InvestHL Archives | Page 40 of 67

Nov

2022

7 Bitcoin Scams to Avoid in 2023

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

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

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

Common Bitcoin Scams to Avoid

1. Fake Cryptocurrency Exchanges

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

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

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

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

2. ICO and Fake Cryptos

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

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

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

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

3. Social Engineering Scams

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

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

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

4. Ponzi Schemes

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

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

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

5. Pump-and-Dump Bitcoin Scams

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

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

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

6. Rug Pull Scams

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

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

7. Man-in-the-Middle Scams

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

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

How to Spot a Bitcoin Scam

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

Big Promises

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

Scammers Often Request Up-Front Crypto Payments

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

Appeals to Emotion

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

Ways to Protect Yourself from Bitcoin Scams

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

Stick to Known Exchanges

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

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

Do Your Homework

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

Tread Carefully

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

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

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

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

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

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The Takeaway

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

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.

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

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Nov

2022

ICO Investing: How to Purchase Initial Coin Offerings

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

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.

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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.

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

Nov

2022

What Is ERC20? A Guide to the Ethereum Token Standard

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

ERC20 refers to a standard for creating and deploying smart contracts on the Ethereum blockchain. ERC20 tokens are digitized tokens that live on that blockchain and adhere to those standards.

The Ethereum blockchain was built specifically for smart contracts, which are virtual agreements that can be programmed to execute automatically when certain conditions are met. This functionality provides for the ability to create many kinds of new decentralized applications, so many other platforms and their tokens are built on top of the Ethereum blockchain.

Quite a few of the most popular utility tokens and decentralized finance (DeFi) applications are built on Ethereum. But there are certain standards (ERC20) that developers must follow if they want their tokens to be accepted by the network.

In this crypto guide, we will answer the question, What is ERC20?, as well as how it relates to tokens issued on the Ethereum blockchain.

What Is ERC20?

ERC20 is a standard for the creation and deployment of smart contracts on the Ethereum blockchain. ERC20 tokens are a form of token that can be issued on Ethereum (and only Ethereum) that also represent a set of standards that cryptocurrencies can adhere to.

The primary purpose of ERC20 tokens is to work with smart contracts and define a common list of rules that all tokens on the Ethereum blockchain abide by.

While Ether (ETH) is the native cryptocurrency of the Ethereum network, the ERC20 token represents a specific standard — or set of rules — that developers can follow to make Ethereum-based tokens. They are, in the truest sense, the standard-bearer for the Ethereum network.

This token standard is only for fungible tokens, and not non-fungible tokens (NFTs). As such, one ERC20 token can be exchanged with another, as they’d have equal value.

ERC20 smart contracts use ERC20 tokens to facilitate transactions when its protocol calls for it. Any smart contract that utilizes transaction functionality will therefore pay the user in the form of an ERC20 token. Many popular stablecoins, like USDC and DAI, are ERC20 tokens.

Which Tokens Are ERC20?

ERC20 has enabled the creation of many new tokens. These are the 10 largest and most popular ERC20 tokens by market cap, as of September 2022:

• Binance USD (BUSD)

• Multi-Collateral Dai (DAI)

• SHIBA INU (SHIB)

• Wrapped Bitcoin (WBTC)

• UNUS SED LEO (LEO)

• Uniswap (UNI)

• ChainLink (LINK)

• Cronos (CRO)

• ApeCoin (APE)

The largest, by both trading volume and market cap, is Binance USD, a stablecoin pegged to the U.S. dollar. Stablecoins are popular among traders looking to lock in profits quickly without converting to fiat currency, as well as those seeking to earn a yield on their crypto. They aim to be more “stable,” as the name implies, than other, often volatile cryptos.

A number of decentralized finance (DeFi) and metaverse tokens are ERC20 tokens as well.

Enjin Coin (ENJ) help users perform functions or create items in video games and virtual or augmented realities. Uniswap (UNI), the native token of one of the largest DeFi platforms, allows users to borrow and lend funds to one another.

How Does ERC20 Work?

ERC20 is a standard protocol, not a program or piece of software. The ERC20 protocol governs the creation of new tokens, ensuring that they meet the required technical specifications. If a token doesn’t conform to the appropriate technical standards defined by ERC20, it won’t fit the definition of an ERC20 token, and therefore, won’t be issued on Ethereum.

It may help to think of ERC20 as similar to HTTP, the Hypertext Transfer Protocol used for websites. HTTP defines how messages on the internet are formatted and transmitted, and how servers and browsers should react in response to various commands.

Similarly, ERC20 specifies the essential features that Ethereum-based tokens should have and how they should function. Tokens that don’t comply cannot be issued, traded, or listed on exchanges.

The ERC20 Standard

Smart contracts that want to use ERC20 tokens have to follow the appropriate ERC standards. There are currently nine rules in total, and six of them are mandatory. The other three are optional. These include:

Mandatory rules	Optional rules
Allowance	Token Name
Approve	Decimal (Max: 18)
TransferFrom	Symbol
Transfer
BalanceOf
TotalSupply

Here’s a brief rundown of how the mandatory standards apply to the creation of tokens.

TotalSupply: Outlines the total number of tokens to be created.

Approve: Helps to eliminate the possibility of counterfeit tokens being created by requiring approval of smart contract functions.

BalanceOf: Allows users to check their balances by returning the total number of tokens held by an address.

TransferFrom: Allows for the automation of transactions when desired.

Transfer: Allows for the transfer of tokens from one address to another, like any other blockchain-based transaction.

Allowance: When a smart contract wants to execute a transaction, it has to be able to see the balance held by the Ethereum wallet trying to transact. The allowance function allows the contract to carry out the transaction if the user has sufficient balance or cancel the transaction if they do not.

These six rules must be programmed into a token for it to be considered ERC20. Without clear instructions for these rules or standards, the token wouldn’t be able to interact with smart contracts effectively, which could cause numerous issues.

History of ERC20

“ERC20” actually stands for “Ethereum Request for Comments 20,” and was first proposed by Fabian Vogelsteller, a blockchain developer and programmer, back in 2015. At the time, it was a proposed standard that outlined common rules that could be implemented into the Ethereum network, mostly with the goal of ensuring that new projects or coins would function correctly when utilized on it.

That goal ultimately came to fruition, as the standards were adopted by the Ethereum network officially in 2017. Since then, ERC20 has served as a guiding light for Ethereum developers.

The Importance and Impact of ERC20

The ERC20 standard made many initial coin offerings (ICOs) possible in recent years, and the standard makes it easy for developers to create decentralized applications (dApps) on Ethereum.

To be more explicit, the standard makes implementing new tokens simpler for developers of decentralized applications (dApps) since there is a standard protocol to follow. ERC20 tokens can be made to offer high liquidity, and smart contract transactions are thought to be low-risk if the programming is done correctly.

How to Store ERC20 Tokens

To hold ERC20 tokens, users need an ERC20 wallet, as with any other crypto. But what’s important is to make sure that the crypto wallet in question supports tokens of this nature. Fortunately, some wallets have been specifically designed for the purpose of storing ETH and ERC20 tokens, including:

• MetaMask

• MyEtherWallet

• Trust Wallet

• Mist Wallet

• Atomic Wallet

Wallets like these can also be used to interact with other blockchain-based platforms, such as DeFi apps and NFT marketplaces.

Remember, though, that when storing crypto in any wallet, it’s generally considered good practice to back up your private keys and seed phrase. Giving someone else access to your keys or phrase could allow them to take ownership of all the crypto in that wallet.

The Takeaway

ERC20 represents a set of standards and rules used on the Ethereum blockchain, and is also used for the creation of tokens issued on Ethereum. Many popular utility tokens are also ERC20 tokens, a list that includes Basic Attention Token (BAT), Shiba Inu (SHIB), and Crypto.com Coin (CRO).

The important thing to know about ERC20 is that it provides a set of standards on the widely-used Ethereum network. That, in some ways, helps the crypto space self-manage and continue to operate efficiently.

FAQ

What is an ERC20 wallet?

An ERC20 wallet is a crypto wallet that is either compatible with, or specifically designed to hold and secure ERC20 tokens. There are numerous ERC20 wallets on the market, and they may come in a variety of forms, such as hardware, mobile, or desktop wallets.

What’s the difference between ETH and ERC20?

ETH, or “Ether,” is the native cryptocurrency of the Ethereum network, and is used to facilitate transactions on the Ethereum blockchain. ERC20 is the protocol standard for creating Ethereum-based tokens, which can be utilized and deployed in the Ethereum network.

Photo credit: iStock/fongleon356

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.

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

SOIN0922052

Nov

2022

Should We Expect Another Bitcoin Bull Run in 2023?

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

That end of 2021 saw a Bitcoin bull run like few assets have ever had — and then for most of 2022 that bull run came to a crashing halt for Bitcoin and for countless other cryptocurrencies.

To the extent that Bitcoin is the oldest and largest cryptocurrency, it can be something of a market leader — or it has been lately, with many other cryptos also succumbing to the long “crypto winter” of 2022.

The price of Bitcoin (BTC) started 2021 at around $30,000, only to more than double and hit north of $60,000 by mid-April. After falling again, it then spiked back up to nearly $68,000 in November 2021, marking two dramatic bull runs within a calendar year.

All that said, 2022 has been quite a different story, with BTC prices falling below $20,000 — and cryptocurrencies like Ethereum (ETH) and Dogecoin (DOGE), showing similar dramatic drop-offs in value. Now the big question for crypto traders is whether they can expect another crypto bull run in 2023.

Let’s take a look at some of the key indicators, crypto predictions, and possibilities for Bitcoin and other cryptocurrencies during the next few months.

Table of Contents

Can Past Crypto Trends Help Predict Future Ones?
Bitcoin Prediction: What Determines a Crypto’s Price?
What Determines the Price of Crypto as a Whole?
What’s Holding Bitcoin Back?
What Happened in the First Half of 2022?
What Will Happen in 2023?
Market Competition
Downside Risks

Can Past Crypto Trends Help Predict Future Ones?

Crypto Trends

While it’s hard to accurately make Bitcoin projections — or crypto predictions in general — a look back at Bitcoin’s recent history may be helpful in determining if another bull run is ahead for BTC, and potentially other crypto.

Bitcoin investors likely remember the bull run of 2017, during which the cryptocurrency reached a valuation of nearly $20,000. Much of that rally was fueled by hype over several initial coin offerings (ICOs) — including Brave and Kik — and people who hoped to benefit from rising prices in the short term.

ICOs are when companies raise funds by issuing new tokens to investors who become backers of the blockchain project. But after the ICO bubble popped in early 2018, Bitcoin’s price subsequently crashed. While many of today’s top cryptocurrencies didn’t yet exist, a few also stumbled at this time, including ETH, DOGE, and ADA.

This wasn’t surprising to many experts, who often say that the cryptocurrencies markets are likely to be turbulent, as they fight for credibility.

In 2019, Facebook announced its Libra cryptocurrency, which contributed to another Bitcoin rally, with values topping out at around $11,000. However, when some supporters of the Libra project backed out and Congress questioned CEO Mark Zuckerberg about regulatory concerns, Bitcoin’s price declined to $6,000 and $7,500 during the second half of 2019, along with many other cryptocurrencies. The Libra project, renamed Diem, has since shuttered.

Bitcoin climbed to a new record in 2020, as stimulus packages, meant to prop up economies during the Covid-19 pandemic, led to money finding its way into fringe markets like cryptocurrencies.

How the Crypto Competition Grew

However, there were also signs that different types of cryptocurrencies were gaining wider mainstream acceptance. Prominent investors announced they were buying Bitcoin as a hedge, and payment providers like PayPal announced they would allow customers to use cryptocurrencies.

Accordingly, the crypto markets gained steam. That was led by Bitcoin, which saw its value break its previous high-mark of $20,000 in December 2020. Then, during the first several months of 2021, the bull run continued until Bitcoin hit more than $61,000. Its value did fall to less than $30,000 in the subsequent months, but that drop was a precursor to another bull run.

Between July and October 2021, Bitcoin again saw its value soar, hitting almost $67,000. But after that, its value fell. The economic climate, including high inflation and drops in the stock market, have coincided with a bear run for Bitcoin, and as of November 4, 2022, Bitcoin was trading at around $20,000.

Bitcoin Prediction: What Determines a Crypto’s Price?

Numerous factors affect the price of any crypto, including Bitcoin, and since it is a global currency, Bitcoin’s value can be affected by events around the world. No central actor or authority determines the price of most crypto; it’s set by the market, and by supply and demand from traders and investors. The price can also vary from one exchange to another.

Market Demand

The main factor that determines any crypto’s price is whether investors want to buy or not, or what we typically refer to as “demand.” If good news comes out about Bitcoin or other cryptocurrencies, or bad news comes out about another type of investment, that can cause people to buy Bitcoins (increase demand) and hike the price up.

Conversely, bad news about cryptocurrencies can cause people to sell. News doesn’t necessarily have to be overtly negative to spook the market, either.

Similarly, the rules of supply and demand affect the Bitcoin market. Only 21 million Bitcoins will ever be created, and if investors see a strong long-term market for Bitcoin, they may want to own a piece of the pie.

💡 Recommended: Why Is Bitcoin So Volatile?

Altcoins

Although Bitcoin is the biggest and likely most well-known cryptocurrency, there are thousands of other altcoins available on the market. When good news comes out about other projects, may investors sell off some of their Bitcoin to purchase altcoins.

Also, new projects offer ICOs which can sometimes have a high return in a short amount of time. If a promising ICO comes to market, it might draw attention away from Bitcoin.

Market Manipulation

Both large financial institutions and individual investors can have an effect on the market. Some crypto holders, known as “whales,” own a significant enough amount of a particular crypto that they can move its price if they make a large purchase or sale.

Cost of Production

The main costs associated with producing Bitcoin are electricity and mining equipment. Although Bitcoin is a digital currency, it must still be mined. The way Bitcoin is designed, only about one block on Bitcoin’s blockchain network can be mined every ten minutes.

If more miners join the network, the more competitive mining becomes, which makes the cost of producing each Bitcoin more expensive. Miners have to invest in new, faster equipment and are less likely to receive a pay out. These costs can have an effect on Bitcoin’s price.

💡 Recommended: How Does Bitcoin Mining Work?

Regulations

Each country has different definitions and regulations for Bitcoin and cryptocurrencies, or none at all. When news comes out about regulatory decisions, it can cause investors to buy or sell. It is important to note that cryptocurrency is currently unregulated in the United States, though that’s likely to change in the coming years.

Cryptocurrencies faced regulatory hurdles in the U.S. in 2021. The Securities and Exchange Commission rejected several applications for a Bitcoin exchange-traded fund, damping hopes that an ETF version of the cryptocurrency will be trading on U.S. stock exchanges anytime soon. In September 2022, the Biden administration released a first look at potential crypto regulations framework.

In addition, cryptocurrencies experienced volatility after China clamped down on the market, issuing warnings about trading and mining.

💡 Recommended: Are There Bitcoin ETFs?

Fiat Currency Crises

Crypto has become the preferred currency for many people around the world who may not have access to banking, or who are living in a country going through a fiat currency crisis.

In Venezuela, for example, Bitcoin’s popularity has grown as inflation and sanctions have resulted in the devaluation of the Venezuelan Bolivar. El Salvador, too, even went so far as to make Bitcoin its official legal tender in 2021.

💡 Recommended: Take a closer look at what fiat currency is.

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

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

What Determines the Price of Crypto as a Whole?

The same market forces that determine the value of Bitcoin can and do drive value for the crypto market as a whole. Supply and demand is obviously the key driver, but there are a few other key things at play as well.

Demand

As mentioned, investor demand is perhaps the primary driving force propelling values in the crypto market overall. This will likely become more apparent as the crypto space grows over time; more coins or tokens will likely be created, but they won’t all be in demand. As such, their values will likely remain low.

Expected Growth

Demand can be spurred by the expected growth, in value or in market cap, of the crypto space. If investors expect the crypto market, as a whole, to grow, they might be inspired to buy cryptocurrencies in anticipation of that growth, with the idea being that they’re “getting in early” on an investment. That, in turn, increases demand.

Public Sentiment

The markets owe a lot to sentiment. If people are pessimistic about the future, they may be less willing to spend or invest money. Conversely, if they’re optimistic, they may be looking to invest or prepare for what’s ahead. For example, if they expect the crypto market to grow, as mentioned, they’re feeling optimistic about the space, and increase demand for tokens, driving the market higher.

Returns From Conventional Investments

A final factor that may play a role in determining the crypto market’s performance is how well conventional markets are performing. If investors are not getting their desired returns from the stock market, they may be looking at alternatives to generate those higher returns. Over the past few years, the high returns and growth in the crypto space has been an obvious candidate. As more investors pile into the crypto market, the higher the demand, and thus, the higher valuations can go.

However, as we’ve seen, the crypto market is very volatile, and presents big risks for investors chasing high returns.

What’s Holding Bitcoin Back?

While there are big economic factors at play that have led to Bitcoin’s decline during 2022, a few other factors have been holding it back from seeing bigger, significant growth in recent years.

Adoption and Use

Since Bitcoin is a relatively new technology, it takes time for companies to build up tools and use cases for it. At this point, the infrastructure is getting stronger and it’s easy for novice investors to buy and sell Bitcoin at the touch of a button.

However, many people holding Bitcoin don’t own it because they plan to use it for everyday purchases, but rather, because they view it as a long-term, safe-haven investment with a lot of potential upside. It should be noted, again, that investing in Bitcoin and other cryptocurrencies is inherently very risky.

Traditionally, there haven’t been many retailers that would accept Bitcoin. Now, you can use bitcoin or other cryptocurrencies at Starbucks, Amazon, Nordstrom, and many other retailers. Retailers may change their policies, however, which is something to keep in mind.

Lack of Clear Regulation

Experienced investors tend to be very careful about what they invest in. If an asset doesn’t have clear legal regulations and guidelines, they may not choose to take the risk of investing in it. As mentioned, the Biden administration has outlined some frameworks for regulating the crypto space, and it’s likely that formal rules will be introduced in the next few years.

Waiting on Institutions

If large corporations start holding some of their wealth in Bitcoin, or financial institutions otherwise demonstrate support of cryptocurrencies, that could add legitimacy, which could drive new investors to the market.

A survey released in 2021 by Fidelity Digital Assets found that 52% of institutional investors — which could include pension funds, family offices, investment advisers and hedge funds — owned digital assets like Bitcoin.

However, a separate survey by JPMorgan released in 2021 found that 78% of institutional investors are not planning on investing in crypto. However, the survey also found that a majority also think crypto is “here to stay.”

What Happened in the First Half of 2022?

A combination of economic headwinds, mostly related to the Covid-19 pandemic, seemingly crashed together in early 2022, slowing the economy, driving up inflation rates, and dragging down the value of stocks, precious metals, and even the crypto markets.

Crypto Market Crash

Between May and June 2022, the crypto markets lost roughly $1 trillion in value. It’s hard to say what, exactly, caused it. But as mentioned, asset classes of all types saw similar drawdowns. In what is now being called the “crypto winter,” the down market has persisted into the second half of 2022.

Effects on Bitcoin

Bitcoin was not spared from the ongoing crypto winter. You need look no further than the massive drop in Bitcoin’s value to see the effects: Bitcoin started the year trading at nearly $48,000, but by the middle of June, was trading at less than $19,000.

Effects on the Crypto Market as a Whole

Bitcoin’s value was just one victim of the market’s crash; the crypto market as a whole went down with it. Again, the crypto market crash, and subsequent flattening between the beginning of 2022 and the end, as trillions of dollars in value were wiped out in a manner of months. All of the major coins were affected, too, including Ethereum. Some stablecoins were destabilized, too.

A few crypto firms and related financial firms even went belly-up as well.

NFT Values Wiped Out

Non-fungible tokens, or NFTs, also saw their value effectively wiped out during the first part of 2022. After NFTs saw a huge bull run in 2020 and 2021, as investors bought into the hype, the average price of NFTs nosedived in 2022. In fact, the average price of NFTs fell from nearly $4,000 to less than $300 in just a couple of months, a similar downward trajectory to what was seen among many cryptocurrencies.

What Will Happen in 2023?

It’s easy to look at most of 2022 and walk away convinced never to invest in the crypto space after such a monumental drop in value. But it’s important to remember that this year has seen a rare combination of both global events and economic headwinds leading to an overall downturn.

That said, there are some things to keep an eye on to try and get a read on what might happen in the crypto space during the remainder of 2022, heading into 2023.

The US Economy

The U.S. continues to face a number of major economic and sociopolitical unknowns. There are midterm election results to deal with, rising interest rates, high inflation, and the prospect of a recession, for instance. And in many respects, the economy is still recovering from the pandemic.

It’s hard to say how that might affect Bitcoin, but some economists believe that a U.S. recession could be rocket fuel for a Bitcoin bull run. If investors lose faith in the U.S. dollar and the stock market, they may turn to the cryptocurrency market once again as a safe haven. Although, to be fair, it hasn’t proven to be much safer than the stock market this year.

Key Technical Indicators

Some technical indicators could signal that Bitcoin is heading towards a bull run, but technicals are not always trustworthy predictions. Depending on how you combine charts and analysis, which likely will involve some advanced knowledge and skill, the market can also look like it’s heading towards a downward spiral.

New Regulations

As mentioned, China has been cracking down on the cryptocurrency market, causing volatility in prices. Meanwhile, the U.S. government is already discussing future rules and regulations for the crypto space. The Biden administration has made it clear that regulation is coming, but it’s also worth noting that changes to the composition of Congress after the midterm elections may disrupt things.

Stablecoins Around the World

Numerous countries are considering developing or already working on their own digital currencies and stable coins. The U.S., Russia, India, and France and other nations have announced plans to enter the digital currency market. In addition to several Caribbean nations, China is probably the farthest along out of the major economies, having launched a central bank digital currency (CBDC).

As these projects progress, they could add legitimacy to the market and challenge some fiat currencies. Bitcoin’s price may go up in the short term as these announcements come out, but whether its value will hold in the long run as the world transitions towards digital currency has yet to be seen.

Market Competition

Of course, Bitcoin is not the only game in town, and other crypto projects are giving it a run for its money.

Another top-tier cryptocurrency is Ethereum. Ethereum has had a boom given the interest in NFTs, which often take the form of digital versions of art or collectibles that are linked to a blockchain , which is one of the many potential uses of blockchain.

Dogecoin had a meteoric rise in 2021, mostly fueled by social platforms that have also been behind the rallies of meme stocks like GameStop and AMC. Elon Musk was a proponent before an appearance on the TV show Saturday Night Live, when he called Dogecoin a “hustle.” Since such developments, the price of Dogecoin has suffered, losing much of its value.

Downside Risks

As is the case with any investment, it’s crucial for investors to do their own research and take expert predictions with a grain of salt. The cryptocurrency market is still in its infancy relative to other markets, so there isn’t much data to go on when making predictions, and unpredictable circumstances can have significant effects on the market.

Bitcoin is a risky investment. Investors should consider making their own decisions about their level of risk based on a proper analysis of all the various factors that come into play.

Finally, remember that the past is not a prediction of the future, and just because trend lines indicate a bull run is coming doesn’t mean they’re correct. In such a complex, fast-changing market, it’s important to stay informed and do due diligence.

The Takeaway

2022 has been an eventful year for cryptocurrencies, although not in a way that most investors would have liked. The crypto market has lost a lot of value, but that doesn’t mean a bull run couldn’t be around the corner — especially when you consider the rise and fall of crypto values across the board, over the last decade or so.

For keeping track of the market, buying crypto, or buying and selling more traditional assets, using a streamlined secure app might be the way to go.

FAQ

How long do crypto bull runs typically last for?

It’s difficult, if not impossible to say, given that the crypto markets have only been in operation for a little more than a decade. The market has experienced bull and bear markets during that time, but it’s likely too early to determine what a “typical” bull run’s duration could be.

What do people think Bitcoin will be worth in 2025?

Expert opinions are all over the place, with some people predicting another massive bull run for Bitcoin, while others thinking that it’ll continue to dwindle. Nobody knows for sure. Prospective investors should be prepared to stomach big losses, though, if they’re willing to chase big potential gains.

How high is Bitcoin’s price likely to go?

There’s no limit to how high Bitcoin’s price could go, with some people thinking that it could top six-figures at some point in the future. Again, nobody knows what will happen, so just as Bitcoin’s price could soar, it could also drop further.

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

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

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

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

SOIN0622043

Nov

2022

Bitcoin Liquidity: How Liquid Is Bitcoin?

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Bitcoin is a relatively liquid asset, though there are factors that can alter its liquidity at any given time. Bitcoin’s liquidity is usually high as there are a number of established, trusted exchanges on which traders can buy or sell Bitcoin. And given a high number of exchanges trading it, along with the volume of those trades, Bitcoin is generally a fairly liquid asset. Read on to learn more about what makes Bitcoin liquid and more.

Recommended: What Is Bitcoin and How Does It Work?

What Is Liquidity in Cryptocurrency?

Liquidity, as it relates to investing, refers to how easily an asset can be converted to cash — or liquidated — without having an effect on its market price. The easier it is to liquidate something, and the less likely a market participant is to move the price by doing so, the more liquid an asset can be said to be.

Liquidity is often used in reference to investments like stocks. If you were to sell a small number of stocks in exchange for cash, it’d likely be pretty easy, and the markets may not notice at all. But if a “whale” were to sell a huge number of stocks, market makers may notice, and adjust their own behavior, potentially affecting the stock’s value.

Cash is usually considered the most liquid asset of all, while real estate is generally regarded as the least liquid asset class. That’s because selling real estate can take months and involves lots of paperwork, fees, and commissions. Precious metals like gold and silver are also rather illiquid.

💡 Recommended: What Are Considered Liquid Assets?

Is Bitcoin Liquid or Illiquid?

How liquid is Bitcoin? Compared to many other asset classes, Bitcoin could be considered very liquid, at least most of the time.

“Most of the time” is an important qualifier because market conditions are always changing. On an average day, for instance, it can be said that Bitcoin has a high level of liquidity. But during times of crisis and panic selling, or times of euphoria and panic buying, this may be less so — it all depends on market conditions.

The exchange an investor is trading Bitcoin on also matters when trying to gauge liquidity. The more traders and higher volume of an exchange, the greater Bitcoin’s relative liquidity.

Factors That Impact Bitcoin Liquidity

These are a few of the most important variables that can affect Bitcoin liquidity.

1. Volume

Volume, in the financial markets, refers to how much of an asset is being traded within a given timeframe (e.g., daily volume). Greater volume tends to increase liquidity and dampen the effects of volatility. Conversely, lower volume can lower liquidity.

2. Exchanges

Liquidity is integral to how crypto exchanges work. The more trusted exchanges that exist, the more markets there are for people to buy and sell Bitcoin. This translates to greater total volume of Bitcoin being traded, which makes for more liquidity. In the early days of crypto, this was a major obstacle to the liquidity of Bitcoin. But as the crypto space has grown, so has its capacity for trading.

3. Storage

One interesting factor affecting Bitcoin liquidity is how people store their digital assets. This is a factor that is unique to cryptocurrency and doesn’t have much relevance to other assets, like stocks. But because Bitcoin is a scarce digital commodity, the way it is stored matters in relation to liquidity.

People who hold large amounts of Bitcoin tend to be fans of something called cold storage, which involves holding the private keys to a crypto wallet offline. This method is thought to make coins less vulnerable, as they typically cannot be accessed by hackers or thieves of any kind. But if coins are held offline, they are effectively off the market, and therefore reduce liquidity.

Roughly three-quarters of the total Bitcoin supply was illiquid as of the beginning of 2022.

4. Volatility

Liquidity and volatility can be closely related. A lack of liquidity can lead to an increase in volatility if one or more large traders are buying or selling large quantities of assets. Those moves can cause prices to move up or down rapidly if there is a limited supply of an asset on the order books.

When there is a large supply of an asset and many large orders, it takes a greater amount of capital to move the market. At the same time, a spike in volatility can also lead to a drop in liquidity, as panic selling ensues and bid/ask spreads widen.

In general, higher liquidity tends to make for lower overall volatility. This is part of the reason why Bitcoin used to fall or rise by significant percentages, often within a single day. Such moves are less common now, though cryptos remain highly volatile assets.

Determining Bitcoin Volatility

Volatility, to take it back to basics, refers to the price swing for a given asset within a given time frame. In other words, Bitcoin’s volatility would measure how much its value fluctuates on a specific day. The higher the volatility, the more wild or extreme the price swings.

Determining Bitcoin’s volatility involves some rather complex math. In the end, you’re basically calculating Bitcoin’s standard deviation, which measures how far its price moved from the median during a certain time period. If Bitcoin’s price has slowly but steadily gone up over time, you could chart that ascent as a line on a graph — it would deviate on a day-to-day basis from that line, however, as prices rise and fall.

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

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Can You Liquify Bitcoin?

Yes. There’s enough Bitcoin liquidity for holders to liquify their holdings when needed. Cryptocurrency markets trading hours never stop — traders can buy or sell 24 hours per day, 7 days a week year-round.

In this respect, large market cap cryptocurrencies like Bitcoin and Ethereum are generally very liquid, in that traders can enter or exit positions at any time. The same cannot be said of all the thousands of altcoins, which are less popular and may have little to no liquidity on many exchanges.

In traditional financial markets, like stock markets in the U.S., trades can normally only be executed during the hours of 9:30 am to 4 pm EST Monday through Friday, excluding holidays. Some derivatives, like futures contracts, may have additional trading hours. But for the most part, stock trading only occurs during regular business hours of the time zone in which a stock exchange is located (like the New York Stock Exchange, for example).

As long as entities are buying Bitcoin an investor’s chosen exchange, they should be able to liquify Bitcoin holdings immediately. Some exchanges may simplify this process from the user’s perspective and simply allow users to enter a sell order for a specific amount, while the exchange handles the details on the backend.

💡 Recommended: Bitcoin vs. Ethereum: Major Differences to Know

What Is the Most Liquid Cryptocurrency?

It’s difficult to determine which cryptocurrency, at a given time, is the most liquid. But highly popular cryptocurrencies like Bitcoin and Ethereum are likely near the top of the list.

Bitcoin has the largest market cap of any cryptocurrency with a market cap of about $370 billion (October 2022) which represents more than 41% of the entire cryptocurrency market (a measure called Bitcoin dominance). But as noted earlier, much of this market cap is likely held in cold storage and is therefore illiquid. So, Bitcoin liquidity is not as high as it potentially could be.

The Takeaway

Bitcoin is a fairly liquid asset, which can’t be said about all cryptocurrencies. There are some factors that determine Bitcoin’s liquidity — including trading volume and storage methods — but overall, it’s fairly easy for investors to liquidate their Bitcoin holdings at any time. As such, in terms of what to know before investing in crypto, Bitcoin liquidity certainly ranks high on the list.

FAQ

What is the total liquidity of Bitcoin?

Roughly three-fourths of the Bitcoin supply was illiquid at the beginning of 2022. That’s largely due to Bitcoin being held in cold storage or offline wallets, and therefore not available to be traded on the markets to willing buyers.

Is Bitcoin easy to liquidate?

Yes, Bitcoin is easy to liquidate, and may be the most liquid of all cryptocurrencies. Bitcoin is easy to liquidate because the crypto markets never close, and because it is a very popular digital asset that always has buyers and sellers looking to trade.

How do you calculate cryptocurrency liquidity?

While there may not be an exact formula or science to calculating liquidity, gauging liquidity involves factors such as a token’s total market capitalization, its trading volume, and its price. Other factors, like exchange availability, are also important.

Photo credit: iStock/Olemedia

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.

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

SOIN1022014