Guide to How to Invest in Blockchain

Blockchain technology has grown way beyond its roots as the foundation of most cryptocurrencies into an expansive tech sector that investors may want to consider. For those wondering how to invest in blockchain, there are multiple opportunities, from trading crypto to investing in companies that are developing new uses for blockchain.

The transparent, digital ledger known as blockchain is associated primarily with different types of crypto, but it has a rapidly growing number of use cases across many sectors: health care, law, real estate, finance, international trade, and more.

For investors willing to do their due diligence, and understand the risks involved, there are opportunities in the blockchain space.

A Look At Blockchain Technology

In order to understand what blockchain tech is, it helps to know the basics of how a blockchain works. While blockchain was the innovation in 2009 that made Bitcoin — and the entire cryptosphere — possible, numerous applications for blockchain technology have emerged since then.

Think of blockchain technology as a sort of next-level, digital infrastructure. It’s a transparent, append-only digital ledger that can be used to track or record almost any type of asset, from goods and services to patents, smart contracts, decentralized apps (dApps), and more.

Blockchain technology relies on cryptography and a system of peer-to-peer (P2P) verification to secure transactions and, in the case of cryptocurrency, to mine coins and tokens. Because the security of blockchain is critical to how it functions, complex consensus algorithms are used on each network.

Although most people think crypto goes hand-in-hand with blockchain, in fact blockchain technology is increasingly common for a range of digital products and functions. Anything that requires an immutable ledger, contract agreement, or data transaction record can use blockchain — such as real estate transactions, legal agreements, voting records, supply-chain tracking, and much, much more.

What Does Investing in Blockchain Mean?

Can you invest in blockchain? While you cannot invest directly in a blockchain itself — a blockchain can’t be owned by investors — there are multiple ways to invest in blockchain technology, and a growing number of sectors that use it.

•   By investing in crypto, you can think beyond the coin to what the entire crypto project is trying to create using its particular blockchain capabilities. The blockchain that supports the Ethereum network has different capabilities than the one that supports Bitcoin, Dogecoin, Litecoin, Solana, and so on.

•   You can invest in blockchain stocks and other securities, like exchange-traded funds (more on that below), initial coin offerings (ICOs), and cryptocurrency trusts. While many of these investment products are new, and may come with risks, they may also present new opportunities.

Investing in blockchain technology is a way to participate in the evolution of a whole new part of the market, which includes DeFi (decentralized finance) companies, digital securities, crypto exchanges — as well as existing sectors like real estate and supply chain management that are increasingly embracing blockchain.

Investing in Blockchain vs. Investing in Cryptocurrencies

Because blockchain is a big part of how cryptocurrency works, buying crypto is one way to invest in blockchain. Investing in cryptocurrencies means buying individual tokens that can be used within the blockchain technology ecosystem. And because each coin or token is so different, reflecting the blockchain it’s based on, interested investors can explore different types of crypto as a way of investing in different blockchain capabilities.

For example, some blockchains are programmed to support the execution of smart contracts, the creation of non-fungible tokens (NFTs), the cross-border transfer of funds, and much more. By owning the crypto that’s part of that ecosystem, you’re essentially investing in that blockchain. But there are many other ways to invest in blockchain today.

5 Ways to Invest in Blockchain

Here are some of the other ways to invest in blockchain. Because this is an evolving space, it’s important to carefully weigh the potential risks, as well as the likely costs, of some of these investments:

1. Purchasing Crypto ETFs, Trusts, and Other Investments

While investing in crypto can give you access to blockchain as an investment, Wall Street has found a few ways to make crypto more accessible to institutional investors through the use of crypto exchange-traded funds (ETFs), crypto trusts, crypto index funds, and other securities.

Bear in mind that investing in funds that invest in crypto can be a risky proposition — and one that removes the investor another step from investing in actual blockchain technology.

And although these crypto investments may sound similar to traditional investments that can be bought and sold by main street investors, these funds are typically available only to institutional or accredited investors and they are traded on over-the-counter (OTC) markets. OTC markets are known to be less liquid and more risky.

There are some products available to retail investors, such as ETFs that track companies that have exposure to blockchain technology. These may be a more direct route to investing in blockchain.

2. Initial Coin Offerings (ICOs)

When a new cryptocurrency gets created, oftentimes the developers hold an initial coin offering, or ICO, which allows people to purchase the tokens early in order to support the project and get a good price before the project launches.

ICOs, similar to initial public offerings of stock (IPOs), can be accompanied by a fair amount of public discussion about the merits of the new coin, and the technology it’s built on. For investors interested in finding the next blockchain investment for their portfolios, an ICO could provide an interesting opportunity.

3. Purchasing Cryptocurrencies

While this point was addressed above, it’s important to underscore that there are thousands of different types of cryptocurrencies that investors can buy and sell, each one with its own dedicated blockchain.

Unlike traditional fiat currencies, which are used as a means of exchange and a store of value, crypto often serves multiple functions on its dedicated blockchain. This is another reason to invest in crypto as a way to invest in various blockchains.

4. Investing in Blockchain-Based Businesses

When it comes to investing in blockchain technology stocks, there are a lot of options. The blockchain ecosystem is complex, involving developers, exchanges, miners, data, security, and more. There are also companies that aren’t directly making blockchain technology, but are using it for their existing business to streamline systems and increase efficiency. These include large corporations such as Walmart, Starbucks, IBM, Meta, and Amazon.

Buying shares in blockchain companies can be a great long-term strategy, since this industry is just getting started. Here are some of the subcategories of blockchain that one could invest in:

Decentralized Finance

Decentralized Finance (DeFi) shifts the control of financial transactions away from centralized financial institutions, such as banks. The goal of DeFi is increased transparency and efficiency, lower fees, and putting people in charge of their own money. Examples of DeFi include crypto wallets, peer-to-peer lending, and cryptocurrency exchanges.

DeFi wouldn’t be possible without blockchain technology. By investing in different aspects of the DeFi space, investors are essentially investing in the relevant blockchains and blockchain technology that supports these financial innovations.

Financial Technology

Related to the above: Financial Technology (Fintech) is a type of technology that improves upon financial services.

Blockchain technology plays a big role in fintech, as it is being used to revolutionize all aspects of legacy finance, from banking to lending and transacting.

Metaverse

The metaverse is essentially where the digital world intersects the material world. It includes technologies such as virtual reality, augmented reality, and online interactive virtual worlds. Users engage in immersive and interactive experiences for education, work, entertainment, and socializing.

Not everything in the metaverse uses blockchain technology, but many companies, such as game developers and social media platforms, are using cryptocurrency tokens within their virtual worlds, or recording data and transactions from those worlds on the blockchain. In other words, investing in the metaverse is essentially investing in blockchain technology.

Exchanges

Another way to invest in blockchain by investing directly in cryptocurrencies is to invest in stocks of cryptocurrency exchange companies, such as Coinbase (COIN). Exchanges allow people to buy, sell, and exchange different cryptocurrencies. Coinbase is a popular cryptocurrency exchange that is publicly traded on the Nasdaq.

Blockchain and Health Care

Blockchain is revolutionizing the health care system, and this transition is only just beginning. Blockchain can help with secure and efficient sharing of sensitive patient data, allowing health information to be used both within organizations and across the broader medical system. It can also help with healthcare contracts and negotiations, including healthcare insurance.

5. NFTs

Non-fungible tokens (NFTs) are cryptographic digital assets. Their data is stored on the blockchain, ensuring that they can’t be replicated or forged.

Pretty much anything can be tokenized, from real estate to music to art. Currently, most of the NFT market is focused on collectibles like sports cards and digital art. But there are other highly priced NFTs on the market, such as a tokenized version of the first-ever tweet.

Individuals can purchase NFTs and resell them for a profit if their value increases.

Investing in the Crypto Space With SoFi

Blockchain technology has become a tech sector that many investors may want to consider. For those wondering how to invest in blockchain, there are multiple opportunities, from trading crypto itself (which gives investors exposure to that crypto’s underlying blockchain), to investing in companies that are developing new uses for blockchain in many areas: health care, law, real estate, finance, international trade, and more.

Buying shares in blockchain companies can be a great long-term strategy, since this industry is just getting started. While you can’t invest directly in a blockchain (blockchain is the digital infrastructure organizations use to run various operations), you can invest in companies that use blockchain for decentralized finance, to run crypto exchanges, to create smart contracts, NFTs, and more.

If you’re looking for an easy way to invest in both blockchain stocks and individual cryptocurrencies, you can get started by opening an investment account on SoFi Invest. SoFi’s award-winning, easy-to-use online investing platform lets you research, track, buy and sell stocks, ETFs, crypto, and other assets, and you only need a few dollars to get started. You can also link your other banking accounts to easily see all your financial information in one simple dashboard.

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

FAQ

Can you invest directly in a blockchain?

No. Blockchain is a technology that is used for many purposes. There is no way to invest directly in a blockchain, but there are many ways to invest in companies developing and using blockchain technology.

How can you make money from blockchain?

You can potentially make money from blockchain by investing in stocks or ETFs focused on blockchain companies, purchasing individual cryptocurrencies, or initial coin offerings (ICOs).

What are some applications of blockchain technology?

Blockchain technology can be used for anything that requires a digital, append-only, immutable ledger of transactions or data storage. This includes money transactions, real estate transactions, voting records, supply chain tracking, and more.


Photo credit: iStock/Poike

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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Similarities and Differences Between Initial and Maintenance Margin

Similarities and Differences Between Initial and Maintenance Margin

Initial and maintenance margin are separate margin requirements investors must adhere to when trading on margin. The two requirements are similar in that they are both sums of money that the broker requires the investor to have in their account to open or maintain a position with a margin loan. The main difference between the two is that the initial margin is the amount of money required to open a position, while the maintenance margin is the amount needed to keep a position open.

Investors interested in trading on margin need to understand the similarities and differences between initial and maintenance margin. Moreover, knowing how to calculate maintenance margin may help investors from being subject to a margin call or other adverse outcomes.

Initial Margin

Initial margin is the minimum amount of cash or collateral an investor must deposit in a margin account in order to buy securities on margin.

Initial Margin Requirements

The initial margin requirement is expressed as a percentage of the total purchase price of a security. The Federal Reserve Board’s Regulation T requires a minimum initial margin of 50% for stock purchases, meaning investors must have cash or collateral to cover at least half of the market value of stocks they buy on margin. However, Regulation T only sets the minimum for margin accounts. Stock exchanges and brokerage firms can set their initial margin requirement higher than 50% based on a stock’s volatility, the state of the markets, or other considerations.

How Initial Margin Works

If you meet the initial margin requirement, your broker will provide you with a margin loan to cover the rest of the trade’s purchase price. For example, if the initial margin requirement is 50% and an investor wants to purchase $6,000 of a stock, then the investor will have to cover an initial margin of $3,000 with cash or other equity and borrow $3,000 from the broker to make the trade.

Investors use margin trading as a way to increase their buying power. In the example above, if the investor bought the same amount of stock in a cash account, then they would need $6,000 in cash to make the trade. But by using a margin, the investor doubles their buying power by using only $3,000 to buy $6,000 worth of stock.

However, using margin is risky and may lead to more significant losses than buying stock directly in a cash account. If the value of the trade declines, investors will still need to pay back the margin loan.

💡 Recommended: Cash Account vs Margin Account: Key Differences

Maintenance Margin

Maintenance margin is the minimum amount of equity an investor must have in their margin account to keep a position open after making a trade. The margin equity in the account is the value of securities minus the amount of the margin loan borrowed to make the trade. If the account’s equity falls below the maintenance margin, the broker may issue a margin call or close out the investor’s trade.

Maintenance Margin Requirements

Maintenance margin is usually expressed as a percentage of the position’s value. The Financial Industry Regulatory Authority (FINRA), which regulates maintenance requirements, says maintenance margin must be at least 25% of the total market value of the securities bought on margin. However, like initial margin, brokerage firms may have higher maintenance requirements, depending on various factors like market volatility and liquidity.

How Maintenance Margin Works

Suppose an investor purchased $6,000 worth of stock by paying $3,000 in cash and borrowing $3,000 from their broker, and the broker has a 25% maintenance margin requirement. If the market value of the stock drops from $6,000 to $5,000, the investor’s equity will now be $2,000 ($5,000 – $3,000 margin loan) and the maintenance margin will be $1,250 ($5,000 x 25%). In this case, the investor still has enough equity to cover the maintenance margin.

However, if the stock’s value drops to $3,500, the investor will no longer have enough equity to cover the maintenance margin requirement. The investor’s account has $500 in equity ($3,500 – $3,000), while the maintenance margin is $875 ($3,500 x 25%). The broker will likely issue a margin call, requiring the investor to deposit additional funds into the account or sell some assets to increase the equity in the account.

The broker may also sell some of the investor’s holdings without notifying them to bring the account back up to the maintenance margin level.

The purpose of the maintenance margin is to protect the broker in case the value of the securities in the account falls.

Initial Margin vs Maintenance Margin

Initial Margin vs Maintenance Margin
Initial Margin

Maintenance Margin

50% minimum initial margin requirement regulated by the Federal Reserve Board’s Regulation T 25% minimum maintenance margin requirement regulated by FINRA
Initial margin is deposited at the start of a trade Maintenance margin must be maintained throughout the life of a trade

Similarities

Initial margin and maintenance margin are similar in that they are both used as deposits to cover potential losses in a margin account. The two margin requirements are both calculated as a percentage of the value of the account’s assets.

Additionally, both initial margin and maintenance margin can be increased or decreased by an exchange or brokerage firm depending on a stock’s volatility, the financial situation of a client, and other factors.

Differences

The initial margin is the amount of cash or collateral an investor must deposit with a broker when buying or selling an asset on margin. In contrast, the maintenance margin is the minimum amount of equity an investor must maintain in their account to keep the account open and avoid a margin call.

Another difference between the two is that the initial margin is typically higher than the maintenance margin.

Calculating Initial and Maintenance Margin

Initial Margin Calculation

The formula for calculating initial margin is:

Initial margin = initial margin percentage x total purchase price of security

So, if a brokerage firm has an initial margin percentage of 65% and an investor wants to buy $10,000 worth of stock ABC, then the initial margin would equal $6,500:

$6,500 initial margin = 65% initial margin percentage x $10,000 total purchase price

In this scenario, the investor would need to have $6,500 in an account and borrow $3,500 with a margin loan.

Maintenance Margin Calculation

The formula to calculate maintenance margin is:

Maintenance margin = Total value of securities owned on margin x maintenance margin percentage

So, if a brokerage firm has a maintenance margin percentage of 30% and an investor holds $1,000 of stock XYZ (100 shares at $10 per share) in their margin account, then the maintenance margin would equal $300:

$300 = $1,000 x 30% maintenance margin percentage

In this scenario, the investor would need to have $300 in equity in their margin account to avoid being subject to a margin call.

Investing Tips From SoFi

Understanding the nuances of initial and maintenance margin is essential before investors start trading on margin. Utilizing margin can help investors increase their buying power, but it comes with more risk, like the chance for margin calls.

But if you think you have the risk tolerance to try out trading on margin, SoFi can help. With SoFi margin investing, you can increase your buying power, take advantage of more investment opportunities, and potentially increase your returns.

Get one of the most competitive margin loan rates with SoFi, 5.25%*

FAQ

Why is initial margin higher than maintenance margin?

The initial margin is higher because the Federal Reserve Board’s Regulation T sets a 50% minimum initial margin requirement, while FINRA sets a lower 25% minimum maintenance margin requirement.

How do you calculate maintenance margin?

Maintenance margin is the minimum equity an investor must have in the margin account after making a trade. Maintenance margin is expressed as a percentage of an investor’s total trade. Investors can calculate maintenance margin by multiplying the maintenance margin percentage by the total value of the margin account.


Photo credit: iStock/PeopleImages

*Borrow at 5.25%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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.
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Binary Options Trading vs Gambling: How to Tell Them Apart

Options Trading vs Gambling: How to Tell Them Apart

Gambling is typically defined as risking something of value on an uncertain event. While common forms of gambling include the lottery, blackjack, or sports betting, the line between gambling and investing can be blurrier than you might think. Like some forms of gambling, binary options and other forms of options involve risking money for a possible reward.

However, there are some important differences between options trading and gambling, and it’s important to know what they are. That can help you decide whether your options trading behavior is investing or gambling.

What Is Options Trading?

Options trading is the trading of contracts that give a purchaser the right — but not always the obligation — to buy or sell a security, like a stock or exchange-traded fund (ETF), at a fixed price within a specific period of time. Since options contracts fluctuate in value, many traders can buy or sell the contracts before expiration for a profit or loss, just like they would trade a stock or bond.

Options are financial derivatives, meaning an option contract’s value is derived from the value of an underlying asset.

There are two main types of options: call and put options. A call option gives the holder the right — but not always the obligation — to buy an underlying asset. A put option gives the holder the right — but not always the obligation — to sell an underlying asset. In general, if you think the underlying asset price will go up, you would buy a call option. But if you believe the underlying asset price will go down, you would buy a put option.

You can buy and sell both call and put options, so no matter how you think the stock might perform, you can find an option strategy that suits you.

There are many strategies for trading options, depending on your outlook on the underlying asset. Options can be a way to hedge risk or increase leverage for a given investment.

💡 Recommended: Options Trading 101: An Introduction to Stock Options

Weekly Options

Most options contracts expire monthly, on the 3rd Friday of each month. However, many underlying securities also have options that expire weekly. These options are referred to as weekly options. Weekly options often have lower liquidity and higher volatility, since there is less time to smooth out the ups and downs of stock movement.

Is Options Trading Gambling?

There are many risks in playing the market, so investors should be cautious with their investments and have a risk mitigation plan in place before making any type of stock or option trade. While trading options is not generally considered gambling in and of itself, there are some risks associated with trading options like there are with gambling.

Are Weekly Options Gambling?

Weekly options — along with day trading — are another form of investing in the stock market that shares some characteristics with gambling. If you find yourself rapidly making trades in weekly options without a system in place, trading from social pressure, or because of excitement, you may be gambling rather than investing.

Mitigating Risk When Trading Options

Risk management is one of the most important parts of a solid investment strategy. If you are trading options, it’s crucial to have a plan for handling risk. One way that you can protect your capital and manage risk when trading options is through the use of protective collars. Protective collars can reduce your risk from larger-than-expected moves but also can reduce your overall gains.

How to Tell if You Are Investing or Gambling

There are no hard-and-fast rules to determine the difference between investing and gambling, but here are a few questions you can ask yourself to help tell the difference.

Trading Due to Social Pressure

If you find yourself trading options due to social pressure, that can signify that your activities are closer to gambling than investing. It can be common — especially in a bull market — for people to talk about investing with friends and co-workers. If you find that you are trading just because all of your friends are doing it, but you’re not in a financial position to bear the risk of trading, that may be a sign that you should reconsider trading stocks or options.

Trading Without a System

A good indicator that you are investing rather than gambling is that you have a system for how and when you trade. An investment system can include things like how to identify stocks to buy, technical and fundamental indicators, or a risk mitigation plan for what to do when a trade moves against you. If you are trading based on hunches and chance, that may indicate that you’re gambling and not investing.

Trading Because It Can Be Exciting

There’s no denying that excitement comes with making money, but if that excitement is the primary reason you’re trading, that is more akin to gambling than actual investing. It can be hard to separate emotions from rational thinking when making stock and option trades, which is another reason to have a trading strategy in place.

Investing With SoFi

There are no hard-and-fast rules that determine whether any particular trading behavior is investing or gambling. Instead, you might think about the reasons why you are investing. If you are trading options for the excitement, to fit in with others, or without a system, that may be a sign that your activity is closer to gambling than actual investing.

While you can’t currently trade options on the SoFi Invest® Active Investing platform, you can still start to build a portfolio to meet your financial goals based on whatever investment strategy is right for you. With a SoFi online brokerage account, you can trade stocks, ETFs, and fractional shares with no commissions for as little as $5.

Start investing with SoFi Invest today.

FAQ

What are the reasons to consider trading options?

For experienced investors, there are a lot of reasons to trade options. One reason can be to hedge an existing investment. Another possible reason is to get additional leverage; you can make (or lose) more money with a smaller investment using options.

What are the reasons to not trade options?

Options trading does carry some risk for investors, which can be one reason not to trade options. Options are also typically more volatile than their underlying stock, and some options strategies run the risk of losing your entire investment or even putting you in a position where you owe more than you have available. If you are just starting your investment journey, it might be a better idea to get practice by making less risky investments to gain experience.

Can you lose money from options trading?

Like nearly all investments, options trading carries the risk of losing money. Some options trading strategies run the risk of losing 100% of your investment. If you buy a call option and the stock closes at expiration below your strike price, your option will expire worthless. If you sell call options, you can even be in a position of losing a potentially unlimited amount.


Photo credit: iStock/fizkes

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.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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ICO Investing: How to Purchase Initial Coin Offerings

ICO Investing: How to Purchase Initial Coin Offerings

Initial coin offerings, or ICOs, are like IPOs but in the crypto space. When new cryptocurrencies make their debut on the public markets, they go through the ICO process — which is more intricate and involved than many people may believe. Given that it can pay off big to “get in early” on investments, ICOs understandably capture the attention of many crypto traders and investors.

Read on to learn more about initial coin offerings, how to invest in ICOs, where to find ICO listings, and what you should take into consideration before betting on a new crypto.

What Is an Initial Coin Offering (ICO)?

As mentioned, ICOs are similar to IPOs (initial public offerings) which mark the first time that the public can purchase a stock on an exchange. The big difference is that ICOs concern the public sale of cryptocurrencies, while IPOs concern stocks.

And just as some investors take part in IPO investing, they can likewise participate in ICO investing. That basically means buying a stock, or a cryptocurrency, as soon as it hits the market, with the hope that it increases in value.

How an Initial Coin Offering (ICO) Works

Companies go public in an effort to raise money. They’re essentially selling pieces of their ownership for cash. The same logic applies to ICOs, which are crowdfunded efforts to fund a new cryptocurrency.

As such, ICO stands for “initial coin offering,” and allows crypto investors to get in on the ground floor of a cryptocurrency startup. These investors are among the first wave piling into new crypto, and as such, stand to potentially benefit the most if (and it’s a big “if”) the crypto in question appreciates in value.

As for how an ICO actually works? It’s different from an IPO, which has a very standard process involving multiple parties and regulators. Bringing a new crypto to the market is more of a do-it-yourself process. In short, the person or team behind a new crypto outlines their plans in a white paper, explaining what the crypto is and how it’ll work.

After that, the crypto creators focus on a marketing push to get people to invest and buy into the currency. Those who opt to participate and become investors will exchange money for the new project’s coin or token.

Cryptocurrency creators collect money from some investors by making the coin available pre-ICO for sale. During this period, they typically issue coins at a discounted value, often in order to get capital to continue building out the currency.

This is, of course, a basic overview — the process can get much more granular. But this should give you an idea of how ICOs work.

Types of ICOs

Initial coin offerings can use a variety of structures to achieve their end goal: Additional financing for a crypto project. Here are a few of the main types of ICOs:

Static Supply and Static Price

An ICO involving a static supply and static price has a specific funding goal. That means that each token being sold has a preset value, and that there is a fixed supply of tokens. The tokens are then sold at the predetermined price until the supply is exhausted.

Static Supply and Dynamic Price

An ICO utilizing a static supply and dynamic pricing model does not have a specific funding goal. There is a predetermined number of tokens, however, but the value or price of those tokens can change, and consequently, the total amount of funding raised at the end of the process.

Dynamic Supply and Static Price

An ICO with dynamic supply and static pricing is one in which tokens have a predetermined value or price, but the supply is not static. Again, this would mean that there is no set funding goal, and the total raised would depend on the number of tokens sold.

3 Types of ICOs

Static Supply & Price Static Supply/Dynamic Price Dynamic Supply/Static Price
Preset token value No preset token value Preset token value
Fixed token supply Fixed token supply Undetermined token supply
Predetermined funding goal Funding goal undetermined Funding goal undetermined

How to Value ICOs

IPO valuations typically reflect careful research into the underlying company’s books and performance. But the process of valuing ICOs is different, since there is no underlying company with financial records (or history) to comb through.

As such, hype and investor sentiment represents a big underpinning of ICO valuations. Crypto assets, in general, derive their value either from functioning as cryptocurrencies, or as security or utility tokens for specific networks and systems. That makes it difficult to determine a monetary value out of the gate.

Investors typically determine the value of an ICO value based on potential uses the coin may have in the future, which could lead to price appreciation. The more hyped investors get, the higher potential values can soar, but the reverse is true as well.

Negative investor sentiment can lead to negative first-day returns for an ICO, which can impact the performance of the currency for at least six months.

That makes ICOs a notoriously risky investment. Hype men and con artists can easily take advantage of investors with little knowledge of the crypto space, and government regulators have only recently started outlining potential regulations for the industry.

Factors to Consider Before Investing in ICOs

It bears repeating: ICOs are incredibly risky — they are the opposite of safe investments. Because of that, there are some key considerations to make before putting your money on the line.

First and foremost is that investors will have little, if any protection if an ICO goes awry. As the crypto space is still largely unregulated and investors aren’t afforded many of the same protections that those in the stock market may see, there’s a real chance you could lose your money.

Finally, know that you may not receive your tokens, even if you paid for them. There are no guarantees in crypto, at least not yet, so if you’re particularly risk-averse, then ICO investing may not be for you.

Up to $100 in bitcoin2 – just for you.

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How to Buy ICO Tokens in Five Steps

Wondering how to buy ICO tokens? Follow these five steps:

Step 1: Do Your Research on the ICOs

As a crypto investor, you should always be doing some homework and research on a specific token before putting your money on the line. As mentioned, this can be tricky in crypto, since there’s limited historical data and information related to many projects out there, but you should do the best you can.

In crypto, your research usually begins with the project’s white paper; you’ll want to learn everything you can about the development team behind it, and whether it has attracted much interest from other investors. If the white paper does not have details about token’s code or security features that’s a potential red flag that may require more due diligence.

Step 2: Register for the ICO

Once you’ve found an upcoming ICO that appeals to you, sign up to take part in it. This may require some legwork, but you can track down a pre-ICO list and ICO listings on numerous crypto-focused websites.

Be aware, though, that each ICO typically has different registration procedures. So, if you’re interested, poke around to learn the appropriate procedure, and follow it as needed.

Step 3: Set Aside Funds for Payment

Next, you’ll need to prepare to actually invest when you’re ready to put some money up. This means having money set aside in order to facilitate the investment.

You’ll need to have either fiat currency, such as dollars, or some other crypto ready to make an exchange, as needed (typically, either Bitcoin or Ethereum, the two biggest cryptos). You’ll also need to have money and or crypto standing by in a digital wallet so that you can make the trade.

💡 Recommended: How to Send Bitcoin to Another Wallet

And finally, be sure that you’ve joined the appropriate or correct crypto exchange for the ICO. Some exchanges only allow investors to trade certain cryptos. You’ll want to be sure the ICO you’re targeting is listed on the exchange you’re working on.

It’s also a good idea to do a little research on any platform that you plan on joining. There are factors that make a good crypto exchange, and not all are created equal.

Step 4: Make the Exchange

This part is pretty simple: Execute the trade! The specifics here will depend on the individual ICO, exchange, and procedures.

Step 5: Receive and Store Your ICO Purchase

Ideally, after the execution of the trade, your new coins will go right into your crypto wallet (whichever of the many types you choose) for safekeeping. From there, ICO investors are largely at the mercy of the market to dictate what happens with your new investment.

It may be worth it to closely watch the ICO and other news around the new crypto, so that you can make wise decisions about when or if you should sell. One upside to ICOs compared with IPOs is that there’s no IPO lock-up period preventing sales.

How to Buy Tokens After an ICO

After a crypto token completes an ICO, it’s now available for purchase on the open market. So, if you want to buy tokens that recently made their market debut, all you need to do is buy them on an exchange or through a brokerage. The key, though, is making sure you’re using an exchange that trades the token you’re looking for.

Similar to how stocks trade on the open market following an IPO, tokens are on the secondary markets following an ICO. It’s just a matter of investors making sure they’re on the right exchange to trade them.

The Takeaway

ICOs involving bringing new crypto tokens to the market, just like an IPO brings new stocks to the market. The ICO process varies from project to project, but ICOs give investors a chance to get in early on a new or emerging crypto asset. But investors should keep in mind that ICOs are risky, and do their homework before putting their money into this type of investment.

If you’re ready to start building your crypto portfolio with ICOs or existing cryptocurrencies, a great way to start is by opening an account on the SoFi Invest® brokerage platform. You can use the app to buy cryptocurrency as well as other types of investments such as stocks, exchange-traded funds, and even IPOs.

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

FAQ

Who can participate in an ICO?

For most projects, anyone can participate in an ICO granted they’re registered, and have a crypto wallet and cryptocurrencies to trade with. Depending on the specific ICO, prospective investors may need to join a certain exchange to facilitate the transaction, too.

What’s the difference between an ICO and an IPO?

The main difference between an ICO and an IPO is the asset that’s being debuted. ICOs involve crypto tokens or cryptocurrencies, whereas IPOs involve stocks, or shares of companies going public.

Who can launch an ICO?

Anyone can launch an ICO, granted they know what they’re doing. Because the ICO and crypto markets are lightly regulated in the U.S., anyone with a crypto project can bring a new crypto to the market.

Is an ICO legal?

Yes, ICOs are legal. But there are some considerations to make before engaging in one. Regulators in the U.S. may consider an ICO a securities offering, and as such, could enforce securities law on those engaging in an ICO. As always, it’s best to consult with a professional about the details.

What is an ICO used for?

An ICO’s primary purpose is to generate funding for a crypto project. The project sells tokens which generates money, which can then be reinvested in the project.


Photo credit: iStock/ismagilov

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
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$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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.
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What Are Bitcoin Mining Pools?

Bitcoin mining pools provide a way for multiple parties to “pool” their efforts when mining Bitcoin. Over time, mining Bitcoin has become increasingly difficult and resource-intensive. As such, pooling resources can make it easier and cheaper to become a Bitcoin miner.

In a Bitcoin mining pool, many network participants combine their computing power into one collective effort. The block rewards are then split among the pool members in proportion to the amount of computing power they contributed.

How Does a Mining Pool Work?

The mining process for a proof-of-work cryptocurrency like Bitcoin involves numerous miners attempting to find and solve a block on a blockchain network. The first miner to find a block receives the rewards for that block in the form of newly minted Bitcoin. Currently, the block reward is 6.25 BTC. It also takes around 10 minutes to mine one Bitcoin as a part of a pool.

💡 Recommended: Proof-of-Work: How It Works

As more and more miners join the network, however, mining difficulty rises. This is thanks to one of the ingenious aspects of the Bitcoin protocol, known as the difficulty adjustment.

Approximately every two weeks, mining difficulty will rise or fall according to how much hashing power is currently on the network. If the hash rate is higher, difficulty will rise, and the lower the hash rate, difficulty will fall.

In general, a high hash rate is good because it helps keep a crypto network secure. But with today’s hash rate hovering near record highs (and tending to rise higher over time), finding a block as an individual miner has become difficult for all but the largest of miners with the most powerful equipment.

That’s where Bitcoin mining pools come in.

A crypto mining pool gathers together connections from miners, potentially around the world, that could be all over the world and pools their hash rate together. This way, they are all mining at a higher level, giving them better odds of solving a block.

After a block has been solved, the rewards are split up among mining pool participants according to how much computing power each contributed.

This calculation is made using a set “Share Difficulty” for each miner and a “Share Time” for the pool. Basically, pools establish a time when hashes will be submitted by all participants, while also assigning a difficulty to each individual miner (more powerful miners have a higher difficulty).

All miners will automatically send a “share” of their hashes at set intervals, e.g., every five seconds, with miners who contribute more receiving a larger number of shares each time according to their higher difficulty rate. Pool participants are then paid out with block rewards proportional to their shares.

Is a Bitcoin Mining Pool Worth it?

For the average person looking into mining Bitcoin, a miner pool may be the only feasible option if you hope to earn a return. But when it comes to asking “is a Bitcoin mining pool worth it,” it all depends on how the term “worth it” is defined.

For those who believe in Bitcoin technology and simply want to help the network thrive by processing more transactions, mining might be worth engaging in, even if it’s not profitable.

For those who are looking to make a profit, however, the answer is more complicated.

Mining is a complex and difficult process for all but the most technical of crypto users. While there are services that help make the process easier for the average person to get into, there are still many nuanced factors that contribute to whether or not mining will be a profitable endeavor.

Those factors can include, but are not limited to:

•   Cost of equipment

•   Cost of electricity

•   The amount of time it will take to recoup equipment costs

•   How difficulty adjustments might impact profitability

•   How BTC price fluctuations might impact profitability

•   When it will become necessary to upgrade to new computers or machines

These considerations have to be calculated and recalculated if a miner wants to stay profitable. There are a lot of unknowns, particularly concerning the fluctuation of Bitcoin prices and difficulty adjustment, which are constantly changing.

When Bitcoin was first created, the calculations involved in mining were so simple they could be accomplished by the average laptop computer.

But over time, the calculations became more complex, eventually requiring high-powered graphics-processing units (GPUs). Today, the majority of mining is mostly done with advanced Application Specific Integrated Circuit (ASIC) machines. These are computers created for the express purpose of mining Bitcoin.

The hardware required is constantly evolving. Every so often, existing machines become obsolete due to difficulty adjustments. An ASIC that was powerful enough to be profitable six months ago might not be able to produce enough coins to match the cost of electricity needed to run that same ASIC today. When this happens, miners must acquire new, more advanced hardware.

Finally, it should be noted that mining is perhaps the most difficult way to acquire Bitcoin or any other mineable cryptocurrency. The easiest way is to simply buy cryptocurrency on a crypto exchange.

💡 Recommended: How Does a Crypto Exchange Work?

Functions of a Bitcoin Mining Pool

The primary function of a Bitcoin mining pool, or any cryptocurrency mining pool, really, is to make mining more accessible to prospective miners no matter what resources they have at their disposal.

Secondarily, mining pools can serve as a sort of introduction to mining for beginners who don’t have the know-how to try and get started on their own. In effect, pools may help you learn the ropes of mining without making too much of an investment in equipment and resources.

What Is the Best Bitcoin Mining Pool?

There are dozens of Bitcoin mining pools out there, and for the most part, there’s not a whole lot of difference between them. Besides the small fee they may charge participants, pools only differ based on whether or not they are open to the public and what proportion of the network’s total blocks they mine on average.

Some of the world’s largest Bitcoin mining pools are located in China and include names like F2Pool and Antpool. Together, those two pools mine 36.5% of all Bitcoin, as of 2022. The biggest pool is Foundry USA, which mines almost 25%.

How to Join a Bitcoin Mining Pool

Bitcoin pools allow users to get started mining with any amount of mining power. The process of joining a Bitcoin mining pool involves programming mining software to direct its efforts to a particular pool, which can be done in a few simple steps:

1.    Choose which pool you want to join.

2.    Add the stratum addresses of the selected mining pool to your mining software client.

3.    Connect the wallet you wish to deposit mined coins into.

4.    Configure your mining client for your chosen mining pool.

Finally, the information needed to complete this process will be provided by the pool itself.

What to Consider When Choosing a Cryptocurrency Mining Pool

Joining a Bitcoin mining pool will have its pros and cons, so there are some considerations to make before diving in.

First, there are some clear positives to joining a mining pool. The most obvious, as discussed, is that they are beginner-friendly ways to get into mining, and you don’t need a lot of expensive equipment to get started. And since you’re pooling your resources, there’s probably a better chance that you’ll end up seeing rewards in some shape or form, which may be much more difficult to do if you’re flying solo.

On the other hand, a key consideration is that you likely won’t make much, if any, money. Any coins you do mine will get divided up, and you could be disappointed with what you take home. There may also be fees to join a pool, so you’ll want to do some research on any pool you’re thinking of joining.

Finally, don’t forget that mining isn’t free. You’re using resources, like electricity, to contribute your computational power to the pool. Even if you don’t take home any coins, you may still be burning money.

Mining Pools Beyond Bitcoin

There are numerous types of mining pools out there, not just for Bitcoin. For example, there are pools for mining Ethereum; but note that Ethereum has recently moved to a proof-of-stake model, so you can no longer mine it.

If you’re interested in joining a mining pool, an internet search will yield some results. But know that many cryptos are moving away from mining-based protocols due to their resource demands. So, it may be more difficult to find a pool today than it was a couple of years ago.

The Takeaway

A cryptocurrency mining pool provides a way for multiple smaller miners, or even beginners, to pool their resources and combine their hashing power. Mining at this higher collective hash rate benefits everyone in the miner pool as it increases the odds of earning rewards, and allows miners to leverage whatever level of computing power they have at their disposal.

Those interested in learning about the mining process first-hand could consider experimenting with smaller mining machines and joining a mining pool. But for the average person looking to acquire Bitcoin, buying cryptocurrency from an exchange might be a lot simpler.

SoFi Invest® lets you trade popular cryptocurrencies, including Bitcoin, Ethereum, Dogecoin, Cardano, and Litecoin, starting with as little as $10.

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

FAQ

Can I mine Bitcoin without joining a pool?

You can mine Bitcoin without joining a pool, but most individual miners likely lack the equipment and computing power to effectively turn a profit through mining. As such, many people may benefit from joining a pool to increase their chances of actually realizing a return.

Can anyone join a mining pool?

Yes, anyone can join a mining pool, as they’re designed to be open to miners with all sorts of “rigs,” or no matter where they’re physically located in the world.

How do mining pools share rewards?

In simple terms, a pool that is rewarded for its mining activity divides up the reward (or coin) into shares, and doles it out based on how much work each member contributed to the pool. The more work your computer puts into the mining pool, the bigger your share, in other words.


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.
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.
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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