What Is Volume in Cryptocurrency? A Guide

What Is Volume in Cryptocurrency?

Trading volume is a metric that investors use to see how often an asset is trading hands, indicating how popular it is to buy or sell that asset at any given time. Investors examine trading volume for a variety of securities, including stocks, bonds, and international currencies.

In cryptocurrency, in particular, trading volume is an important factor that traders use to determine the potential trajectory of a coin.

Recommended: Crypto 101: Crypto for Beginners

Crypto Trading Volume Meaning

Crypto trading volume measures how many times a coin changes hands over a given time frame. Investors analyze crypto volume baked on either trades taking place on a given crypto exchange or on all exchanges combined.

The most common timeframe for measuring volume is 24 hours, and the most common format used to show this metric is a bar chart. Typically when high volume cryptocurrency trading can mean an increase in prices and low volume cryptocurrency could indicate prices falling.

Calculating Cryptocurrency Volume

Calculating crypto trading volume requires determining the total value of a type of cryptocurrency that has changed hands in a given period. For example, if the total amount of bitcoin (BTC) traded on Binance in the last 24 hours added up to $10 billion, then the 24-hour trading volume of BTC on Binance was $10 billion.

Why Is Volume Important in Cryptocurrency?

Tracking cryptocurrency is particularly important when trading coins with low crypto liquidity on smaller exchanges, the importance of volume becomes apparent. Say a trader wants to sell one million SHIB coins, for example. But the hypothetical exchange she is using doesn’t have a lot of SHIB volume. To sell 1 M SHIB could require going through dozens of buy orders, each one being at a slightly lower price than the one before it.

This results in the trader receiving a lower price for her coins than she might have if the exchange had higher volumes (a phenomenon referred to as “slippage”). In extreme cases, there might not be any buy orders at all, and a trader would have to make new sell orders, hoping they get filled at some point.

Likewise, if someone wants to buy a coin with low volume, they could end up spending more money than they would have if trading volumes were higher. Having to buy up existing sell orders bids prices higher.

Higher volume tends to translate to higher price stability and less volatility. Of course, times of extreme fear or greed might bring surges in volume and large price movements. But, in general, coins or assets that consistently have higher volume tend to have less volatility.

What Does Cryptocurrency Volume Indicate?

Crypto trading volume indicates interest in a cryptocurrency. The more people are buying and selling something, the higher the volume, which can drive even more interest in that cryptocurrency.

Surges in trading volumes suggest either strongly bullish or strongly bearish sentiment. Meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB) have enjoyed plenty of volume during their big market run-ups. Over time, interest in such coins tends to wane, and volume tapers off along with the price.

A high-volume cryptocurrency can become a low-volume cryptocurrency and vice versa.

Low trading volume means investors aren’t very interested in buying or selling a particular asset. There could be any number of reasons for this. When prices and trading volumes diverge, this can mean that prices aren’t telling the whole story.

Can Volume Be Faked in Crypto?

Yes, it’s possible to exchange volumes through a practice known as “wash trading.” This practice involves placing buy and sell orders at nearly the same time. The orders can cancel each other out and not result in any material movement of markets. This gives the appearance of an active market but is really just noise.

According to crypto research firm Messari , “it is well known that many exchanges conduct wash trading practices in order to inflate trading volume.”

The exchanges may believe that higher volume will entice traders into using their platform, and the more traders that use their platform the more money they make.

Wash trading can take place in several different ways, including:

•   A trader colluding with an exchange

•   A trader colluding with another trader

•   The use of high-frequency trading algorithms

In cryptocurrency markets, high-frequency trading (HFT) algorithms may account for much of the fake volume. These are basically computer bots that can make large numbers of trades very fast.

Concerns about fake volume on exchanges may be one reason that some traders prefer decentralized exchanges, on which it’s harder to fake volume.

Crypto by Volume

Coinmarketcap is a commonly cited source for crypto prices and trading volumes. But the site makes no distinction between exchanges that may have high amounts of wash trading and those that do not. Messari provides “real” volume data, gleaned from exchanges that they believe with a high degree of confidence do not engage in wash trading.

This distinction is important to make because when looking at volumes for different coins or exchanges, the results can be very different depending on the source.

On December 9, the top 5 crypto assets by 24hr trading volume according to Coinmarketcap were:

1.    Tether (USDT)

2.    Bitcoin (BTC)

3.    Ethereum (ETH)

4.    Binance USD (BUSD)

5.    XRP (XRP)

However, according to Messari, the top crypto assets by 24hr “real” trading volume were:

•   Bitcoin (BTC)

•   Ethereum (ETH)

•   USD Coin (USDC)

•   Tether (USDT)

These rankings show that the popular stablecoins USDC and USDT are among the top 5 coins by volume with or without alleged fake trading transactions.

Binance’s exchange token, BUSD, is fourth when including wash trades, but didn’t make the top five for real volume.

Bitcoin (BTC), the oldest and largest cryptocurrency, had volume of more than twice the next-highest volume coin.

Is Volume a Necessary Metric for Valuing Coins?

Many crypto traders see volume as the most important metric for valuing a cryptocurrency.

In 2018, nearly 40% of 39% of respondents to a Coindesk survey chose volume as the indicator they couldn’t live without. The main reason they gave was that other technical indicators rely on an individual’s ability to interpret charts, while volume is more objective.

When price and volume fall together, traders may believe that the market is exhausted and will reverse course soon. On the other hand, when price rises and volume falls, investors often see that as a bearish sign that means prices will pull back soon.

The Coindesk survey quoted one trader as saying that trading volume “speaks to the sincerity of price action.” In other words, the movement of prices alone can be deceiving. When factoring in volume, it can be easier to get a more comprehensive view of how the market is behaving.

The Takeaway

Cryptocurrency volume trading is a measure of how many cryptocurrency transactions are taking place. Much of what’s been covered here also applies to volume in stocks, although there are more regulations around wash trading in equities.

Photo credit: iStock/hsyncoban


SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

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Blockchain Application: 9 Ways to Use It That You’ve Never Thought About

Blockchain technology involves the use of a decentralized, distributed ledger of transactions on a peer-to-peer network. One of the main reasons this discovery has been so revolutionary is that for the first time, people can do things in the digital world without needing a third-party intermediary.

Bitcoin, for example, allows people to send value to one another independent of any bank or payment app needing to process the transaction. In similar ways, many different blockchain applications have been popping up in recent years, attempting to create new-and-improved versions of many useful services.

The Impact of Blockchain Applications

The potential applications of blockchain are almost endless. For the first time, decentralized, peer-to-peer networks can be created using transparent, immutable ledgers of transactions. People can perform actions on a network without needing permission, in ways that everyone can see and agree upon, and those actions can be solidified securely on the blockchain.

Anything that can be improved by eliminating reliance on a third-party intermediary probably has one or more blockchain use cases available. Creating decentralized networks and databases opens up a world of possibilities that few could have imagined prior to the invention of Bitcoin back in 2009.

Recommended: Web 3.0 Guide for Beginners

Common Blockchain Use Cases

Today there are countless applications of blockchain, and many more that have yet to be discovered. Here is an overview of nine of the biggest and most eye-catching blockchain applications being explored in 2022.

Smart Contracts

Smart contracts are part of what makes many other blockchain use cases possible. Smart contracts constitute a programmatic agreement between two parties. The contracts exist on the blockchain and can’t be altered.

The resulting transactions are also processed by the blockchain, meaning they happen automatically without the need for a third party. The contracts only execute when the agreed-upon conditions are met.

The use of smart contracts has given rise to a wide variety of blockchain applications. Insurance companies, healthcare companies, governments and more are all looking at ways to use this tech to their advantage.

Decentralized Finance

One of the biggest crazes in crypto and blockchain applications in 2022 might be decentralized finance (DeFi).
The goal of DeFi is to give users control by using blockchain technology and open source coding to facilitate traditional financial services in ways that do not require a bank.

Peer-to-peer lending, for example, has been a big hit with the DeFi crowd. Instead of getting a loan from a bank, using DeFi, people can make loans to each other in the form of cryptocurrency and other digital assets. The terms of the loan will be enforced by programs written in smart contracts, holding both parties accountable.

Decentralized Virtual Private Networks (VPNs)

A virtual private network (VPN) creates some additional privacy and security for a user’s activity by passing all web traffic through an encrypted tunnel. The traffic is routed through the VPN’s servers before reaching its destination, masking the host IP address in the process.

One of the newest blockchain technology applications is the creation of a decentralized VPN, like the one created by the Orchid network.

With Orchid, users can purchase private bandwidth from other users who provide it, and pay with cryptocurrency. This way, there is no centralized service provider who could either snoop on user activity or be compromised in some fashion.

Decentralized Internet 3.0

Blockchains like Tron hope to create an entirely new internet based on the concept of decentralization. Programmers can develop decentralized applications on the Tron blockchain, with the hopes of enabling things like a content ecosystem where users are rewarded for their content.

The Brave browser is another crypto project that is helping to decentralize the internet. Instead of targeting users for advertising through tracking cookies, Brave lets users opt-in to which ads they’d like to see. And using the Basic Attention Token (BAT), Brave users can send BAT tokens directly to content creators they like.

Voting

This may be one of the most compelling and straight-forward blockchain use cases: Blockchain could make the possibility of voter fraud a thing of the past. People could cast their votes digitally in a way that could not be altered and could be seen and verified by everyone.

Healthcare

Medical record-keeping has already been moving toward the digital realm for many years. With blockchain, patient records could be stored even more securely in a way that would make them impossible to tamper with.
Some companies are even exploring the possibility of sharing healthcare data in a way that remains private yet can be verified by both parties as being true and accurate.

Supply Chain Management

Using blockchain, businesses could zero in on inefficiencies within their supply chains while also being able to know exactly where any item is at any given time. The immutable record kept by a blockchain could also allow businesses and consumers to verify information like how products were tested and where they came from.

Digital Identity

Companies like Microsoft are working on ways to create blockchain applications that would create digital IDs within an authenticator app, giving users full control of their digital identities. This could allow people in impoverished regions to gain access to the financial system, healthcare, various areas of industry, and so on. Like many blockchain use cases, Microsoft’s efforts to create a decentralized digital ID are still early and ongoing.

Equity and Currency Trading

Decentralized exchanges (DEXs) have been gaining large amounts of trading volume recently. These exchanges function autonomously, without a centralized party overseeing them, similar to how smart contracts work.

A DEX allows individuals to come together and trade assets like cryptocurrencies or equities. This trend could one day revolutionize the way people buy, sell, and trade assets of all kinds.

Future Blockchain Technology Applications

There’s no real way of telling what other blockchain applications will be developed in the future. The possibilities are numerous.

One potential future blockchain application is the creation of central bank digital currencies (CBDCs). The Federal Reserve, People’s Bank of China, and other central banks around the world have recently announced their plans to create their own digital currencies. The coins would likely be issued on centralized blockchains controlled by the central banks themselves, giving them greater control over monetary policy and the financial system at large.

The Takeaway

Blockchain technology applications like these are only the beginning. Many people are optimistic about the positive changes that blockchain uses can bring into the world. Still, many of the promising projects are still in the early stages of development, and widespread use of them in a meaningful way could still be years away.


Photo credit: iStock/Svitlana Hulko

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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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2022 Guide: How to Bitcoin Arbitrage

Bitcoin arbitrage is an investment strategy in which investors buy bitcoins on one exchange and then quickly sell them at another exchange for a profit. Because bitcoins trade at different prices on different exchanges, it’s an opportunity that many investors have seized in recent years.

Arbitrage is not unique to Bitcoin investing. It occurs across the capital markets, wherever the same asset trades for different prices in different places. To take advantage of those inefficiencies, investors will buy in one place and sell in another to exploit those price differences.

Bitcoin arbitrage differs from other forms of arbitrage in that it’s harder to place a value on Bitcoin. Because it’s completely digital and not based on an underlying asset, it doesn’t have the same pricing conventions as do equities and bonds, which are tied to the performance of a company, municipality or nation.

With there are more than 200 exchanges available to people investing in cryptocurrency, there are likely to be many different Bitcoin prices available at any given moment for people who want to try crypto arbitrage. But not all exchanges are created equal. Some have enormous trading volumes, while others aren’t as active. The trading volume on each affects the liquidity and the available prices on a given exchange.

How Profitable Is Bitcoin Arbitrage?

Bitcoin arbitrage has the potential to be an enormously profitable way to invest in Bitcoin. One well-known 2017 example saw Bitcoin selling on Kraken for $17,212, but on Bitstamp for a mere $16,979. At that moment, investors potentially stood to make $233 per Bitcoin by buying them on Bitstamp, and then quickly selling them on Kraken.

On a basic level, successful Bitcoin arbitrage depends on looking for gaps between the prices on one cryptocurrency exchange and another, and then executing a buy and a sell. But the number of Bitcoin arbitrage opportunities have shrunk in recent years, as more large institutions with sophisticated trading algorithms have gotten into the Bitcoin arbitrage business with services commonly known as btc arbitrage bots.

Where to Look for Arbitrage Opportunities

Unlike many other cryptocurrency digital assets, Bitcoin has become very widely traded. Starting in 2017, trading volume has taken off from an average of $5-$10 million per day to $100-$200 million per day, which means more overall liquidity, and fewer price inefficiencies for arbitrageurs to take advantage of. That’s why many Bitcoin traders use software applications that track the hundreds of Bitcoin exchanges in real time to find opportunities.

An alternate way to use Bitcoin in an arbitrage play is through something called “triangular arbitrage.” Here, an investor would start with Bitcoin and then trade it for another cryptocurrency that is undervalued as compared to Bitcoin, on that same exchange. The investor would then trade that second cryptocurrency for a third cryptocurrency that is relatively overvalued when compared with Bitcoin. Finally, the investor would trade that third cryptocurrency for Bitcoin, completing the circuit, with slightly more Bitcoin than they started with.


Source: (https://blog.shrimpy.io/blog/cryptocurrency-arbitrage-a-lucrative-trading-strategy)

Nowadays almost all Bitcoin exchanges have the software capabilities to create a useful arbitrage tool when placing trades. For instance, on Coinbase, Bitcoin may be priced at $18,600, while on Binance it could be priced at $18,570. Since cryptocurrencies can be priced differently on different exchanges, the opportunity to easily capture profit lies in the price difference between exchanges.

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Bitcoin Arbitrage Tips and Potential Pitfalls

Investors typically need to devote a lot of time and energy to researching and executing a complex trade—not to mention the money required to buy the bitcoin. Trading speed is also a factor as Bitcoin prices change within milliseconds. By the time many investors can execute the trades to take advantage of Bitcoin price differences, those differences may no longer be big enough to be profitable.

Another factor in calculating potential profit is transaction fees on buying and selling across trading platforms. These fees—which vary from exchange to exchange—can sometimes be higher than the profit generated in an arbitrage trade.

The exchanges themselves also pose a risk to investors. One reason that a given exchange may offer such an appealing buy or sell price is that the trading volume on it is very low. And low volume may mean that the exchange can’t execute a trade large enough to deliver the profit an investor is hoping for. Low volume may also mean that the trade is possible, but will take too long to seize the pricing opportunity.

Finally, there’s a risk of loss if an exchange goes under. In engaging in Bitcoin arbitrage, investors might decide to engage with more unfamiliar exchanges—but cryptocurrency exchanges collapse or vanish on a regular basis, as a result of government shutdown orders, or being hacked, or mismanagement, or criminality by their owners.

Is Bitcoin Arbitrage Legal?

Bitcoin arbitrage is legal, as is arbitrage in most other financial assets. Arbitrage plays an important role in creating efficient markets and setting clear prices for market participants.

That said, Bitcoin and other cryptocurrencies are largely unregulated. In the United States, where cryptocurrency adoption has skyrocketed in recent years, officials can’t seem to agree on how they classify cryptocurrencies. The IRS tax guide categorizes cryptocurrencies as property; the Securities and Exchange Commission has called cryptocurrencies a form of security; and the Commodity Futures Trading Commission has called them a form of commodity.

How Are Bitcoin Arbitrage Gains Taxed

Because Bitcoin and other cryptocurrencies are considered property by the IRS, transactions are treated in much the same way as any other property transaction. Investors are expected to report capital gains or losses on the sale of cryptocurrency, taking deductions when permitted and applicable.

The Takeaway

With Bitcoin trading on hundreds exchanges, the idea of taking advantage of pricing mismatches for the same asset can seem irresistible to some investors. But it requires careful research before jumping in.

An interested investor should be prepared to do lots of research on different exchanges, different bitcoins, and any fees associated with buying and selling. Additionally, it’s important to have enough money required to execute an arbitrage move and still yield the desired profits.



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

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

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.

For additional disclosures related to the SoFi Invest platforms described above, please visit https://www.sofi.com/legal/.
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, 2023. 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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$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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Crypto Lending: Everything You Need to Know

While cryptocurrency is new, crypto lending is quite similar to traditional lending. With a cryptocurrency loan, a borrower typically offers up their cryptocurrency as collateral to the lender, who gives them cash or a stablecoin cryptocurrency that’s tied to a traditional currency, and charges the borrower interest on the loan.

For most cryptocurrency loans, the lender isn’t a bank, but another individual investor. That means an individual can either be a cryptocurrency borrower or lender. There are a number of popular lending platforms where people can lend money to cryptocurrency investors, hold their cryptocurrency digital assets as collateral, and create an income stream from the interest payments of the borrowers.

Reasons to Get a Cryptocurrency Loan

The major advantages of crypto-backed loans are the speed and flexibility they offer. A borrower might be able to secure a loan in hours, and pay-back terms have a wide range—whether a borrower is looking to pay back the loan in a few days, for example, or 12 months.

But investors may want to secure a cryptocurrency loan for any number of reasons. They may need cash liquidity, without missing out on the potential for growth that is a draw to individuals investing in cryptocurrency.

Long-term crypto investors may be reluctant to liquidate their cryptocurrency digital assets. But at the same time, they may need money for short-term needs, like a business or medical emergency, or what they consider to be an irresistible investment opportunity — maybe even investing in bitcoin. That’s where a cryptocurrency loan can make sense for some investors.

Is Crypto Lending Safe?

The history of cryptocurrency is dotted with disastrous hacks. For that reason and more, security should be foremost in the mind of anyone handing over their cryptocurrency assets as collateral.

Whether borrowing or lending, it’s important to research the security of the lending platform’s custodian and its reputation in the financial markets. Also, it may be worth investigating if there’s an insurance policy against the possibility of the platform being hacked.

Risks to Borrowers

The volatility of cryptocurrencies means that the amount of the digital currency borrowers have to put up as collateral may be many times the amount of actual cash they receive in the loan. That, in effect, multiplies the amount they stand to lose if they should default on the loan.

Defaults can be costly: Many major crypto lending platforms allow lenders to keep roughly 80% of collateral if the borrower defaults.

Other risks borrowers should know about include the wild fluctuations in the value of the cryptocurrency used as collateral. If the value of the collateral goes down, some lenders can make a “margin call”, in which they ask for more collateral to get the total value back up to the original ratio of the loan. While a borrower will get that cryptocurrency back when they repay the loan, it can be a highly disruptive financial event, and can come with financial penalties if the borrower doesn’t have the cryptocurrency to meet it.

Where to Get a Cryptocurrency Loan

Getting a Bitcoin loan or any other cryptocurrency loan is a process that’s rapidly evolving. There are many online platforms that allow borrowers to take out loans against the cryptocurrency they own, with new competitors joining their ranks all the time. There are a few centralized platforms that offer the loans directly to cryptocurrency investors. But most crypto loan platforms are decentralized financial (DeFi) platforms—they work by connecting cryptocurrency-investing borrowers with cash lenders.

As investors start researching crypto loan platforms, they may come across a variety of platforms including Nexo and SALT Lending . The interest rates that crypto lending platforms charge can vary widely depending on a variety of factors, including the particular cryptocurrency being used as collateral. Rates might be much higher than the average mortgage rate, and can sometimes come close to the double-digit interest rates charged by credit cards. Borrowers typically also have to pay the peer-to-peer platform a commission, along with other fees.

While a borrower may seek out the lowest available rate, there are other reasons to choose a platform. For one thing, it’s important that the platform is reliable, with strong financial backing, so that it will still be viable when it comes time to get your collateral back.

How Crypto Lending Works

How to Get a Cryptocurrency Loan

Getting a cryptocurrency loan is fairly straightforward, once a borrower has identified a platform.

1. Create an account. A borrower will need to verify both the cryptocurrency collateral for the loan, as well as their own identity and reliability as a borrower. The platform will then assign a “trust score”, based on the degree to which the platform can verify both identity and financial history.
2. Select a loan type. Borrowers will likely have options depending on the collateral they want to put up and the interest rate they’re willing to pay. Often, if one agrees to a higher interest rate, they won’t have to put up as much cryptocurrency as collateral.
3. Start receiving loan offers. This stage happens quickly. Borrowers typically start to receive loan offers within a few hours after submitting their application form. Once a borrower accepts the terms of the loan, they get the money instantly.

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Is Crypto a Good Investment?

An investor who seeks a crypto loan likely believes that their crypto assets will grow in the future. But investing in cryptocurrency comes with risk, just like any other investment.

Plus, there are a unique set of things to know before investing in cryptocurrency. The incredible returns of some currencies have attracted both investors and criminals.

Buying cryptocurrency means sifting through a host of fraudulent schemes that promise dazzling returns. As an entirely digital asset, it’s prone to hacks, and some investors have had their digital currencies stolen.

Many investors don’t want to keep their assets on crypto exchanges, to protect against cyberattacks and theft. Those individuals turn to “cold storage” options to securely store their cryptocurrencies, like hardware or paper wallets, which bring the risk of losing those physical keys, and those cryptocurrency assets, forever.

Also, many cryptocurrencies flat-out fail. Being cutting-edge technologies, cryptocurrencies carry the risk that they won’t work in real-life scenarios. Competition among thousands of blockchain projects is intense, and regulators around the world have periodically cracked down on the crypto industry.

The Takeaway

Cryptocurrency is a new and complex area of the capital markets, with seemingly incredible opportunities. Crypto loans offer an opportunity for quick liquidity, providing one way to stay invested in these markets while freeing up capital for short-term needs.

That said, both cryptocurrency loans and cryptocurrency investing come with their own set of possible pitfalls for investors. Cryptocurrency is a high-risk/high-reward investment, and should be treated as such. Newer cryptocurrencies may offer higher risks and rewards than more established ones. But blockchain as a whole is growing in use, with institutional-level custody services and futures markets joining in the action.



SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

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

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

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Investing in Bitcoin ETFs

The first three bitcoin ETFs (exchange-traded funds) became available in the U.S. in October and November of 2021. All three are tied to bitcoin futures contracts; they aren’t tied to bitcoin’s daily market price.

Bitcoin spot ETFs have existed in Canada and Europe for years, and there are several applications for spot ETFs in the U.S., but the Securities and Exchange Commission (SEC), which regulates financial markets, has not yet approved them here.

Keep reading to learn more about the advantages of a bitcoin-based ETF, the controversy in bringing these new funds to market, and whether bitcoin futures ETFs might suit your investment strategy.

Why a Bitcoin ETF?

In order to understand the evolution of the first bitcoin ETFs, it’s important to grasp the significant changes crypto has brought to the field of finance.

Ever since the launch of Bitcoin in 2009 as the world’s first decentralized, digital currency, investors’ appetite for cryptocurrency has only grown. And no wonder: In just over a dozen years, the market has gone from a single coin to thousands of alt coins, tokens, and blockchain platforms that promise to revolutionize everything from our monetary systems to supply chains, art, and more. As of December 6, 2021, the total market capitalization of all cryptocurrencies was about $3 trillion, with no signs of slowing.

For some crypto speculators, the rewards have outweighed the potential downsides of this highly volatile market. But for many retail investors, putting their money into coins and exchanges that are largely unregulated has seemed fraught with risk.

Recommended: What Is Bitcoin and How Does It Work?

Buying bitcoin or any form of crypto has also presented challenges to by-the-book investors, who need to embrace new skills in order to execute even a basic crypto trade — from setting up a crypto wallet to understanding how to use and store public and private keys. As many readers know, investors who lose the private keys that give them access to their crypto assets essentially lose those assets. By some estimates, as much as 20% of bitcoin has been lost due to investors losing those all-important keys.

Thus, the idea of creating more traditional investments like bitcoin ETFs was appealing on many levels. A bitcoin ETF offered a way to give investors exposure to the world’s oldest and biggest cryptocurrency, while mitigating some of the potential risks and logistical challenges of buying and owning crypto. And bitcoin ETFs and mutual funds could be traded from standard brokerage accounts.

So why has it been so complicated to launch a bitcoin ETF?

Bitcoin ETFs: The History

Before an ETF can be listed on a U.S. exchange, it must be approved by the SEC. Thus far, however, the regulatory agency has taken a firm stand against bitcoin and other crypto-related funds because bitcoin, being unregulated itself and traded on exchanges that are largely unregulated as well, can be susceptible to fraud and manipulation.

Crypto entrepreneurs Cameron and Tyler Winklevoss, known for their Gemini digital currency exchange (among other things), were among the first to petition to launch a bitcoin ETF, but it was rejected owing to bitcoin’s potential vulnerabilities. In its 2017 denial of the petition, the SEC wrote: “Based on the record before it, the Commission believes that the significant markets for bitcoin are unregulated.”

Crypto as currency, security, or commodity?

The approval of crypto-related funds was further hampered by a debate over how cryptocurrencies should be categorized — a question that would determine how the market was regulated. Although most crypto are referred to as currencies, in fact cryptocurrencies aren’t widely used as legal tender to pay for goods or services (although that seems to be changing).

In a statement by SEC chair Gary Gensler in September 2021, he indicated that many types of crypto should be considered securities, raising concerns in the industry about the level of oversight that could follow, given that securities are regulated by the SEC.

Bitcoin and Ethereum, however, are among those considered to be commodities. Given that commodity markets are generally not as closely regulated as securities — which are subject to rules on price transparency, as well as higher standards for reporting, and market abuse oversight — some companies saw this as an opportunity.

The path to approval

Even though regulators in Canada and some countries in Europe have approved a range of bitcoin and crypto-related ETFs and mutual funds over the last few years, the SEC’s stance regarding U.S. markets only began to shift in 2021 when Chair Gary Gensler indicated an openness to ETFs tied to bitcoin futures contracts rather than the spot price of the crypto.

Because futures contracts are overseen by the Commodity Futures Trading Commission, and fall under the Investment Company Act of 1940, the SEC considered this structure to potentially offer investors more protection. The SEC approved the first bitcoin ETF in October 2021.

What Are the First 3 Bitcoin ETFs?

As of December 6, 2021, there were three bitcoin ETFs in the U.S.

On October 19, 2021, the ProShares Bitcoin Strategy ETF (BITO) became the first ETF to offer investors exposure to Bitcoin futures, with two more launched shortly after its debut. A few days after the ProShares’ ETF went public, the Valkyrie Bitcoin Strategy ETF (BTF) launched, followed by the VanEck Bitcoin
Strategy ETF
(XBTF) on Nov. 15, 2021.

These funds do not invest directly in “physical” bitcoin (i.e. actual bitcoin assets) but shorter-term, cash-settled contracts that are traded on the Chicago Mercantile Exchange or CME.

Recommended: Is Crypto a Commodity or a Security?

The bitcoin ETF debate continues

Despite initial excitement and a wave of investor interest in the funds, some financial institutions are challenging the SEC’s decision to limit bitcoin ETFs to derivatives, and increasing pressure on the agency to reconsider its ruling on bitcoin spot ETFs.

Lawyers for one of the applicants, Grayscale Bitcoin Trust, argued that the SEC has “no basis for the position that investing in the derivatives market for an asset is acceptable for investors while investing in the asset itself is not.”

They also asserted that the SEC is obligated to treat like situations alike, and to do otherwise is “arbitrary and capricious,” meaning that to be fair the SEC must consider similar investments in a similar light.

What Are Bitcoin Futures?

Bitcoin futures are similar to any futures contract for an underlying asset like a commodity or stock. This allows investors to speculate on the future price of bitcoin.

Investors can purchase monthly contracts for cash settlement (rather than actual bitcoin) on the CME. Thus it’s possible to trade bitcoin futures without needing a bitcoin wallet, and holding onto a volatile asset and then being subject to potential price fluctuations.

Uses of bitcoin futures

Trading bitcoin futures may offer a number of benefits. For bitcoin miners, futures can allow them to lock in prices that ensure a return on their mining investments, regardless of bitcoin’s price trajectory.

Bitcoin investors can also use futures to hedge against their positions in the spot market.

And because bitcoin futures contracts are regulated by the Commodity Futures Trading Commission (CFTC), large institutional investors may now consider these assets as a possibility for their portfolios. Prior to this, bitcoin has been largely unregulated, making it too risky an asset for most institutional investors.

What Other Bitcoin ETFs and Funds Exist?

Investors have channeled billions of dollars into a wide and growing variety of crypto ETFs and other funds that are thriving in Canada and Europe. While some of these funds are from smaller players, in Q4 of 2021 Fidelity became the largest asset manager to launch a bitcoin spot ETF on the Toronto exchange.

In addition to crypto-related instruments, it’s possible to invest in a number of other crypto- and blockchain-related companies, including crypto exchanges and mining technology companies.

The Takeaway

For investors curious about the cryptocurrency market but not yet ready to take the plunge, a bitcoin ETF may represent a convenient option. But as of December 2021, the SEC has rejected applications to create any securities tied to the daily spot price of bitcoin, limiting bitcoin-related investments to the derivatives market.

While investing in a bitcoin futures ETF is different than investing in a “physical” or spot bitcoin fund, it may offer some advantages. But it’s wise to understand how futures work before investing in these funds. To better understand how bitcoin and other cryptocurrency works, you can get started trading right away when you open a SoFi Invest® account, which also enables you to trade stocks, ETFs, and more.

Get started on SoFi Invest today.


SoFi Invest®

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.


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