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Dec

2021

What Are Actively Managed ETFs?

By AJ Smith | Going to College, invest, Investing, Terminology | Comments Off

Exchange-traded funds or ETFs generally fall into two categories: actively managed and passively managed. Actively managed ETFs, a growing category in the ETF market, are overseen by a portfolio manager.

The goal of an active manager is to outperform a certain market index, which they use as a benchmark for their portfolio. By contrast, passive ETFs simply mirror the performance of a particular market index; they don’t aim to outperform it.

There are two types of actively managed ETFs: transparent and non-transparent. Active non-transparent ETFs are a new option that was introduced in 2019; these funds are sometimes called ANTs.

Keep reading to learn more about the distinction among different ETFs, the pros and cons, and whether investing in actively managed ETFs makes sense for you.

Table of Contents

How Actively Managed ETFs Work
Index ETFs vs Active ETFs
Mutual Funds vs Actively Managed ETFs
Pros and Cons of Actively Managed ETFs
Investing in Actively Managed ETFs
The Takeaway

How Actively Managed ETFs Work

Actively managed ETFs employ a portfolio manager and typically a team of analysts who do market research and make decisions to buy, hold, or sell the assets held within the fund. Most ETFs are designed to reflect a certain market sector or niche. They typically measure their success by using a known index as their benchmark.

For example, a technology ETF would be invested in tech companies and potentially use the Nasdaq composite index as a benchmark to measure its performance.

Despite the fact that passive (or index) ETFs strategies predominate in the industry — index ETFs represent roughly 98% of the ETF market — active strategies are gaining ground. That said, it has been historically quite difficult for active fund managers to beat their benchmarks.

Actively managed transparent and non-transparent ETFs are similar to traditional (i.e. index) ETFs. You can trade them on stock exchanges throughout the day, and investors can buy and sell in amounts as small as a single share. Broad availability and low investment minimums are an advantage that ANTs (and ETFs more generally) boast over many mutual funds.

Actively managed transparent ETFs

When exchange-traded funds first appeared some 20 years ago, only passive ETFs were allowed by the Securities and Exchange Commission (SEC). In 2008, though, the SEC introduced a streamlined approval process that allowed for a type of actively managed ETF called transparent ETFs. These funds were required to disclose their holdings on a daily basis, similar to passive ETFs. Investors would then know exactly which securities were being traded within the fund.

Many active fund managers, however, didn’t want to reveal their trading strategies on a daily basis — which is one reason why there have been fewer actively managed ETFs vs. index ETFs to date.

Non-transparent or semi-transparent ETFs

In 2019, another rule change from the SEC permitted an active ETF structure that would be partially instead of fully transparent. Under this new rule, an active ETF manager would be allowed to either reveal the constituents of their portfolio less often (e.g. quarterly, like actively managed mutual funds), or communicate their holdings more obliquely, by using various accounting methods like proxy securities or weightings.

The SEC ruling opened up a new channel for active managers, and since then the number of actively managed ETFs has grown. According to Barron’s, in just the past two years the number of actively managed ETFs has more than doubled. Nearly 60% of the ETFs launched in 2020 and 2021 were actively managed — more than all the actively managed ETFs established in the past decade.

From an investor’s perspective, the most noticeable difference between these two kinds of actively managed ETFs — transparent vs. non-transparent — would be the frequency with which these funds disclose their holdings. Both types of ETFs trade on exchanges at prices that change constantly during trading days; both rely on a team of managers to select and trade securities.

Index ETFs vs Active ETFs

So what is the difference between index ETFs and actively managed ETFs? It’s essentially the same difference that exists between index mutual funds and actively managed mutual funds.

How do index ETFs work?

Index ETFs, also called passive ETFs, track a specific market index. A market index is a compilation of securities that represent a certain sector of the market; indexes (or indices) are frequently used to gauge the health of certain industries, or as broader economic indicators. There are thousands of indexes that represent the equity markets alone, and Well-known indexes include the S&P 500®, an index of 500 of the biggest U.S. companies by market capitalization, as well as the Russell 2000, an index of small- to mid-cap companies, and many more.

Because index ETFs simply track a market sector via its index, there is no need for an active, hands-on manager. As a result the cost of these funds is typically lower than actively managed ETFs, and many active and passive mutual funds as well.

How do actively managed ETFs work?

Actively managed ETFs, often called active ETFs, rely on a portfolio manager and a team of analysts to invest in companies that also reflect a certain market sector. But these funds are not tied to the securities in any given index. The ETF manager invests in their own selection of securities, but often uses an index as a benchmark to gauge the success of their strategies.

Transparent actively managed ETFs must reveal their holdings each day.

Actively managed non-transparent ETFs, or ANTs, aren’t required to disclose their holdings on a daily basis. This protects asset managers’ strategies from potential “front-runners” — traders or portfolio managers that try to anticipate their trades. By and large, the cost of these funds is lower than transparent ETFs, and also lower than actively managed mutual funds.

Mutual Funds vs Actively Managed ETFs

All mutual funds and exchange-traded funds are examples of pooled investment strategies, where the fund bundles together a portfolio of securities to offer investors greater diversification than they could achieve on their own. In addition to the potential benefits of diversification, which may mitigate some risk factors, the pooled fund concept also creates economies of scale which helps fund managers keep transaction costs low.

That said, the structure or wrapper of mutual funds vs. passive and active ETFs, is quite different.

Fund structure

Although a mutual fund invests directly in securities, ETFs do not. With both active and passive ETFs, the fund creates and redeems shares on an in-kind basis. So when investors buy and sell ETF shares, the portfolio manager gives or receives a basket of securities from an authorized participant, or third party, which generates the ETF shares.

By comparison, mutual fund shares are fixed. You can’t create more of them based on demand. But you can with an ETF, thanks to the “in-kind” creation and redemption of shares. This means that ETF fund flows don’t create the same trading costs that might impact long-term investors in a mutual fund. And fund outflows don’t require the portfolio manager to sell appreciated positions, and thus minimize capital gains distributions to shareholders.

Pricing

The price of mutual fund shares is calculated once a day, at the end of the day, and is based on a fund’s net asset value (NAV). Investors who place a trade must wait until the NAV is calculated because most standard open-end mutual funds can only be bought and sold at their NAV.

ETFs, by contrast, are traded like stocks throughout the day. And because of the way ETF shares are created and redeemed, the NAV can vary, creating a wider or tighter bid-ask spread, depending on volume.

Fees

The expense ratio of mutual funds includes management fees, operational expenses, and 12b-1 fees. These 12b-1 fees are a type of marketing and distribution fee that don’t apply to ETFs, which trade on stock exchanges.

Thus the expense ratio for most ETFs, including actively managed ETFs, can be lower than mutual funds.

Pros and Cons of Actively Managed ETFs

As with any investment vehicle, these funds have their pros and cons.

Pros

Potentially for higher returns

One advantage of an actively managed ETF is the potential for gains that could exceed market returns. While very few investment management teams beat the market, those who do tend to produce outsize gains over a short period.

Greater flexibility and liquidity

Active ETFs could also provide greater flexibility amid market turbulence. When world events rattle financial markets, passive investors can’t do much other than go along for the ride.

A fund with active managers might be able to adjust to changing market conditions, however. Portfolio managers could be able to rebalance investments according to current trends, reducing losses, or even profiting from panics and selloffs.

Like passive ETFs, active funds also trade throughout the day (as opposed to some mutual funds who only have their price adjusted once daily), allowing investors the opportunity to do things like short shares of the fund or buy them on margin.

Cons

Higher expense ratios

One disadvantage of investing in an actively managed ETF is the potentially higher expense ratio. Active funds, whether ETFs or mutual funds, tend to have higher expense ratios. The costs associated with paying a professional or entire team of professionals combined with the fees that result from additional buying/selling of investments typically adds up to higher costs over time.

Each purchase or sale might come with a brokerage fee, especially if the securities are foreign-based. These costs exceed those of passive funds, resulting in higher expense ratios.

Performance factors

While active ETFs aim to provide higher returns, most of them don’t. It’s a widely known fact in the investment world that the majority of actively managed funds (as well as most individual investors) do not outperform the market over the long term.

So, while an active ETF may have the potential for greater returns, the risk of lower returns, or even losses, can also be greater. The chances of choosing an active fund that fails to outperform its benchmark are greater than the odds of choosing one that succeeds.

Bid-ask spread

The bid-ask spread of ETFs can vary, and while it’s more beneficial to invest in an ETF with a tighter bid-ask spread, that depends on market factors and the liquidity and trading volume of the fund. To minimize costs, it’s wise for investors to be aware of the bid-ask spread.

Investing in Actively Managed ETFs

Once an investor opens an account at their chosen brokerage, they can begin buying shares or fractional shares of actively managed ETFs.

Historically, brokerages have required investors to buy a minimum of one share of any security, so the minimum investment will most often be the current price of one share of the ETF plus any commissions and fees (many brokerages eliminated fees for buying or selling shares of domestic stocks and ETFs in 2019).

Some brokerages like SoFi Invest® now offer fractional shares, which allow for investors to purchase quantities of stock smaller than one share. This option may appeal to those looking to get started investing with a small amount of money.

It’s important to note that many ETFs pay dividends, which are payouts from the stocks held in the fund. Investors can choose to have their dividends deposited directly into their accounts as cash or automatically reinvested through a dividend reinvestment program (DRIP).

Investors with a long-term plan in mind might do well to take advantage of a DRIP, as it allows for gains to grow exponentially. For those only looking for income, DRIP might defeat the purpose of holding securities that yield dividends, however.

The Takeaway

Like mutual funds, exchange-traded funds or ETFs are considered pooled investments and generally fall into two categories: actively managed and passively managed. Actively managed ETFs, a growing category in the ETF market, are overseen by a portfolio manager. By contrast, passive ETFs simply mirror the performance of a particular market index; they don’t aim to outperform it.

Although actively managed ETFs make up only about 2% of the ETF universe, owing to regulatory changes in recent years this category has been growing. In fact there are now two types of actively managed ETFs: transparent and non-transparent. These funds offer investors the potential upside of active management, with the lower cost, tax-efficiency, and accessibility associated with ETFs. If you’re curious about actively managed ETFs, you can explore these products by opening an account with SoFi Invest®.

Learn more about investing with SoFi.

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.

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.

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

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.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

SOIN20170

Dec

2021

What to Know About Investing in Cryptocurrency

By SoFi | Growing Wealth, invest, Investing | No Comments

Since the launch of Bitcoin in 2009, thousands of different cryptocurrencies have entered the market, providing investors with an intriguing — and sometimes confusing — array of choices.

While investing in crypto may offer growth potential, cryptocurrencies as a whole have proven to be a volatile asset class, posting double-digit percentage gains and losses — sometimes within a single day. While such wild price swings have generated lucrative returns for some, others have suffered painful losses.

It’s important for investors to understand the fundamentals and risks of the cryptocurrency market before they start investing. Here’s a closer look at some basics.

Cryptocurrencies 101

Some consider cryptocurrencies to be a form of currency, while others see them as a store of value similar to gold. While the Securities and Exchange Commission (SEC) has yet to decide whether cryptocurrencies can be considered securities or commodities, the reality is that these new instruments have revolutionized the way we think of finance and financial markets.

Not that anyone could have predicted that in 2008, when a person or group using the pseudonym Satoshi Nakamoto published a paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Despite the mystery surrounding Nakamoto’s identity, bitcoin successfully launched in January of 2009.

The first altcoins — a term that refers to “alternatives to bitcoin” — were released in 2011, including Litecoin.

News reports tied use of bitcoin and other cryptocurrencies to illegal activity on the dark web. Some major scams and company failures, including the theft of hundreds of thousands of bitcoin on the crypto exchange Mt. Gox, contributed to volatility in the market’s early years.

However, by 2017, mainstream interest in bitcoin and other cryptocurrencies skyrocketed, sending its price close to $20,000. Despite ongoing price fluctuations, by 2021 bitcoin was not only the oldest crypto on the market but still the largest by market cap.

In November 2021, bitcoin would reach an all time high of nearly $69,000 and a total market cap of nearly $1.1 trillion, while the entire crypto market surpassed some $2 trillion in market value.

However, worries of a regulatory crackdown caused many crypto prices to fall in December 2021, as SEC Chair Gary Gensler indicated that many crypto might qualify as securities and thus fall under SEC regulations.

Blockchain 101

Not every cryptocurrency is built using blockchain technology, but some of the largest ones are. A blockchain is an unchangeable record of transactions. These transactions don’t have to be monetary in nature. Blockchains can be used to create contracts, to track the movement of products, to record votes, to prove that property transfers took place, and much more.

Cryptocurrencies and blockchains work hand in hand. For example, here’s how Bitcoin mining works: new coins are created through the process of maintaining the accuracy of its blockchain. Miners use computing power to solve complex cryptographic equations. As these equations are solved, they prove that all of the transactional information on the bitcoin blockchain is accurate.

As a reward for maintaining the blockchain, Bitcoins are created and given to the miners. The bitcoin blockchain is public and decentralized. This means that anyone can view any transaction between two bitcoin addresses. However, you don’t know who owns those addresses.

The decentralization of the blockchain means that there isn’t a single individual, company, or government in charge of Bitcoin and the blockchain. Changes to the blockchain code can be proposed and adopted by the miners. However, 51% or more miners must opt into a change in order for it to be implemented, otherwise Bitcoin forks into two markets.

Cryptocurrency Risks

Every investment comes with risks, and cryptocurrencies are no exception. Here are some the biggest ones investors should be aware of:

1. Price Volatility: As mentioned, the price of Bitcoin halved within the span of a couple weeks in 2021. While the stock market is known for being a volatile asset class, the turbulence in share prices is nowhere near that of cryptocurrency prices. The market is still highly speculative, making it prone to big price swings and increasing the risk of investors locking in losses.

Recommended: Why is Bitcoin So Volatile?

2. Theft: One of the choices investors have to make after buying cryptocurrencies is whether to store the coins and tokens in a hot wallet or cold wallet. Hot wallets are digital storage tools. The risk to them is that they’re more vulnerable to hacks and theft. Take for instance the Mt. Gox incident that occurred in 2011. While the cryptocurrency market has come a long way in terms of security since then, theft and hacks are still a risk.

3. Fraud and Scams: The buzzy nature of the cryptocurrency industry unfortunately means that scammers are also drawn to the market. In 2021, the Federal Trade Commission (FTC) reported that between October 2020 and May 2021, more than 7,000 people reported losses of more than $80 million from bogus investment opportunities.

4. Forgotten Keys: While the cold wallet storage solution can prevent hacks, some users of this method have fallen into the unfortunate situation of not remembering their wallet password – or “keys” in crypto lingo. That means there could be fortunes that individuals are not able to cash in on. Of the existing 18.5 million Bitcoin in circulation in January 2021, about 20% was estimated to be “lost” or trapped in a wallet.

5. Regulatory Oversight: Chinese regulators stoked volatility in the cryptocurrency market in 2021, after clamping down on crypto mining operations and ordering payment firms to not do business with companies in the industry. U.K. regulators have also banned a leading crypto exchange. More crypto rules and regulation, including from countries like the U.S., are also expected, which could cause repercussions for usage and prices.

Basic Cryptocurrency Terminology to Know

As cryptocurrency has been growing over the past decade, industry jargon has developed. This terminology is important to know when starting to purchase and store cryptocurrencies. Here are some of the most commonly used words in the crypto space:

Address

If you’re using bitcoin, you have a public “address” where people can send you bitcoins. If you send someone bitcoins, they will see that they received them from your public address. Anyone can look up that public address and see how many bitcoins are in it.

You also have a private address, which is how you secure your bitcoins. Never give anyone your private address. Addresses are generally made up of a string of alphanumeric characters.

Altcoin

Any cryptocurrency that is not bitcoin is called an altcoin.

Crypto

Crypto is simply a shorter name for cryptocurrency.

Decentralization

As mentioned above, blockchain isn’t owned or controlled by anyone, making it decentralized. Many people in the blockchain space feel that decentralization creates more fairness.

Distributed Ledger

A dispersed recording of replicable, synchronized data. In the case of cryptocurrencies, the blockchain is a distributed ledger shared across many different computers and networks.

Exchange

Websites where you can purchase and sell cryptocurrencies are called exchanges.

Fork

A “fork” is when a blockchain permanently splits into a new version. This can take place when miners vote on a change, when a group takes over 51% of the network and changes the blockchain, or if there’s a bug or more commonly a new set of consensus rules come into existence.

FUD

Fear, uncertainty, doubt. FUD describes the emotions that can create panic and cause people to make decisions that affect the market.

Start buying Bitcoin, Ethereum,
and Litecoin today.

HODL

HODL is the philosophy of holding onto and not selling cryptocurrencies. A misspelling of “hold,” this was a joke that became a common term.

ICO

ICO is short for initial coin offering. An ICO is held when a company is raising funds and sells tokens to public or private buyers who then become backers of the project.

Mining

The computing process used to create crypto tokens. Not all cryptocurrencies are created using mining, but it is a common method.

Multisig

There are ways that you can set up a cryptocurrency transaction which require multiple people to sign off on the transaction for it to go through. This is called a multisig transaction.

Peer to Peer

A peer-to-peer (more commonly abbreviated as “P2P”) system doesn’t have a central controller; instead, users interact directly with one another. For example, there are peer-to-peer exchanges where you can sell your bitcoins directly to someone in your local area.

Pumping

When cryptocurrency information gets sensationalized in the media to raise its price or popularity, this is called pumping.

Smart Contract

Smart contracts are coded contracts written into blockchains that allow automated transactions to be executed.

Wallet

Cryptocurrencies are stored in virtual “wallets.” If you keep your cryptocurrencies on an exchange, that exchange controls your wallet. You can also use a digital wallet such as an app on your phone or computer.

One popular form of cryptocurrency wallet is a hardware wallet, which is like a flash drive that stores your cryptocurrencies offline but allows an easy connection to your computer for transacting. There are also paper wallets, which are (believe it or not) simply written records of your public and private addresses for your cryptocurrency. Online wallets are called hot wallets, while offline wallets are called cold wallets or cold storage.

Whale

A person who owns a significant amount of a cryptocurrency. When that person trades it they can actually affect the market price. These people are called whales.

The Top 10 Largest Cryptocurrencies

There are more than 7,000 cryptocurrencies on the market today, according to estimates. Each of them offers different characteristics in their transaction times, liquidity, privacy, and other factors.

Below are the top 10 biggest by market cap, as of July 23, 2021, according to data from CoinMarketCap, which calculates cryptocurrency market caps by taking the price of a digital currency and multiplying it by the number of coins in circulation.

For instance, with Bitcoin, the world’s biggest cryptocurrency by market cap, the price is $32,439.03 and the circulation supply is 18,764,331 on July 23, 2021. Multiplying the two numbers gets a market cap of about $609 billion. CoinMarketCap does this with the biggest cryptocurrencies and then ranks by the market cap of each.

Recommended: Top 30 Crypto By Market Cap

1. Bitcoin

As the first to market, Bitcoin (BTC) continues to be the most popular and highest valued crypto. Any new industry development — including physical ATMs and crypto credit cards — generally works with Bitcoin first.

Major companies now accept Bitcoin, but Bitcoin has a scalability issue, in that it currently can only process seven transactions per second. Visa®, by contrast, can process a maximum of 24,000 per second. Work is being done to improve this transaction speed, but for now Bitcoin may not be the best long-term store of currency to buy your latte with.

2. Ethereum

Although ethereum (ETH) is a cryptocurrency — also known as ether — its main appeal stems from its software platform. The Ethereum network allows for the creation of smart contracts and decentralized applications to be built on it. The cryptocurrency is used to develop and run applications on the software platform, and by investors purchasing other tokens using ether.

3. Tether

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

In February 2021, the New York attorney general’s office settled a two-year investigation on tether and its sister crypto exchange Bitfinex. Tether had claimed that all its tokens were backed on a one-to-one basis by U.S. dollars in cash reserves.

4. Binance Coin

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

Binance tries to incentivize investors to use Binance Coin by allowing them to get a 25% discount on trading fees if they use BNB to pay for trades.

5. Cardano

While Cardano lacks some features, it’s considered by some market participants to be a work in progress and has potential to be a cheaper alternative to Ethereum in being a basis for DeFi and NFT projects.

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

6. Ripple

Ripple (XRP) was created to be used by existing banking institutions. Ripple network can process 1,500 transactions per second. Unlike Bitcoin and many other cryptocurrencies, XRP is not on a blockchain network. Instead, it’s based on what’s called a “hash tree.”

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

7. USD Coin

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

In March 2021, Visa announced that it would allow the use of USDC to settle transactions on its payment network–a sign of mainstream acceptance of the crypto market.

8. Dogecoin

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

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

9. Polkadot

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

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

10. Binance USD

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

The Takeaway

Cryptocurrencies can be purchased on major cryptocurrency exchanges or crypto trading platforms. While the digital-asset market is new, trendy and could be a growth opportunity, it’s important for investors to understand that it’s also highly speculative and that all the issues related to safety and security haven’t been worked out.

On SoFi Invest®, investors can trade cryptocurrencies with as little as $10. Their first purchase of $50 or greater will get them a bonus of up to $100 in bitcoin. See full terms at sofi.com/crypto. Cryptocurrencies like Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and Ethereum Classic can be traded 24/7. Plus, SoFi takes security seriously and uses a number of tools to keep investors’ crypto holdings secure.

Get started trading crypto on SoFi Invest today.

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.

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.

SOIN19161

Dec

2021

How to Read Crypto Charts: 2022 Complete Guide

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

Reading crypto charts is an important skill for anyone who wants to trade digital assets. Understanding crypto charts will allow you to perform the technical analysis necessary to make investing decisions.

Here’s what to know:

How to Read Cryptocurrency Charts

There are many potential methods for reading crypto charts.

Some factors aside from the chart itself can be worth considering too, as important events or changes in overall market sentiment can have a heavy-handed impact on charts.

For best results, traders can implement multiple methods of reading crypto charts at the same time. When several different indicators lead to similar conclusions, market observers have more confidence in their predictions. Relying on a single indicator is likely to create an incomplete picture and could be misleading.

1. Support & Resistance Levels

Support and resistance are among the most basic technical analysis concepts used when reading charts. Support refers to a potential bottom in prices, while resistance refers to a potential top. Prices tend to reverse at these points, and if they don’t, it can mean that a new trend has emerged.

When prices breakout beneath support, further declines could be possible. Likewise, when prices breakout above resistance, further increases could be possible.

Pivot points, predictive indicators that average the high, low, and closing price from the previous trading session, provide a more precise way to calculate specific support and resistance levels. Traders who are serious about reading crypto charts could begin by researching topics like pivot points more thoroughly.

2. Moving Averages (MA)

Moving averages plot a line on a chart that indicates the trend of price averages over a certain period. Investors can use MAs for just about any time frame, but many believe that long-term averages carry more weight as they include more data. The same can be said of most technical indicators.

Investors also often use multiple moving averages in conjunction with each other. For example, investors consider a “golden cross” a bullish signal, while a “death cross” is a bearish signal.

A golden cross happens when a short-term moving average rises above a long-term moving average. Often this involves the 50-day MA moving above the 200-day MA. A death cross happens when this trend reverses and the short-term moving average falls beneath the long-term moving average.

3. Volume Weighted Average Price (VWAP)

The Volume Weighted Average Price (VWAP) appears on a single line on a chart. Similar to a moving average, VWAP includes one crucial variable – volume. Including volume into the average price calculation may create a more accurate picture of previous price behavior. A trend based on low volume could be weak and reverse quickly, while a trend based on high volume is thought to be more robust.

Recommended: What Is Volume in Cryptocurrency?

4. Relative Strength Index (RSI)

The Relative Strength Index, RSI, is another often-used and easy-to-read indicator. It appears as a single line beneath the price chart itself, with a value between 0 and 100, with 50 being neutral. A low RSI reading may signal oversold conditions, meaning prices could rise soon, while a high RSI reading could signal overbought conditions, meaning prices could fall soon.

The closer the RSI is to its extremes of 0 or 100, the more reliable investors consider it. In some cases, the RSI can remain elevated or suppressed for long periods before the foretold price reversal materializes. For this reason, it can be helpful to use other price indicators alongside ones like the RSI.

5. Crypto Fear & Greed Index

The Crypto Fear and Greed Index provides an approximation of overall market emotions. Using a variety of data, the index shows a value between 0 and 100, with 100 being maximum greed and 0 being maximum fear.

This is a contrarian indicator, meaning investors might use it to do the opposite of what everyone else is doing. When the index reads below 20, that signals extreme fear, and could mean buying opportunities. When the index reads above 80, that signals extreme greed, and could mean it’s time to take some profits.

6. Trends Tend to Continue

Figuring out exactly when a trend is about to reverse can be difficult if not impossible much of the time. Many believe it’s better to just identify existing trends and try to ride on that momentum.

But how do you know exactly when a trend has changed? It’s difficult to say, and traders might disagree. In general, it’s when a pattern breaks down or prices close above resistance or below support, for example, the trend may have changed course.

7. Candlestick Charts

Candlesticks are price charts that show the high, low, opening, and closing prices of cryptocurrency during a specific time period. When you set up a candlestick chart, you’ll choose the time period that you want it to cover.

8. Bitcoin Dominance

One last factor worth taking note of when reading crypto charts is Bitcoin dominance . This number, expressed as a percentage, refers to the amount of the crypto market captured by Bitcoin. For many investors, the higher this value rises, the more bullish they are on Bitcoin, while being bearish for many altcoins.

The opposite is also thought to be true. Investors may perceive a decline in Bitcoin dominance as a bearish signal for Bitcoin and bullish for altcoins.

On April 22nd, 2021, Bitcoin dominance fell below 50% for the first time since 2018. Some market observers believe this means that Bitcoin could either fall or trade sideways for a time while many altcoins rally.

Bitcoin forks can also potentially impact Bitcoin dominance, as a new altcoin is created when this happens.

Recommended: How to Invest in Bitcoin

The Takeaway

This has only been an introduction to how to read crypto charts and tips for investing in Bitcoin and crypto. Using one or more of the above listed methods can help traders make informed decisions, but they may also want to do additional research.

Photo credit: iStock/SARINYAPINNGAM

Dec

2021

What Is the Put/Call Ratio?

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

The put to call ratio (PCR) is a mathematical indicator that investors use to determine market sentiment. The ratio reflects the volume of put options and call options placed on a particular market index. Analysts interpret this information into either a bullish (positive) or bearish (negative) near-term market outlook.

The idea is simple: the ratio of how many people are betting against the market versus how many people are betting in favor of the market, should provide a gauge of the general mood investors are in.

A high put-call ratio is thought to be bearish (because more investors are taking short positions) while a low put-call ratio is thought to be bullish (because more investors are taking long positions). Investor Martin Zweig invented the put-call ratio and used it to forecast the 1987 stock market crash.

What are Puts and Calls?

Puts and calls are the most basic types of options contracts. Options contracts give holders the right, but not the obligation, to buy or sell a specific number of shares of a given security by a certain date (the expiration date) at an agreed upon price (the strike price). For both puts and calls, one options contract is usually for 100 shares of the underlying security.

The seller of an option is also sometimes called the writer. Options writers receive a fee, called a premium, in exchange for the risk of having to buy or sell shares when the holder of the option chooses to exercise their contract.

There are many factors that influence an option’s premium, and many ways to calculate the value and the risk of options, including the Black-Sholes, trinomial, and Monte Carlo simulations.

Those interested in trading calls and puts and other options strategies may want to research the details further with our options trading guide.

For now, we’re concerned with the basics of call vs. put options so we can better understand the put-call ratio and what it means.

Puts

A put option (or “put”) gives its owner the right to sell a certain number of shares at a predetermined price by a certain date. Investors may also refer to puts as “short positions” because they represent bearish bets on a security’s future.

An investor who buys a put has the option to sell the stock at some point leading up to the expiration date of the contract. Investors may use puts in a variety of ways within the portfolio. For example, a protective put allows an investor who already owns the underlying asset to benefit even if the price of that stock asset goes down.

Calls

A call gives its owner the right to buy a certain number of shares at a predetermined price by a certain date. Calls are also referred to as long positions because they represent bullish bets on a security’s future.

An investor who buys a call has the option to buy the stock at some point leading up to the expiration date.

What Is Put Call Ratio?

The put-call ratio is a measurement of the number of puts versus the number of calls traded on a given security over a certain timeframe. The ratio is expressed as a simple numerical value.

The higher the number, the more puts there are on a security, which shows that investors are betting in favor of future price declines. The lower the number, the more calls there are on a security, indicating that investors are betting in favor of future price increases.

Analysts most often apply this metric to broad market indexes to get a feel for overall market sentiment in conjunction with other data point. For example, the Chicago Board Options Exchange put-to-call ratio is one of seven factors used to calculate the Fear & Greed Index by CNN Business.

The put-call ratio can also be applied to individual stocks by looking at the volume of puts and calls on a stock over a certain period.

How to Calculate the Put-Call Ratio

The put-call ratio equals the total volume of puts for a given time period on a certain market index or security divided by the total volume of calls for the same time period on that same index or security. The CBOE put call ratio is this calculation for all options traded on that exchange.

There can also be variations of this. For example, total put open interest could be divided by total call open interest. This would provide a ratio for the number of outstanding puts versus the number of outstanding calls. Another variation is a weighted put-call ratio, which calculates the dollar value of puts versus calls, rather than the number.

Looking at a put call ratio chart can show you how that ratio has changed over time.

Put-Call Ratio Example

Suppose an investor is trying to assess the overall sentiment for a stock. The stock showed the following volume of puts and calls on a recent trading day:

Number of puts = 1,400

Number of calls = 1,800

The put call ratio for this stock would be 1,400 / 1,800 = 0.77.

How to Interpret the Put-Call Ratio

A specific PCR value can broadly be defined as follows:

• A PCR of less than 1 implies that investors are expecting upward price movement, as they’re buying more call options than put options.

• A PCR of more than 1 implies that investors are expecting downward price movement, as they’re buying more put options than call options.

• A PCR equal to 1 indicates investors expect a neutral trend, as purchases of both types of options are at the same level.

However, while PCR has a specific, mathematical root, it is still open to interpretation, depending on your options trading strategy. Different investors might take the same value to have different meanings.

Contrarian investors, for example, typically believe that the majority is wrong. The best move is to act contrary to what others are doing, in this view. If everyone else is buying something, contrarians believe it might be a good time to sell, or vice-versa. A contrarian investor might therefore perceive a high put/call ratio to be bullish because it suggests that most people believe prices will be heading downward soon.

Momentum investors believe in trying to capitalize on prevailing market trends. “The trend is your friend,” they might say. If the price of something is going up, it could be best to capitalize on that momentum by buying, in this view. A momentum investor could believe the opposite, and that a high PCR should be seen as bearish because prices could be trending downward soon.

To take things a step further, a momentum investor might short a security with a high put-call ratio, hoping that since most investors appear to already be short, this will be the right move. On the other hand, a contrarian investor could do the opposite and establish a long position, based on the idea that what most people expect to happen is the opposite of what’s actually coming.

The Takeaway

The put-call ratio is a simple metric used to gauge market sentiment. While often used on broad market indexes, investors may also apply the PCR to specific securities. Calculating it only involves dividing the volume of puts by the volume of calls on the market for a security.

The put-call ratio is one factor you might consider as you start trading options. A platform like SoFi’s allows you to get started with options trading, thanks to its intuitive and user-friendly design. Investors can also reference a library of educational resources about options.

Trade options with low fees through SoFi.

Photo credit: iStock/PeopleImages

Nov

2021

What Is Blockchain Technology?

By SoFi | Growing Wealth, invest, Investing, Terminology | No Comments

Blockchain technology is a persistent, transparent, append-only digital ledger that can be used to track or record almost any type of asset, from goods and services to patents, smart contracts, and more. Blockchain technology relies on cryptography and a system of peer-to-peer verification to secure transactions and, in the case of cryptocurrency, to mine coins and tokens.

Although most people think of crypto when they think of blockchain, in fact the way blockchain technology works lends itself to many applications. Blockchains run on a decentralized network of computers, called nodes, which enable a form of consensus (peer-to-peer) confirmation that can drive faster, more secure transactions that are visible to everyone on the network — making fraud and duplication more difficult.

The combination of speed, security, and transparency has enabled many organizations to explore blockchain’s applications and uses. Keep reading to learn more about the pros, cons, and potential of blockchain.

Table of Contents

What Is Blockchain?
Characteristics of Blockchain
How Blockchain Came to Be
Is Blockchain Safe?
Pros and Cons of Blockchain
Blockchain vs Bitcoin
Blockchain Uses
Does Blockchain Have Naysayers?
Future of Blockchain

What Is Blockchain?

Although the word blockchain has become synonymous with cryptocurrency, and is sometimes described as “the blockchain,” there is no single blockchain. Rather, there are many different blockchains that have been developed by a wide range of organizations. So “the Bitcoin blockchain” or “the Ethereum blockchain” are indeed separate entities.

Why is it called blockchain?

Another way to phrase the question is: What is blockchain technology built with? Blockchain got its name from two of its key components: blocks of data that are appended together in chronological order to make a chain of transactions that are visible to everyone on the network.

For this reason, blockchain is considered a type of distributed ledger technology (or DLT). Once a block is updated, the new data is visible to everyone on the blockchain simultaneously.

What are nodes?

Distributed ledger technology typically relies on thousands of powerful computers, called nodes. As new data gets added, it becomes part of a block of transactions that are then verified by the nodes, which use complex mathematical calculations known as cryptography to create a hash or a cryptographic record of each transaction that cannot be reversed or deleted.

The majority of nodes must agree on each transaction before it can be added to the blockchain. Thus, no single person or computer can update the system without buy-in from the larger network. This form of consensus verification is a big reason why blockchain technology is considered more secure than most standard record-keeping systems.

What is mining, and what are miners?

The term miners may bring to mind an actual person doing the mining (for cryptocurrency, say). And while individuals can be miners if they have powerful enough hardware, a miner is basically shorthand for any entity that verifies blocks of transactions on the blockchain network. When a miner is successful in being the first to verify a block of transactions, they are typically rewarded in the native crypto of that blockchain.

For this reason, crypto mining has become a highly competitive space.

3 Main Characteristics of Blockchain

Blockchain has three main characteristics that distinguish it from other types of digital recordkeeping.

It’s decentralized

When you think about traditional digital forms of accounting and record keeping, what might come to mind is a central authority, like a traditional corporate structure, that monitors and manages a primary record keeping source.

In contrast, blockchain relies on a network of computers or nodes, as described above, to verify data and blocks of transactions — a system that requires consensus among a majority of nodes before new blocks can be added to the chain. Thanks to this peer-to-peer verification, it’s possible to avoid reliance on third party services, and there is no need for a central authority to keep tabs on transactions and asset movements.

It’s transparent

Transparency is one of the hallmarks of blockchain technology, because as each block of transactions is verified, it’s visible to everyone on the network. That way, each node has a chronological record of the data that’s been stored on the blockchain, and no single node can alter that information. If a blockchain is breached in some way, or there is an error in one node’s data, the other nodes can identify and correct it.

This transparency, in addition to other features, have helped develop the technology that smart contracts need to function on a blockchain network.

It’s super fast

Modern business operations increasingly require real-time updates and responsiveness that require highly sophisticated digital networks (like Internet of Things, or IoT) or artificial intelligence to function. Blockchain enables greater speed and accuracy that can support many business operations.

How Blockchain Came to Be

Using cryptography as part of a distributed, digital system for payments and other transactions emerged in the early 1980s, thanks to the work of cryptographer David Chaum.

In the early ‘90s, other researchers, including Stuart Haber and W. Scott Stornetta sought to enhance the verification process by adding timestamps to blocks of transactions that could not be altered, as well as a Merkle tree structure for encoding data. By the late ‘90s, data scientist Nick Szabo was working on a currency based on blockchain technology.

But it wasn’t until 2008 that developers working under the pseudonym Satoshi Nakamoto published a white paper laying out a more clear-cut case for the use of blockchain in relation to digital currencies — paving the way for Bitcoin, and soon after many other forms of crypto.

Among its many breakthroughs, Nakamoto’s research overcame a persistent hurdle in digital finance: the so-called double-spending problem. Although you can’t spend a $10 bill twice, it’s possible to duplicate the coding of digital currencies and “spend” those funds more than once. But thanks to the way blockchain is built, with timestamps and other codes that establish a payment’s validity, as well as the consensus mechanism that governs all transactions, it’s virtually impossible to execute the same financial transaction twice.

Today, not only are many cryptocurrencies also built on blockchain platforms, but a growing number of them utilize blockchain technology to create smart contracts, non-fungible tokens, and many other applications.

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Is Blockchain Safe?

One of the chief appeals of blockchain is its ability to keep transactions secure, without the use of middlemen or third parties to verify identities or confirm the exchange of property. Blockchain technology is often called “trustless” because there is no need for one entity to confirm the validity of another entity — the blockchain itself takes care of that.

As each new block of data is added to the blockchain, it’s appended in chronological order, with the latest block at the end of the chain. On the Bitcoin platform, for example, a new block is added every 10 minutes, adding to its “height.” The height of a block can refer to the location of a transaction on the blockchain, or the current length of the blockchain. As of April 2021, the Bitcoin blockchain height was over 677,350 blocks.

That doesn’t mean cyber criminals can’t attack a blockchain platform — there are several examples of blockchains being hacked — but the decentralized nature of blockchain platforms does offer a form of protection. To alter a block on the chain, a hacker or criminal would need control of more than half of all the computers in the network — a feat that’s nearly impossible. And because most blockchains are public, anyone with the right equipment can access the information stored on each block on the blockchain, adding to the transparency.

Some of the largest and best-known blockchain networks, such as Bitcoin, Litecoin, XT, and Ethereum, are public or permissionless, and typically allow anyone with a computer and an internet connection to participate. Instead of creating a security crisis, having more people on a blockchain network tends to increase security. More participating nodes means that more people are checking one another’s work and calling out bad actors.

That’s one reason why, paradoxically, private or permissioned blockchain networks that require an invitation to participate might be more vulnerable to attack and manipulation. Private blockchains may not have the same security because they lack peer-to-peer verification.

Pros and Cons of Blockchain

Blockchain’s potential seems almost unlimited, and there are a growing number of industries exploring new use cases for blockchain. Many believe that blockchain technology could transform commerce and economics. Here are some of the pros and cons of blockchain technology.

Advantages of blockchain

The upsides of using blockchain include enhanced user privacy, transactional security, lower costs, and more.

Transparency

A public blockchain uses open-source code, accessible to virtually anyone who has the necessary equipment. The technology of the blocks themselves, which are permanently linked together on a chain, permits greater visibility for all involved, which can aid peer-to-peer verification and help prevent fraud.

Cost efficiency

In traditional transactions such as using credit cards to make payments, users typically pay a fee. Eliminating third-party verification means lower costs per transaction. The use of smart contracts potentially reduces time costs as well as actual fees.

Accuracy

By using thousands of computers on the blockchain network to confirm and validate transactions, the potential for human error is all but eliminated. This leads to greater accuracy in the recording of data.

Helps prevent hacks

Decentralization makes it harder to tamper with any particular block of data, because all data is secured using peer-to-peer verification, rather than a central authority. This self-policing, so to say, contributes to the security of the blockchain.

Financial alternative

Blockchain potentially provides a banking alternative for those who are unbanked (a common problem in many developing nations), and a way to secure personal information for citizens of countries with unstable governments.

Disadvantages of blockchain

The obstacles facing blockchain’s growth and adoption aren’t only technical — especially for businesses adapting their existing operations — but in many cases regulatory.

Sustainability issues

Because blockchain relies on vast networks of super-powerful computers for almost any function (e.g. mining cryptocurrency), the technology typically uses significant amounts of energy that many believe can be harmful for the environment. In particular, crypto mining that relies on a “proof of work” system is particularly inefficient, using quantities of energy comparable to some countries.

Assuming electricity costs of $0.03~$0.05 per kilowatt-hour, mining costs (not including the cost of hardware) can be as much as $7,000 per coin. Miners who are compensated for their efforts with coins may recoup those costs, but it’s a factor for many others.

Speed bumps

Although blockchain can speed up transactions, they may not be as fast as legacy systems (like credit cards), which can process thousands of transactions per second.

Illicit activity

The security and privacy that are hallmarks of blockchain technology cut both ways, in effect, as both legal and illegal activity can take advantage of these features. Indeed, blockchain has a history of being used as part of illegal networks like Silk Road, considered part of the dark web.

Changing regulation

Blockchain technology and its many applications — especially cryptocurrency — still exist in a gray zone, as governments and businesses seek to establish new laws and policies, as well as best practices. This is changing, though, as financial institutions and other organizations begin to embrace both cryptocurrency itself as a legitimate form of payment, and explore new ways blockchain technology can be used.

What Is the Difference Between Blockchain and Bitcoin?

The reason it’s hard to separate blockchain technology from Bitcoin is that Bitcoin’s crypto (BTC), like so many types of cryptocurrency, would not exist without blockchain technology. But in the case of Bitcoin, the emergence of blockchain was critical to launching this new currency nearly 13 years ago. So although Bitcoin is built on a blockchain and relies on blockchain technology, the two entities are quite distinct.

A blockchain, or blockchain technology, is a type of digital ledger that can be used by any company. Although bitcoin was the first crypto to successfully use blockchain technology, since then thousands of other cryptocurrencies have made use of blockchain platforms.

How blockchain and bitcoin work together

In 2008, an individual or group of individuals going by the pseudonym Satoshi Nakamoto, published a paper called, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Although various digital currencies had been attempted in previous decades, as discussed earlier, this was perhaps the first to propose “a system for electronic transactions without relying on trust,” and depending instead on a peer-to-peer system of verification via a blockchain.

In January 2009, the first Bitcoins were created using a blockchain platform, and the bitcoin mining system was established.

How does crypto mining work with blockchain?

Unlike fiat currencies like the dollar or euro, cryptocurrencies typically aren’t issued or regulated by a central authority like a bank. Rather, miners use special computer hardware to do the complex mathematical cryptography required to confirm each item on the blockchain — a process called a “proof of work” that involves literally billions of calculations. When a miner successfully confirms a block of transactions on a certain platform, they’re typically rewarded with coins or tokens native to that platform.

What Is Blockchain Technology Used For?

From its roots as a platform for cryptocurrency, blockchain is now emerging as a potent force for many different kinds of businesses. Following are just a few of the current use cases that are emerging as organizations explore blockchain’s potential.

Recommended: Web 3.0 Guide for Beginners

Smart contracts

Smart contracts are part of what makes many other blockchain platforms possible. The contracts that exist on the blockchain can be executed without an intermediary, only occur when specific conditions are met, and can’t be altered.

The development of smart contracts has fueled a rise in different blockchain applications. Insurance companies, health care companies, governments, and more are exploring ways to use this technology to their advantage.

Finance

In the last year or so, one of the most disruptive new blockchain applications might be the rise of decentralized finance or DeFi. In many cases, DeFi removes the need for traditional financial institutions by giving users more control over their transactions.

Peer-to-peer lending is a popular DeFi application. Instead of getting a loan from a bank, 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.

Supply chains

Increasingly, blockchain is being used to track goods as they move from one end of the supply chain to the other, verifying quality, provenance, and even food safety in some cases.

Also, by using blockchain businesses can help identify inefficiencies within their supply chains more swiftly, while also being able to pinpoint where any item is at any given time.

Insurance

The way the insurance industry conducts business today leaves room for error and increases the risk of fraud. Indeed, false property and casualty insurance claims cost the industry more than $40 billion every year. Blockchain could offer insurance companies a way to store information securely and potentially reduce incidents of fraud via smart contracts, authentication of claims, and by creating a permanent, immutable record of all transactions.

Equity and currency trading

A decentralized exchange (DEX) is a peer-to-peer marketplace where transactions aren’t managed by banks, brokers, payment processors, or any other intermediary. On a DEX, for example, crypto traders can simply trade with each other.

Some of the most popular DEXs run on the Ethereum blockchain, and are part of the growth in DeFi apps and tools that are making more financial services available to users via a crypto wallet. In just the first quarter of 2021, DEXs saw some $217 billion in transactions. This trend could one day revolutionize the way people buy, sell, and trade assets of all kinds.

Does Blockchain Have Naysayers?

While the excitement surrounding blockchain’s ascendance gets a great deal of attention, there are, of course, skeptics as well.

Although blockchain promises to revolutionize how transactions are done, how contracts are executed, and much more, some industry analysts compare blockchain’s status to the earliest days of the internet, pointing out that it was close to two decades before the majority of people incorporated internet use into their daily lives.

In the coming years, governments and businesses would need to reconceive their basic operations, as well as their technical needs — and be prepared to make new investments in those structures — in order for widespread use of blockchain to take hold.

Certainly, the potential benefits of blockchain are compelling enough that many people are betting that there could be something akin to a blockchain revolution in the future, but it’s hard to predict when or what that will look like.

The Future of Blockchain

While the future of blockchain isn’t 100% clear, new approaches and innovations are emerging every day. For example, dozens of central banks worldwide are exploring ways to create digital currencies themselves — with China, Sweden, and the Bahamas in the lead.

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 may have entered the digital landscape as a kind of technological sidekick to Bitcoin, but the many advantages of this transparent, peer-to-peer distributed ledger technology have fueled a seemingly unlimited number of possible new use cases. Although blockchain technology will always be known for its ability to power cryptocurrency platforms, these days organizations are considering all kinds of new applications, from using blockchain to shore up supply chains, end voter fraud, support health care privacy for patients, and more.

That said, one of the most compelling applications of blockchain technology continues to be in the crypto realm, where blockchain is enabling more than digital currencies, powering far-reaching innovations like DeFi apps and tools, smart contracts, and more.

What Are Actively Managed ETFs?

How Actively Managed ETFs Work

Actively managed transparent ETFs

Non-transparent or semi-transparent ETFs

Index ETFs vs Active ETFs

How do index ETFs work?

How do actively managed ETFs work?

Mutual Funds vs Actively Managed ETFs

Fund structure

Pricing

Fees

Pros and Cons of Actively Managed ETFs

Pros

Potentially for higher returns

Greater flexibility and liquidity

Cons

Higher expense ratios

Performance factors

Bid-ask spread

Investing in Actively Managed ETFs

The Takeaway

What to Know About Investing in Cryptocurrency

Cryptocurrencies 101

Blockchain 101

Cryptocurrency Risks

Basic Cryptocurrency Terminology to Know

Address

Altcoin

Crypto

Decentralization

Distributed Ledger

Exchange

Fork

FUD

Start buying Bitcoin, Ethereum, and Litecoin today.

HODL

ICO

Mining

Multisig

Peer to Peer

Pumping

Smart Contract

Wallet

Whale

The Top 10 Largest Cryptocurrencies

1. Bitcoin

2. Ethereum

3. Tether

4. Binance Coin

5. Cardano

6. Ripple

7. USD Coin

8. Dogecoin

9. Polkadot

10. Binance USD

The Takeaway

How to Read Crypto Charts: 2022 Complete Guide

How to Read Cryptocurrency Charts

1. Support & Resistance Levels

2. Moving Averages (MA)

3. Volume Weighted Average Price (VWAP)

4. Relative Strength Index (RSI)

5. Crypto Fear & Greed Index

6. Trends Tend to Continue

7. Candlestick Charts

8. Bitcoin Dominance

The Takeaway

What Is the Put/Call Ratio?

What are Puts and Calls?

Puts

Calls

What Is Put Call Ratio?

How to Calculate the Put-Call Ratio

Put-Call Ratio Example

How to Interpret the Put-Call Ratio

The Takeaway

What Is Blockchain Technology?

What Is Blockchain?

Why is it called blockchain?

What are nodes?

Start buying Bitcoin, Ethereum,
and Litecoin today.

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