are very common. While crypto itself may be relatively new in the financial world, many of the more common rackets involving cryptos use old school tricks and common deceit to achieve their goals. These can involve fake exchanges, social engineering scams, and more.

Almost all types of fraud — be they Bitcoin scams or run-of-the-mill phishing attempts — are rooted in a schemer’s ability to gain a victim’s trust. Many crypto investors can be easily swayed by hype and con artists, too, which means they need to remain vigilant when considering investing in Bitcoin or other cryptos. Here are some of the more common Bitcoin and cryptocurrency scams, some things to look out for, and what to do if you fall victim to one of them.

Common Bitcoin Scams to Avoid

1. Fake Cryptocurrency Exchanges

One way to attract potential crypto investors who are eager to get in on the action? Create a cryptocurrency exchange — even if it isn’t real.

Fake crypto exchanges exist, and in some cases, have been used to scam investors out of their money. For fraudsters, it can be as easy as luring crypto investors with the promise of free Bitcoin or another crypto to get them to sign up for the exchange. Then, after making an initial deposit, victims may find that none of it was real, and they’ve been bilked out of their deposit.

As for how to avoid these fake exchanges? Sticking to the known, established crypto exchanges is a start. Think twice before creating an account with a new or unfamiliar exchange, and be sure to do some research to make sure it’s above board before making any moves. Refer to industry sites and newsletters, message boards and forums, and other reputable sources of information to find out more about an exchange’s credentials and reputation.

And it never hurts to remember the age-old adage: If it sounds too good to be true, it probably is.

2. ICO and Fake Cryptos

If you’re familiar with buying IPO stocks, then ICOs should ring a bell. ICO stands for “initial coin offering,” and is similar to an IPO. It’s when a new coin or crypto makes its market debut. That’s sure to attract some attention, right? That’s what fraudsters think, too. And it’s why some people looking to invest in ICOs may fall victim to a fake ICO scam.

An ICO scam might work like this: A fake ICO is teased, asking investors to pony up some cash to get in early. Money is exchanged, but the ICO never occurs, and investors never get their money back.

These types of scams are common. So much so that the U.S. Securities and Exchange Commission (SEC) even published a website that simulates them, only to lead you to educational tools when you try to invest, instead of stealing your money.

As with any investment, it is a wise idea to do your research before putting money behind a crypto ICO. Try to find out as much as you can about the company in question — from sources other than itself or the tease that first grabbed your interest. And take advantage of tools like the ones provided by the SEC or groups like FINRA, to help build some background knowledge about what you’re investing in.

3. Social Engineering Scams

Many of the same tactics used in money scams or to con people out of their personal information are used in the crypto sphere, too. That includes things like hacking, social media scams, phishing attempts, and more.

For instance, crypto investors may get an email asking them to update their password or personal information on a crypto exchange — a phishing attempt, which is meant to trick users into providing their credentials. With that information, a fraudster could, potentially, gain access to an investor’s holdings and liquidate them.

The numerous types of social engineering scams mean that investors need to be extra judicious when being asked to reset their passwords or in their interactions in social media.

4. Ponzi Schemes

Ponzi schemes are very similar to pyramid schemes. They are, in essence, a game of hot potato, with investors who’ve been involved for a longer period of time being paid with the proceeds and investments from newer investors. It’s a common scheme in financial circles that has found its way to the crypto world.

The government has gone after Ponzi schemers in the crypto community, and that includes those that use Bitcoin to lure in fresh investors. In fact, government regulators say that they root out and prosecute many Ponzi scheme cases every year, which includes those involving cryptocurrencies.

One typical red flag indicating a Ponzi scheme (or nearly any type of fraud): the promise of investing your money at no risk to you with the guarantee of huge profits.

5. Pump-and-Dump Bitcoin Scams

For investors who are even somewhat familiar with the stock market, “pump-and-dump” should be a familiar term — especially after the Gamestop headlines of early 2021.

A pump-and-dump scheme involves a number of traders or investors buying up an asset (say, Bitcoin for example, or a penny stock) which causes its value to increase. Then, with values high, they sell it all off — or “dump” it. Investors who bought in during the initial run-up are often caught underwater as a result.

Naturally, this same play can be run with cryptocurrencies. Government regulators, such as the U.S. Commodity Futures Trading Commission (CFTC), have warned that pump-and-dump schemes can be particularly effective in the crypto sphere, and warn investors to do their homework before making any investment decisions.

6. Rug Pull Scams

A rug pull is a type of scam that is similar to ICO scams, in that a hyped up crypto project ends up being vaporware — it doesn’t actually exist. It may be common to see a crypto “aped” on social media or in crypto circles by founders or developers in an effort to gin up interest and get investors on board.

Then, the developer or creator simply disappears with investors’ money. In other words, investors have had the rug pulled out from under them. It doesn’t take much for a scammer to gin up hype, especially if they’re something of a showman, so these types of scams are somewhat prevalent in the crypto space.

7. Man-in-the-Middle Scams

A man-in-the-middle scam or attack involves a third party intercepting information between an investor and their exchange, or another investor. The scammer is able to gain access to sensitive information, like passwords or wallet keys, and use them to swipe your assets.

Scammers can pull these scams off by intercepting wireless internet signals and some technical trickery. They’re not the most common scams, but many investors may be at risk nonetheless.

How to Spot a Bitcoin Scam

As mentioned, most Bitcoin scams are age-old tricks used in many other areas of the financial world. As such, there are some common red flags to keep an eye out for.

Big Promises

If a project or crypto is promising massive returns on your investment, your radar should be going off as a possible scam. This is true for other types of scams as well, but in order to generate a large pool of potential schemes, a scammer needs to get people’s attention — by making big promises. If they do, tread carefully.

Scammers Often Request Up-Front Crypto Payments

It’s relatively uncommon that you’d be asked to pay upfront with cryptocurrency for a good or service. As such, this can be a common refrain from scammers. And if they take your money (or Bitcoin) and run, you’ll have little or no recourse. So, if someone asks you to send them Bitcoin with promises of delivering later, use caution.

Appeals to Emotion

A common tactic scammers use is to appeal to someone’s emotions — this is why dating scams are so common. If you find yourself growing close to someone (or believing that you are, anyway) and they start asking you to send them crypto for one reason or another, it could be another sign that you’re being scammed.

Ways to Protect Yourself from Bitcoin Scams

Given that there are a lot of people out there trying to swipe your Bitcoin, here are some ways to protect yourself from Bitcoin scams.

Stick to Known Exchanges

The crypto space is largely unregulated, and as such, there can be a lot of questionable exchanges and platforms out there. While you can create accounts and trade on many of them, it may be best practice to stick to ones that are well-known or generally well-regarded.

There are many bigger exchanges out there that are popular among traders and investors. You can easily look some of them up, too. This isn’t to say that a smaller exchange is a scam, necessarily, but your odds of falling victim are likely higher on a small, unfamiliar exchange than you are on a larger one.

Do Your Homework

It should go without saying, but before you sign up for an exchange or invest in a cryptocurrency of any kind, do some research. There should be supporting materials out there (white papers, etc.) or reviews to take a look at, so do some digging around to see what other people are saying before diving in yourself.

Tread Carefully

Aside from doing some research, you should always exercise a level of caution when investing. For instance, if you’re getting emails from a crypto founder or someone else in the space, always check the sender address on emails like this — one riddled with typos or oddball fonts is likely to be a fake.

It’s important to be careful on social media, too. Imposter social media accounts may contact you and ask for investments or deposits, only to take your money and run. A good rule of thumb? Go with your gut, and don’t trust social media accounts — it’s all too easy for bots or others to create fakes.

What to Do if You’ve Fallen Victim to a Bitcoin Scam

If you do fall victim to a Bitcoin scam — which is entirely possible, as many people do — there may not be much you can do to get your money back. Again, since crypto is still outside the scope of most government regulators, your assets or money may be as good as gone.

You can, and perhaps should, report it, however. You can report crypto fraud to the Federal Trade Commission (FTC), the CFTC, the SEC, the Internet Crime Complaint Center (IC3), and you can also consider lodging a complaint with the exchange on which you were scammed — is applicable.

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The Takeaway

Bitcoin scams, and those involving other cryptocurrencies, are very common. They can take numerous forms, too, such as rug pulls, fake ICOs, and even Ponzi schemes. You can take measures to protect yourself, however, and learn to recognize a scam when you see one. A good rule of thumb is that if something sounds too good to be true, it usually is.

Though risks do exist in the crypto space, it shouldn’t necessarily dissuade you from trading crypto, if you’re interested. If you want to get started, SoFi Invest® offers 30 coins to buy and sell. (Please consider your investment objectives prior to trading crypto.)

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/22; terms apply.)


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.
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.
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.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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What Are Decentralized Stablecoins?

Decentralized Stablecoins: Types and How They Work

What Are Decentralized Stablecoins?

Decentralized stablecoins, like any type of stablecoin, are cryptocurrencies that have a value pegged to a particular external asset, such as a national fiat currency like the U.S. dollar, or a commodity. In theory, being pegged to a real-world asset helps prevent volatility.

What makes decentralized stablecoins different from centralized stablecoins is that they have full transparency and they are non-custodial, meaning a company or centralized party doesn’t control them. Any collateral that backs the stablecoin is transparent to users, so they know it really exists.

Decentralization allows for a trustless and secure system in which a centralized party can’t tamper with the supply of the coin or pretend they have assets to back the coin that they really don’t. Instead, smart contracts and algorithms automatically control the coin’s supply.

There are a few different types of decentralized stablecoins. In this article we will look at the different types, and the pros and cons of this type of crypto asset.

The Need for Decentralized Stablecoins

Stablecoins were created as a crypto version of traditional currencies, which are typically backed by central banks and governments, and often pegged to real-world assets like cash or commodities (e.g. gold or silver).

As a result many stablecoins have a 1:1 ratio with fiat currencies like the U.S. dollar or the euro. So, are all stablecoins decentralized? No, most are still centralized.

Understanding Stablecoins

Stablecoins were launched so that traders could keep funds in an exchange to keep them available for trading, and have them in a stable asset that wouldn’t change in value.

Prior to the creation of stablecoins, any time a trader sold a coin they would have to move their money back into a fiat currency, and sometimes even move it off the crypto exchange completely, making it really inconvenient for day traders.

The emergence of stablecoins helped traders cope in periods of volatility, since they could move funds into a stablecoin temporarily, until they were ready to go back into the crypto market.

That said, having a form of crypto pegged to tangible assets (like fiat currencies) with real-world value hasn’t been a complete success. In fact, the stablecoin market has been plagued with allegations of fraud and other malfeasance, including questions of whether some coins actually had sufficient reserves.

With Decentralized Stablecoins Came More Security and Transparency

In order to make stablecoins more secure and transparent, decentralized stablecoins are being developed. (In order to understand why this is important, it helps to know what decentralized finance is, aka DeFi, and how it’s challenging traditional finance.)

Stablecoin values are kept stable through a process of controlling their circulating supply. With many stablecoins, this is done by the issuing company that created the coin. With decentralized stablecoins, this is typically accomplished using algorithms.

When the value of a decentralized stablecoin moves higher or lower than the value of its underlying asset, the algorithm adjusts the supply — sometimes by burning or removing coins — to bring it back to the desired 1:1 ratio.

Thus, decentralized stablecoins are considered trustless. Much of the reason traders are attracted to crypto is the ability to transact without middlemen and centralized parties. Therefore, stablecoins are heading in the direction of decentralization — which is how most cryptocurrencies work.

How Decentralized Stablecoins Work

Decentralized stablecoins use algorithms and smart contracts to control the supply of the token to maintain its stable value. If the price of the stablecoin starts veering up or down from the value of the asset it is pegged to, then the supply of the stablecoin can be adjusted to get the price back to where it should be.

With normal stablecoins this is done by the issuing centralized party. Ultimately, decentralized stablecoins could be created that aren’t backed by any external asset — which is basically what algorithmic stablecoins are. But it’s hard to put together a list of decentralized stablecoins right now.

Uses of Decentralized Stablecoins & the Need for Them

Decentralized stablecoins have similar uses to regular stablecoins. Day traders can easily move funds between crypto and stablecoins if they want to avoid volatility or wait to make another purchase. They provide a secure and efficient way to transfer funds almost anywhere in the world, and in some cases users can earn interest on them as well.

5 Types of Decentralized Stablecoins

What is a decentralized stablecoin, exactly? There are several types of decentralized stablecoins that provide different functionality and security for users. Below are the main types available on the market today:

1. Elastic Supply Chains

What Are They?

Most decentralized stablecoins fall within the category of elastic supply chains. These coins use automated contracts with user incentives to stabilize the value of the coin so it stays pegged to the external asset.

How Do They Work?

This type of decentralized stablecoin uses an elastic supply monetary policy. When the value of the stablecoin falls below the value of the pegged asset, stablecoin owners are incentivized to keep holding the stablecoin because they earn a high interest rate on it.

When the value of the stablecoin goes back up, the interest rate earned goes down. To earn interest, users have to lock up their coins until the value of the stablecoin goes back to the value of the pegged asset.

When the value of the stablecoin rises above the pegged value, the supply of the stablecoin is increased, and vice versa.

One risk with this type of decentralized stablecoin is that users will choose to sell off their coins instead of staking them. When this happens, the value of the decentralized stablecoin no longer matches the value of the pegged asset, and users lose trust in the stablecoin.

Examples

•   Ampleforth

•   BitBay

•   Kowala

•   NuBits

•   Xank

•   Ndau

•   StableUnit

2. Collateralized-Debt Positions

What Are They?

Decentralized stablecoins that use Collateralized-Debt Position (CDP) systems involve user-deposited collateral and smart contracts to maintain the value of the coin.

How Do They Work?

First, a stablecoin user deposits collateral into a smart contract. Then they are loaned stablecoins equal to the value of the collateral they deposited, and they pay interest on the loan. Basically the users loan money into the pool backing the coin and by doing so they enable the coin to exist so they can use it. This is similar to the way fiat currency works using fractional reserve banking systems. However, unlike the fiat system, decentralized stablecoins are generally fully backed or over-collateralized. This is important to know when buying and selling cryptocurrencies.

Examples

•   MakerDAO

•   Alchemint

•   Augmint

3. Self-Collateralized Stablecoins

What Are They?

Self-collateralized stablecoins are similar to CDP coins, except that the collateral users deposit is crypto instead of fiat currency. Also, users of these coins don’t always have to pay interest on their loans.

How Do They Work?

First, users deposit collateral that was generated by blockchains or smart contracts. Then they receive a loan of stablecoins equal in value to the amount they deposited.

Examples

•   Sweetbridge

•   Bitshares

•   Synthetix

4. Bond Redemption Coins

What Are They?

This type of decentralized stablecoin uses a bond exchange system to keep the coin price stable.

How Do They Work?

For example, Basis is a stablecoin pegged to the value of the U.S. dollar. When the value of Basis dips beneath $1, Basis users burn their Basis tokens and in exchange they receive Basis Bonds. Once the price of Basis goes back up to $1, users can exchange their Basis Bonds back to Basis coins.

There are 25 different bonds that Basis users can choose from, and they earn $0.2 for each Basis coin they burn. Conversely, when the price of Basis goes over $1, new Basis coins are created and sent to holders of Basis Shares until the price goes back down to $1.

Examples

•   Basis

5. Collateral-Redemption Coins

What Are They?

Collateral-redemption coins are similar to CDP-based coins in that stablecoins are created when users deposit collateral into a pool. However, CDP coins require users to receive stablecoins for all of the collateral they deposit, and they must pay interest on the loan.

Collateral-redemption systems let users just receive a portion of funds from their deposited collateral without paying any stability or penalty fees. Also, collateral-redemption systems let users deposit many different types of tokens into the smart contract collateral pool.

How Do They Work?

For example, let’s say a user deposits $200 worth of Bitcoin and $200 worth of ETH. They then receive 400 stablecoins. After that, they deposit just 9 stablecoins and take out $5 worth of ETH and $4 worth of Bitcoin from the collateral pool of the stablecoin’s smart contract. The 9 stablecoins that are deposited are burned so that the coin keeps a constant collateral-to-debt ratio.

Examples

•   Reserve Protocol

Pros and Cons of Decentralized Stablecoins

There are several upsides to decentralized stablecoins but they have some downsides as well.

Pros

Cons

Increased transparency Many decentralized stablecoins are only partially decentralized and are still in an experimental phase of development.
Stable value There is a risk that a stablecoin will have a price meltdown
Increased security If the value of the external asset tanks, so will the stablecoin
More efficient than other stablecoins at maintaining value, therefore traders lose less money when trading them Many decentralized stablecoins are not yet widely adopted. There’s a chance that they won’t exist long term or won’t have high liquidity.
Traders can earn interest on some stablecoins
In the future, there is potential for a decentralized stablecoin to scale infinitely to meet any market demand.
There have been legal challenges with issuing stablecoins that are solved with decentralized stablecoins.

Multi-Currency and Single-Currency Coins

Some stablecoins are backed by one particular fiat currency, while others are backed by a basket of currencies. For instance, Libra’s original goal was to release a stablecoin backed by 30 different fiat currencies. However, they then shifted their plan to say they might still create a multi-currency asset, but it would be backed by single-currency stablecoins.

Investing in Crypto

Stablecoins are just one of many types of crypto individuals can buy. They are a useful tool for day traders who want a convenient way to keep funds in exchanges and avoid volatility, but stablecoins have been fraught with problems. Decentralized stablecoins are still evolving, and could someday change how crypto is traded.

If you’re looking to start trading crypto yourself, it’s easy when you set up an Active Invest account with SoFi Invest®. The online app lets you research, track, buy and sell dozens of cryptocurrencies, stocks, ETFs, and other assets. Even better, you can get started with just a few dollars, and trade crypto 24/7 from the convenience of your phone or laptop.

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/22; terms apply.)

FAQ

Is USDT a decentralized stablecoin?

USDT, also known as Tether, is one of the first stablecoins and it is pegged to the U.S. dollar. It is not a decentralized stablecoin. It was the first fully centralized stablecoin and is managed by Tether Limited.

Are there any truly decentralized stablecoins?

There are a handful of stablecoins that claim to be fully decentralized, including: DAI, EOSDT, DeFi Dollar (DUSD), and GHO (a multi-collateralized stablecoin launched this year by AAVE). But it’s safe to say that decentralized stablecoins still face certain challenges in terms of transparency and maintaining a stable 1:1 value.

Is Bitcoin a stablecoin or not?

Bitcoin is not a stablecoin; it’s the oldest and largest form of cryptocurrency on the market. Bitcoin’s value is not pegged to the value of an external asset, but rather is determined by market forces, like any other crypto.


Photo credit: iStock/akinbostanci

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.
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.
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Blockchain vs Distributed Ledger Technology (DLT), Explained

Blockchain vs Distributed Ledger Technology (DLT), Explained

DLT vs. blockchain is an often-misunderstood topic. The terms blockchain vs. distributed ledger are often used interchangeably, but in fact blockchain technology is a subset of distributed ledger technology and they are not the same thing.

Blockchain represents a new type of distributed ledger technology (DLT) that can function without the need for third-party oversight. Peer-to-peer transactions can be verified in a decentralized way, just as they can with distributed ledger technology, but with blockchain the data is stored in blocks vs. a DLT system, which does not require a chain.

What Is Distributed Ledger Technology?

DLT is a kind of distributed database that stores information in multiple locations. Instead of a single server hosting all the information, DLT uses geographically distributed servers known as nodes to store data in different places at the same time.

Each node on the ledger processes and validates each piece of data, creating a record while establishing consensus on the validity of the dataset across all nodes.

The main characteristics of distributed ledger technology also apply to blockchains. DLTs are:

•   Immutable

•   Transparent

•   Append-only

•   Decentralized

That said, while a blockchain network is fully decentralized, with no central authority, a DLT may have some central oversight. Both systems are popular in finance, owing to the need for the speed and transparency decentralized systems can provide.

💡 Recommended: A Beginner’s Guide to Cryptocurrency

What Is a Blockchain?

A blockchain is a type of distributed ledger made up of a series of decentralized servers also known as nodes. The blockchain records information about transactions and groups them into blocks of data, which are validated by the network.

Each new block gets added to the one that came before it, forming a chain of blocks, giving rise to the term “blockchain.” All transactions and data are recorded with a unique cryptographic stamp or signature called a hash.

Blockchain was first created when the Bitcoin network went live in January 2009. Since then, new types of blockchains have been developed that have additional functionality. Many potential blockchain use cases are still being experimented with.

Understanding DLT vs. blockchain is key to understanding different types of crypto.

Blockchain vs DLT: Similarities and Differences

When it comes to the similarities and differences of blockchain vs. DLT, it’s important to understand that blockchain is a form of DLT — but not all distributed ledgers are blockchains.

How Data Is Stored

In a blockchain, records are stored in blocks or modules, after having been validated by the network. Each transaction is then given a cryptographic signature known as a hash, which is a random string of characters, which gets added to the block, forming a chain. Blocks become permanent once they’ve been added to the chain. To alter the information inside a block would require compromising the entire network.

Another one of the benefits of blockchain is that the vast majority of blockchains are also permissionless, meaning no one needs permission from a central authority to access the system. Distributed ledgers can be permissionless too, but because some DLTs can be centrally controlled, this may not always be the case.

Degrees of Decentralization

Blockchains are also decentralized to some degree, meaning they distribute their development and maintenance amongst multiple parties. There is no CEO of Bitcoin, for example, and the network is maintained by thousands of individuals around the world running their own full nodes.

Volunteer developers work on the code based on their own volition, and if the majority of nodes agree that a software update should be implemented, then it will be. Disagreement among nodes can lead to a hard fork, as occurred in 2017 with Bitcoin Cash.

Distributed ledgers, on the other hand, are owned, operated, and controlled by a single entity. This combined with the fact that distributed ledgers do not create cryptographic blocks and add them to a chain are the two main features that designate the difference between DLT vs. blockchain.

Similarities Between DLT vs Blockchain Technology

When considering a DLT vs. a blockchain, remember that both involve many of the same characteristics and functionality, including:

•   A distributed ledger of data that’s transparent and immutable

•   The use of geographically distributed servers known as nodes

•   Some degree of decentralization

Both DLT and blockchain involve building and maintaining a distributed ledger. They both make use of servers called nodes that can be placed in many different locations around the world. And to a degree, both are decentralized, meaning there isn’t a single point of failure for the system (although DLTs may have a centralized owner vs. blockchains, which don’t).

Differences Between DLT vs. Blockchain Technology

While they are more similar than they are different, DLT and blockchains are not one in the same. Some of the ways the two differ from each other include:

•   Blockchains use encryption

•   Blockchains are fully transparent

•   Blockchains group data into blocks, adding them to a chain

Some forms of DLT also use encryption and can be transparent. DLT can vary in its transparency, permissions, and use of encryption. Blockchains, on the other hand, are universally encrypted. They always group information into blocks, too.

Blockchain vs. distributed ledger

Similarities

Differences

Use of distributed nodes DLT may or may not use encryption
Maintenance of a ledger DLT does not use blocks
Some decentralization DLT may be transparent or opaque

Other DLTs Beside Blockchain

Since the invention of Bitcoin, quite a few variations of DLTs and blockchains have been created, as mentioned. Some forms of DLT behave much like blockchains, and were intended to mimic the tech in some ways, but can’t be classified as such.

Holochain

Holochain is an “open-source framework for creating microservices that run peer-to-peer applications on end-user devices” without the need for centralized servers, according to Holochain.org.

Holochain is intended to provide a way for people to run the type of applications that blockchains enable without needing a blockchain. Holochain provides tools that can enable users to:

•   Authenticate users and manage their identities

•   Enforce business rules and data integrity

•   Control access to both public and private data

•   Create a redundant, distributed database to store and retrieve data, and automatically react to security risks

•   Application code deployment and updates for user devices

•   Share participants’ workload in terms of resources

Hashgraph

Hashgraph has been popularized by Hedera Hashgraph (HBAR), a tech project backed by dozens of multinational corporations.

Hashgraph enables quick, low-cost transactions, allows for the implementation of smart contracts, and has the ability to scale better than most blockchains.

Direct Acyclic Graph (DAG)

DAG is the technology behind hashgraph. DAG stores transactions in a tree-like structure that resembles a graph, rather than a chain. Due to its efficiency in data storage — data can be recorded on top of each other, rather than appended in a sequence, allowing for more than 100,000 transactions per second.

The Takeaway

DLT can be thought of as blockchain’s predecessor. Blockchain is a new type of distributed ledger that uses encrypted blocks of data and collects them into an unbreakable chain.

There are also even newer types of DLT that have built off of blockchain’s advancements. In this sense, blockchain is just one important part of the natural evolution of distributed ledger technology.

Looking to invest in blockchain tech via cryptocurrency? SoFi Invest provides a streamlined, secure platform for buying and selling crypto, as well as stocks, ETFs, and more. Trade dozens of different cryptocurrencies on SoFi Invest when you open an Active Invest account and set up your crypto trading account from there.

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/22; terms apply.)

FAQ

Is blockchain a digital ledger?

Yes, blockchain is a type of distributed ledger technology (DLT). While DLT came first, and the two share many of the same characteristics (including the validation of transactions through a decentralized system of nodes), blockchain is considered a more sophisticated form of DLT.

Is blockchain the only digital ledger?

No, blockchain is not the only type of DLT that exists. Holochain and DAG (direct acyclic graph) technology are two among several others.

Is bitcoin a digital ledger technology?

Not exactly. Bitcoin is the oldest and largest form of cryptocurrency, and it was also the first implementation of blockchain technology, which is a form of DLT.


Photo credit: iStock/LuckyStep48
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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

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What Are Crypto Collectibles & How Are They Valued?

Guide to Crypto Collectibles

Crypto collectibles comprise the world of digital media that can be purchased, authenticated, and stored on blockchain networks. They’re similar to traditional collectibles — think baseball cards, Beanie Babies, artworks, and more — but they have no physical presence. They’re only digital.

Crypto collectibles take the form of non-fungible tokens, or NFTs, among other digital assets. That means that they’re one-of-a-kind. There aren’t any copies of them, which is the case with cryptocurrencies (which are considered fungible).

What Are Crypto Collectibles?

A crypto collectible is a digital asset that is created, encrypted, and stored on a blockchain. But there are distinct differences between a crypto collectible and a cryptocurrency: Crypto collectibles are non-fungible (crypto collectible and NFT can be synonymous, in most cases) and unique.

By contrast, all the different types of crypto are fungible: e.g. you can trade one Bitcoin for any other Bitcoin, it doesn’t matter — they are functionally the same.

The fact that crypto collectibles are non-fungible also means that they’re scarce, and scarcity gives them value — or perceived value — in the marketplace. Again, you can think of crypto collectibles as similar to baseball cards in the physical world. If you have a very rare baseball card (e.g. a Babe Ruth rookie card), it may carry a lot of value, because many baseball card collectors are willing to pay top dollar to get it.

Again, too, crypto collectibles are authenticated on blockchain networks, so that there’s a clear record of ownership and transactions related to any given collectible. They’re generally stored in a digital wallet, which is also how cryptocurrency works. In terms of the most common forms of crypto collectibles, it’s probably NFTs.

NFTs: Overview

As discussed, NFTs are non-fungible tokens are cryptographic digital assets that have uniquely identifiable metadata and codes, which are stored on the blockchain, ensuring that the NFT can’t be replicated or forged.

💡 Read more about what, exactly, NFTs are.

The tokens act as a representation of either digital or tangible items. For instance, one could create NFTs that stand for digital artwork, virtual real estate in a game, collectible Pokemon cards, or even someone’s personal identification information.

NFTs can take other forms as well, such as NFT music, which is exactly what it sounds like: A non-replicable audio track, stored on a blockchain network.

A lot of things can potentially be tokenized, in fact, like the first-ever tweet from Jack Dorsey, Twitter’s then-CEO.

While NFTs can, do, take numerous forms, the most important thing for most people in the crypto space to know about them is that they’re one-of-a-kind, and such, rare. That rarity is what gives them value.

How Do Crypto Collectibles Work?

Crypto collectibles such as NFTs function as assets. They can be collected, stored, or traded on marketplaces in exchange for cryptocurrencies or fiat currency, like USD (although there are some hoops to jump through before getting your hands on cash).

For instance, if you plan on selling NFTs to generate cash, you may need to go through the process of creating, or minting them to ensure you have ownership. You’d then need to determine the best marketplace to use to list and sell them. From there, you’d likely be trading your NFTs for another type of cryptocurrency, which you might then need to exchange for USD.

It’s important to keep the entire goal of NFTs in mind: To digitize, and thus lock in the value of an item, and make it relatively easy to trade, buy, or sell. When discussing NFTs and crypto collectibles, monetization and the ability to trade is really what most actors in the space are interested in, and what has helped fuel interest in the NFT ecosystem in recent years.

Where to Buy and Sell Crypto Collectibles?

Crypto collectibles, such as NFTs, can be purchased on digital exchanges and marketplaces. There are many out there, including OpenSea and Rarible, which allow users to make an account, attach their digital wallets, and start buying and selling NFTs. Users on many of these platforms can also create crypto collectibles or mint their own NFTs (read more about what NFT minting is, and how it works).

But usually, buying and selling collectibles is as simple as signing up for an account with a marketplace, funding that account, and then making trades.

5 Top-Selling Crypto Collectibles

There are thousands, if not millions of types of crypto collectibles and NFTs on the market. Here are some of the most expensive crypto collectibles:

1. EVERYDAYS: THE FIRST 5000 DAYS

The most expensive NFT or crypto collectible ever sold (so far) is a piece of digital artwork called “EVERYDAYS: THE FIRST 5000 DAYS” by the artist Mike Winkelmann (also known as “Beeple). The NFT sold for $69.3 million at auction by Christie’s in 2021, and is a collage of Beeple’s earlier work. It was purchased by an NFT investor named Metakovan.

2. Clock

It has a simple name, and it’s a simple NFT. “Clock” is an image that displays the number of days since Julian Assange, the founder of Wikileaks, was sent to prison. The NFT itself sold for $52.7 million in 2022. It was created by an artist named Pak, and the funds received from the NFT’s sale went toward Assange’s legal defense.

3. HUMAN ONE

“Beeple” strikes again — one of his other artworks, “HUMAN ONE” is more than just an NFT. It’s actually a physical sculpture that comes with an NFT, too. So, it’s a sort of hybrid traversing the physical and digital, and it sold for $29 million in 2021.

4. CryptoPunk #5822

CryptoPunk #5822 is a part of the CryptoPunk NFT series, and many have sold for high dollar amounts. This one, specifically, sold for $23.7 million in early 2022, and was purchased by Deepak Thapliyal, who is the CEO of a Chinese blockchain company. This particular CryptoPunk depicts an “alien” avatar, which is the rarest type in the whole collection.

5. CryptoPunk #7523

Yet another part of the CryptoPunk collection, CryptoPunk #7523 sold for $11.8 million in 2021. It was purchased by Shalon Meckenzie, who is most notable for being the largest shareholder in DraftKings (a sports betting company), who says he bought it because this CryptoPunk, like #5822, is of the rare “alien” type.

How Crypto Collectibles Are Valued

When buying and selling cryptocurrency, the value of different coins depends on a variety of market factors, including demand — but sometimes broader economic issues or challenges in the crypto space. It’s similar with crypto collectibles, but with a twist.

A number of different factors can play into the value of these digital asset. But owing to the fact that crypto collectibles are one-of-a-kind, collectors or investors may be willing to pay more to get them. As a result, their value can increase. If there are no bidders or potential buyers, their value falls.

Pros and Cons of Crypto Collectibles as Investments

As with any investment, crypto collectibles have their pros and cons. That’s important to note before you start buying and selling cryptocurrency.

Some of the pros include the fact that NFTs have a clear record of ownership and transaction data, they’re potentially a high-growth asset, and they can be used as a tool for diversification in an investor’s portfolio.

Some even offer additional perks, such as access to exclusive groups or events, or even have a physical element associated with them, such as Beeple’s “HUMAN ONE,” mentioned above.

But the potential cons are hard to ignore. Above all else, NFTs and numerous different types of cryptocurrency are speculative investments — they are highly volatile, and there are no guarantees that investors will see a return. Further, they can lack the liquidity that other assets have (such as stocks), and there’s a lack of historical data to research for investors.

And one other important thing to keep in mind is that the crypto ecosystem is still rife with scams and fraud. So, be careful before making any big-money moves.

The Takeaway

Crypto collectibles comprise NFTs and the entire world of non-fungible digital assets. They can be bought, sold, and otherwise traded on exchanges and digital marketplaces, and their values are largely determined by the overall market. In other words, a crypto collectible’s value can be as much or as little as someone is willing to pay for it.

If you’re interested in cryptocurrency — be it learning more about how cryptocurrency works or starting to invest in cryptocurrency — you can get a running start using SoFi Invest. Just open an Active Invest account and from there set up your crypto trading account. You can get started with as little as $10, and trade dozens of crypto 24/7.

Trade crypto and get up to $100 in bitcoin! (Offer is available through 12/31/22; terms apply.)

FAQ

Are crypto collectibles a type of NFT?

It’s more accurate to say that NFTs are a type of crypto collectible. In fact, they’re the main type — NFTs are digitized tokens of items that are then bought and sold in the cryptocurrency ecosystem, although they’re not cryptocurrencies themselves.

How much can crypto collectibles sell for?

Theoretically, there’s no limit to what a crypto collectible could sell for. Collectibles trade on the open market, and their value is thus determined by the market. They can sell for as much as an investor or collector is willing to pay for them. In some cases, crypto collectibles have fetched tens of millions of dollars.


Photo credit: iStock/AntonioSolano

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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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

SOIN0221033

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