?> Cryptocurrency Archives - projectfinance

Category: Cryptocurrency

ProShares BITO ETF Explained

Posted on by Mike Martin

Last updated on February 11th, 2022 , 10:54 am

Bito ETF Bitcoin

The long-awaited first futures-based bitcoin ETF is about to start trading. 

ProShares will be the first to market with their BITO ETF. 

Just a few days before this announcement, projectfinance coincidentally wrote an article on the risks of futures-based ETFs. Be sure to check that out for a more in-depth understanding of how these types of funds work. 

Though many investors will surely buy ProShares BITO ETF on the day it begins trading, the savvy investor will do a little research before jumping the gun. 

In this article, projectfinance aims to aid in this research by taking a step back, and examining what, exactly, is inside the ProShares BITO ETF. 

Additionally, we will take a look at a few of the pros and cons that come from ProShares’ “futures-based” methodology to track bitcoin. 

   Highlights

  • A futures-based ETF poses significantly more risks when compared to traditional equity ETFs

  • Contango, futures markets halts and incredibly high expense ratios will eat away at the value of bitcoin ETFs, such as BITO. 

  • A bitcoin ETF will introduce some benefits, such as ease of access, broker SIPC protection and potential backwardation

  • Net-net, investors will probably be better off investing directly in bitcoin rather than the BITO ETF

Introducing BITO: ProShares Bitcoin ETF

Most retail investors are familiar with equity-based ETFs, such as State Street’s S&P 500 ETF, SPY. This ETF invests directly in the stock of the companies which comprise America’s largest 500 companies. The correlation of the SPY ETF is tightly aligned to the S&P 500 index.

The value of ProShares BITO ETF, whoever, is not derived from stocks, nor is it derived from actual bitcoin; it is derived from the value of futures contracts that track bitcoin. 

The below is taken from ProShares BITO “Prospectus”.

ProShares’ approach here will almost inevitably result in inefficiency. However, a futures-based ETF on bitcoin will also offer investors a few advantages when compared to investing in the actual coin.

Spoiler Alert: In my humble opinion, when compared to owning bitcoin outright, the risks of a futures-based bitcoin ETF far outweigh the potential rewards.

Let’s start off by exploring why a futures-based bitcoin ETF may be a disaster in waiting.

Cons of a Futures-Based Bitcoin ETF (BITO)

From a tracking risk perspective, a bitcoin ETF formed from futures products certainly poses numerous risks. Let’s look at a few of these risks now. 

1. Contango in ProShares BITO

Contango and Backwardation Graph

Contango is first here for a reason. In almost all futures-based ETFs (like BITO), the passing of time eats away at the value of the product. Why? 

We mentioned earlier that BITO will not invest in actual cryptocurrency, but futures contracts on the Chicago Mercantile Exchange (CME) that track bitcoin. 

But futures contracts expire. Therefore, to remain invested in bitcoin, ProShares must “roll” their bitcoin futures from one month to the next. 

At the time of this roll, we will receive usually fewer proceeds for the closer, or “front-month” contract than we pay for next month’s contract. This doesn’t happen all the time (more on backwardation later), but it happens most of the time. Some months, the discrepancy in pricing can be quite material. You can see this discrepancy in the image below.

The result? Every month, the ETF will shed a little more value. Perhaps barely perceptible at first, added up over 12 months, you will for sure see this decay in action. And after 12 years? You’ll probably wish you had invested directly in the coin. 

Bitcoin Futures Quotes

CME-Bitcoin Futures Quotes

2. BITO ETF and Futures Market Halts

Bitcoin Halt

Products that trade on futures markets in the US are at risk of being halted. This happens when a product either increases or decreases in value too much over the course of a trading day. 

In May of 2021, the price of bitcoin dropped so much, the Chicago Mercantile Exchange halted trading on bitcoin futures contracts. 

At this time, Canada had already approved 2 bitcoin ETFs (issued by Horizon ETFs). Because of this halt, the issuer was at risk of not being able to honor the days buy and sell orders. 

Bitcoin ultimately rallied and began trading again shortly after the halt, so we’ll never know how bad this situation could have gotten.

This could very well happen in the BITO ETF. Given bitcoins volatility, it seems more a question of when, not if.

3. BITO’s Insanely High Expense Ratio

Let’s talk for a moment about what few are talking about: the painfully high expense ratio of 0.95% that ProShares BITO ETF is charging.

Source: ProShares.com

I couldn’t believe this expense ratio when I saw it. Perhaps I’m spoiled (most of my ETFs at Vanguard charge less than 0.10%), but, in 2021, I would never pay almost 1% for a company to manage my ETF. This is especially true when considering the fact BITO is almost sure to underperform the underlying.

If bitcoin performs half as well as many forecasters believe it will, that almost 1% over the course of thirty years could very well cost you a shiny new car.

When this expense ratio is coupled with the decaying risk of contango, investors should for sure second guess investing in the BITO ETF.

Pros of a Futures-Based Bitcoin ETF (BITO)

There are indeed a few advantages to a bitcoin ETF. For those that like to make lemonade out of lemons, read on. 

1. BITO ETF Offers Better Correlation than Trusts

Up until the release of a bitcoin futures ETF, the only exposure retail investors had to cryptocurrency was either through futures contracts or trusts. Futures entail too much risk for the average investor, and the correlation between cryptocurrency trusts and their representative underlying coin has been undulating wildly. 

Take a look at the below image from TradingView comparing the price performance of Grayscale’s GBTC Trust to Bitcoin.

When compared to cryprocurrency trusts (such as GBTC and ETHE), a bitcoin ETF should provide a better correlation with the coin itself. The futures ETF approach is formulaic and contingent less upon wavering supply/demand, which caused the above miscorrelation.

2. BITO ETF May Benefit from “Backwardation”

We talked earlier about the risks of BITO and “contango”. A possible benefit of BITO would come with an opposite market dynamic: backwardation. This market anomaly occurs when longer-dated bitcoin futures trade below front-month futures contracts. Just remember, this is a RARE event. 

3. BITO ETF Eliminates General Hassle of Owning Bitcoin

Deciding to purchase bitcoin outright can be a lengthy, time-consuming process. If you want to own an actual bitcoin, you must:

1. Choose a crypto exchange

2. Create and set up an account verification method (which may be difficult for older, less technologically savvy investors)

3. Link the account to your bank and deposit funds

4. Trade the actual currency

5. Choose a storage method for the currency (the most time-consuming of all the steps)

6. Track buys/sells for year-end tax reporting

Now compare the above steps to simply queuing a buy order in your trading software for “BITO” and getting a 1099-B  in the mail.

4. Buying BITO through a SIPC Recognized Broker Offers Security

Most futures-based ETFs are purchased through brokers. Many investors using brokerage accounts are protected under the Securities Investor Protection Corporation (SIPC). The SIPC provides financial insurance should your broker fail. Though this insurance does not protect the securities in your account, it will help to cushion the blow should your broker have a liquidity crisis. 

Why is this important? You may remember a now-defunct crypto exchange out of Japan called Mt. Gox. At its zenith, the exchange handled more than 70% of crypto transactions worldwide. In 2011, hackers broke through the exchange’s security and began siphoning out bitcoins from customer accounts. We’re not talking one or two; the hack resulted in a loss of 850k bitcoins, which represented more than 5% of bitcoin in circulation at the time. 

SIPC insurance provides some financial protection to you should your broker fail. The below is taken from the SIPC website:

Mt. Gox did not have SIPC insurance, but chances are, if you purchase BITO through a broker like Tastyworks or Ameritrade, your account is protected (up to the above listed dollar amount).

NOTE: Again, this insurance does not protect the value of BITO; it simply protects against your broker failing. 

Of course, there still is a risk here. When Mt. Gox was hacked, bitcoin tanked by 20%. Can you imagine what would happen to the price of bitcoin today if Coinbase was hacked? A futures-based ETF would plummet right along with the underlying product.

Final Word

For investors who don’t want to spend the time or effort investing in bitcoin directly, futures-based bitcoin ETFs such as ProShares’ BITO is probably the next best option. 

That being said, if in 20 years bitcoin has skyrocketed from its current level, you will likely regret not taking the time to invest in bitcoin the more traditional way. Additionally, you could also invest in a company that invests in bitcoin, such as Microstrategy. 

With BITO, you will pay a premium that is not, in my opinion, worth it.

Recommended Articles

The HUGE risks of a Bitcoin ETF: Futures ETFs Explained

Posted on by Mike Martin

Last updated on February 11th, 2022 , 12:40 pm

Bitcoin Decay

The prospect of a bitcoin exchange-traded fund (ETF) has been exciting retirement investors for years. After all, aren’t ETFs a great and easy way to provide exposure to a security?

Yes…and no.

The SEC has sure taken its time in approving a bitcoin ETF, and for good reasons.  

In this article, projectfinance will explore these concerns. Hopefully, by the end, you’ll understand why a bitcoin ETF based on futures contracts probably shouldn’t exist. 

Let’s start by understanding the difference between traditional ETFs, and those based on futures contracts (which would be the case for a bitcoin ETF). 

   Highlights

  • A bitcoin ETF will likely be based on futures contracts

  • Futures-based ETFs pose much greater risks than more traditional stock-based ETFs

  • In futures ETFs, contango occurs when the front-month futures contract is valued less than the next month futures contract

  • In addition to contango risks, trading halts on bitcoin futures could have devastating effects on a bitcoin ETF

Future Based ETFs vs Stock Based ETFs

Futures Based ETFs Definition: Exchange-traded funds that attempt to track the performance of an underlying security by investing in one or more futures contracts based on that security. 

First off, let’s understand that not all ETFs are created equally. 

The vast majority of listed ETFs attempt to mirror the performance of their respected index/sector by investing directly in the stocks (equity) that comprise that index. 

Invesco’s QQQ and State Street’s SPY are two such funds. 

QQQ invests directly in the 100 stocks which constitute the Nasdaq-100. SPY invests directly in the 500 stocks which constitute the S&P 500. 

Together, SPY and QQQ represent two of the most widely traded stocks in the entire world. And for good reason; for very low expense ratios, the two ETFs provide direct equity exposure to two of the most highly sought-after indices in the world. 

The keyword here is “equity”. When we invest in equity-based ETF, we know exactly what we are getting: stock. Unlike futures contracts (or options contracts), equity does not expire. Because of this, the correlation between equity ETFs is usually almost 1:1 with the index. 

But this article isn’t focused on equity ETFs; we’re looking at futures ETFs. If you’re brand new to the ETF world, you will understand this material better if you have an understanding of more traditional ETFs first. Reading our article “ETFs Explained: Investing Basics” may be a good starting point for you!

So let’s assume you’re a savvy investor already familiar with the more basic ETFs that provide stock exposure; what if we wanted to invest in a sector that doesn’t have direct stock exposure, such as commodities or volatility?

Futures ETFs Overview

There are numerous futures-based ETFs. In this example, we are going to study only one. If you know how a natural gas futures-based ETF works, the others should be easy to understand (such as a bitcoin futures ETF).

Natural gas prices are skyrocketing. If you wanted to go long on natural gas, there is no stock you could buy that gives you direct access. It isn’t a “company”, but a commodity.

You could buy a natural gas futures contract (/NG) of course, but you need a pretty strong stomach to trade futures, particularly on a commodity as volatile as natural gas. 

Investors wanted a way to gain exposure to natural gas without trading futures contracts. To satisfy this demand, a company called USCF created the United States Natural Gas Fund (Ticker:UNG).

How Futures ETFs Work

So what does UNG invest in since it can’t purchase stock to mirror an index (such as QQQ and SPY)?

Futures! The below is taken from the “Fund Details” page of the UNG fund:

The key to understanding the risks of futures ETFs (like those proposed on Bitcoin) lies in their constitution.

Like options contracts, futures contracts are constantly expiring. If you were running a futures ETF and your current contract was expiring, what would you do? You’d have to roll the expiring futures (front-month) to the next month. 

Therefore, these types of funds must “roll” the futures that comprise their funds in order to stay alive. 

But what if the futures price is different from the price of the actual underlying commodity? That leads to inefficiency. 

Additionally, what about the difference in price between the front month and later month’s futures contract? Is there a difference in price? Yes! And we will likely have to pay in order to establish this roll. More inefficiency.

“Contango” and “Backwardation” in Futures ETFs

Contango and Backwardation Graph

The methodology many futures ETFs employ introduces investors to a risk called “Contango” and “Backwardation” (CME Group) – the latter of which can be a benefit but happens less frequently!).

Contango Definition: Contango occurs when the futures price of a commodity/product is higher than the spot price. In regard to futures ETFs, contango occurs when the front-month futures contract is valued less than the next month futures contract

Backwardation Definition: Backwardation occurs when the futures price of a commodity/product is lower than the spot price. In regard to futures ETFs, backwardation occurs when the price of the later expiring future is trading at a value less than the front-month futures contract. 

A little contango occurs naturally in most futures prices because of “the cost of carry”. This is not good for the health of an ETF. Things get really bad for futures ETFs when the contango spread widens. 

Futures ETF in Contango Example

Let’s say the UNG fund is long 100 front-month futures in natural gas. That future is soon to expire. Therefore, to remain exposed to natural gas, the fund must “roll” the future contract to the next month. 

However, futures that expire at a later date often trade at a premium (because of the cost of carry). 

Take a moment to study the different prices of various natural gas futures contracts below from the CME Group’s website. Do you see how the further away from the present date we go, the more expensive the contracts get?

HENRY HUB NATURAL GAS FUTURES

Therefore, when UNG rolls the position from the front-month to the next month, they will incur a small loss. If they did this once, no big deal. But they do it every month!  Will we pay more sometimes than other times? If so, the ETF price will decay with time. 

Are you beginning to see why futures ETFs in bitcoin may spell trouble?

If you’d like to learn more about what could go wrong in a futures-based ETF, check out our video below, highlighting the rise (and decline) of a few volatilities exchange-traded notes (ETN), which use futures in their construction. 

Bitcoin Futures ETF: A Grim Prospect

The more volatile a security is, the more risk an exchange-traded product has when “rolling” its position. 

Last year, Bitcoin shed over 37% of its value in one single day. Bitcoin is volatile as hell, and this poses HUGE risks when it comes to futures ETFs. 

Take a look at the below screenshot from the CME Group, which shows us the various pricing for futures contracts on Bitcoin. Again, you’ll notice how the further out we go, the more expensive the contract becomes. 

CME-Bitcoin Futures Quotes

CME-Bitcoin Futures Quotes

What concerns us is what the premium paid to roll to the next month, and subsequently, the month after that. Will we pay more sometimes than other times? Remember, these quotes are in constant flux!

Contango therefore may indeed post a great risk to futures-based bitcoin ETFs.

But this isn’t the only risk for these types of funds.

Canadian Bitcoin ETFs: A Cautionary Tale

Canada has beaten America in the race to permit bitcoin ETFs; they have already released two. 

The performance of these ETFs (issued by “Horizon’), however, can be a portent for what is to come for Americans should the SEC permit a futures-based ETF on bitcoin. 

In May of 2021, the price of bitcoin tumbled. If you just owned the coin, that would be fine – there is nothing you need to do but wait (and pray!) for the price to go back up. 

However, if you were trading futures on bitcoin during this time, you may have been in trouble. Why? 

The price of bitcoin dropped so much, the Chicago Mercantile Exchange halted trading on the contract. 

Horizon ETFs out of Canada use the CME futures to create their bitcoin ETFs. The problem?

According to the Financial Times, the company (which runs two bitcoin ETFs), sent an email to their market markets stating that, should Bitcoin remain halted, they would not be able to honor the days buy and sell orders. 

Fortunately for them, the price of bitcoin recovered, and futures on bitcoin began trading again, which allowed them to honor all of the buy and sell orders of the day. 

But what if Bitcoin continued to go down? What would happen to their ETFs? That’s a good question, and one surely the SEC is going over right now.

Final Word

At the end of the day, there are plenty of better alternatives to getting exposure to bitcoin than a futures ETF. Unfortunately, many of these are out of reach for retirement accounts. You can indeed open a bitcoin IRA, but, for most people, this is simply too much work. 

Grayscales’ bitcoin ETF (GBTC) was once a great way for retirement investors to get access to bitcoin. For a while, it traded at a massive premium to bitcoin! However, for a long time since, it has been trading at a steep discount. It is very frustrating when bitcoin is up 1% on the day and your bitcoin trust is down 2%!

Perhaps someday there will be an ETF that directly invests in bitcoin rather than futures on bitcoin. Until then, getting exposure to cryptocurrencies via the stock market could very well end in disappointment.

Additional Resources

Launch of the first US bitcoin ETF: mechanics, impact, and risks

5 Altcoin Investments in 2022

Posted on by Mike Martin

Last updated on February 14th, 2022 , 09:01 am

Horse Race

Altcoins: Proceed With Caution

Is diversification in the crypto space as important as diversification in the stock market? In theory, it sounds like a good idea. That being said, it isn’t common for equities to skyrocket and plunge over 20% on a daily basis as many cryptos do, including Bitcoin. 

In addition to cryptos’ wild swings, investors should also take note that more than half of the Top 100 Cryptos have no utility! In other words, other than a store of value (not unlike used Nike sneakers), most cryptos have no working value. Zilch. 

Nobody knows what the future holds for cryptocurrencies. To put a case for cryptos into perspective, let’s examine them through the lens of two potentially ticking time bombs: modern fiscal and monetary policy.

The total global debt number currently sits at 280 trillion. In the US alone, the per capita (per person) debt equates to over 85k. It doesn’t matter if you’ve balanced your checkbook, paid off all of your credit cards, and own your house outright. Compliments of the US government, you’re still in debt over 85k. That’s what happens when short-term politicians set long-term fiscal policy. 

   Highlights

  • Mounting US debt could devalue the US  dollar, giving an upside advantage to cryptos.
  • There are numerous coins aside from bitcoin that provide real-world utility. 
  • Ethereum, Cardano, Litecoin and Stellar Lumens are all speculative investments with potential upside.
  • Stable coins are pegged to the price of a fiat currency, usually the US Dollar.
  • Interest rates on stable coins offer investors higher returns than typical banks.

Inflation and Cryptocurrencies

So what does this debt have to do with cryptocurrency? When a government issues excess debt, the demand for that debt naturally goes down. This lower demand causes inflation, and inflation causes the value of fiat currencies (US Dollar, Mexican Peso, etc.) to decrease in value. 

In other words, your money in the bank will be worth less than it was, thus decreasing your purchasing power. In the old, old days of 2016, this scenario would have been a great catalyst for a surge in gold, but gold has been losing some of its thunder lately to cryptocurrencies. 

Runaway inflation may happen in the coming years, but if history repeats itself, it probably won’t be as severe as me and other doomsayers believe it will be. Even if inflation does sweep through the US economy, who is to say the value of cryptos won’t crash with everything else? There has been an increasing corollary between bitcoin and the Nasdaq recently.

Are cryptocurrencies a safe and viable alternative to the US dollar? In the long run, who knows. It’s the wild west out there folks. 

Bitcoin has been on a tear, and the entire world is eager to invest in bitcoin ETFs, but these ETFs are trading at a high premium (and pose risks to investors). We made a list of some Bitcoin alternatives for those looking to diversify their crypto holdings, as well as those who can’t seem to get over their FOMO (fear of missing out) from the latest crypto run. 

Here are a few of the wild mustangs that may or may not compete with Bitcoin, just in case you missed that stallion.

5 Month Performance of Alernative Cryptos

Chart created from https://coinlib.io/

1. Ethereum (ETH)

Market Cap: $323 billion

System: proof of work (PoW)

Before the second half of 2021, Bitcoin never truly had a worthy contender. That all changed recently when the limelight was suddenly shining on Ethereum.  

Mark Cuban has compared Etherum not to Bitcoin, but the internet because of its network-like characteristics. While Bitcoin acts simply as a peer-to-peer network cash system, Ethereum is trying to become a currency that also serves as a working infrastructure. 

When Russian-Canadian programmer Vitalik Buterin created Ethereum in 2013, he had in mind Bitcoin’s minimal utility. He intended to create a coin that complemented Bitcoin; he ended up creating Bitcoin’s most viable competitor. 

In an interview with Business Insider, Buterin compared Bitcoin to a pocket calculator and Ethereum to a multi-functioning smartphone. He believes that increasing the power of a currency makes it more general purpose. 

In addition to Ethereum’s platform-like utility, it is also faster than Bitcoin. If you think Etherum is the way of the future, you won’t be alone; companies like Mastercard and JP Morgan are pouring money into ConsenSys, which is building Ethereum blockchain infrastructure. 

Here are a few reasons that Ethereum made the number one spot on our list:

◉ Utility

Ethereum has applications beyond the ether token; the vast majority of NFTs are part of the Ethereum blockchain.

◉ Improving Energy Efficiency

Though already more energy-efficient than Bitcoin, Ethereum has plans to cut its energy consumption by 99%!

◉ Smart Contracts

Ethereum uses “smart contracts” to replace intermediaries, which increases the speed and efficiency of transactions.

2. Cardano (ADA)

Market Cap: $55 billion

System: proof of stake (PoS)

Cardano Coin

After stagnating for a few years, the environment-friendly Cardano recently came screaming back to life. With a market cap of over 58 billion, it has now dwarfed that of Litecoin, which currently has a market cap of only 13 billion. Let’s examine why.

In a recent interview with Forbes, the founder of Cardano, Charles Hoskinson, recently stated Cardano was 1.6 million times more energy-efficient than Bitcoin. On the tail of Elon Musk’s anti-Bitcoin tweet (Musk was concerned about fossil fuels being used to mine for Bitcoins), investors went scrambling for energy-efficient alternatives and found Cardano. 

The price of Cardano soon climbed to over $2, an all-time high for the coin. Although this search for energy-efficient coins put Cardano in the public spotlight, it was outperforming before even then. Let’s take a look at a few of Cardano’s compelling characteristics to find out why.

◉ Hard fork combinator

This Cardano feature allows for more seamless forks. The combinator feature will be of particular interest to those who watched the now infamous Bitcoin fork of 2017.

◉ Proof of State Technology

Compared to proof-of-work technology (like that of Bitcoin), proof-of-state technology does not incentivize extreme energy consumption.

◉ Existing real-world application

Cardano has already proved its functioning utility with pre-existing relationships with developing nations such as Georgia.

3. Litecoin (LTC)

Market Cap: $12 billion

System: proof of work (PoW)

Litecoin Image

Photo by Executium on Unsplash

Litecoin is a commonly mentioned name in the Crypto world, and a relative dinosaur compared to all the new burgeoning coins. Today, the wildly popular cryptocurrency exchange platform Coinbase offers over 25 currencies. A few years ago, the exchange only offered a few, one of which was Litecoin. 

Litecoin, a peer-to-peer coin, was created in 2011 by former Google employee Charlie Lee as a spinoff to Bitcoin. Lee made headlines in 2017 when he sold and donated all of his Litecoin to charity (such charitable minds seem to be more common in the crypto space when compared to traditional banks – hmmm).

Technically speaking, Litecoin is nearly indistinguishable from Bitcoin. Here are three of the very few advantageous reasons to choose Litecoin over Bitcoin.

◉ Speed

Litecoin aims to process a block in 2.5 minutes. This is faster than Bitcoins average of 10 minutes.

◉ Script Algorithm

Litecoin’s usage of Script in its proof-of-work algorithm may ultimately result in making the coin more accessible to users when compared to Bitcoin’s more antiquated SHA-256 algorithm.

◉ Market Cap

Bitcoin’s market cap currently sits at 958 billion. In contrast, Litecoin’s market cap is currently under 12 billion. Considering the similarities of these two currencies, and Litecoin even beating Bitcoin on a few levels (such as Script), Litecoin may have some catching up to do. 

4. Stellar Lumens (XLM)

Market Cap: $8.8 billion

System: open source software

The fourth coin on our list was a toss-up between Stellar Lumens (XLM) and Ripple (XRP). We have tried to focus on coins that actually provide real-world utility in this post, and both of these coins aim to facilitate low-cost, cross-border transactions. Stellar won here, mainly because it doesn’t have a massive SEC lawsuit pending. 

Transactions conducted on the Stellar open blockchain network platform use their own native coin, Lumens – XLP. Because of its low-cost and global-friendly infrastructure, Stellar has been attracting a lot of attention in the financial institution space. If you were a bank sending/receiving a few billion, would you rather that transaction be done immediately at minimal cost, or over the course of a few days with high fees? Stellar allows for the former.

Stellar is also an attractive alternative to those more green-minded – unlike Bitcoin, with Stellar, no coins are actually mined. This means very little energy is required to run the software. 

Perhaps the reason for Stellar’s similarity to Ripple is that its founder, Jed McCaleb was a founding member of Ripple Laps. Let’s take a look at a few reasons why Jed’s product may be advantageous to have in your portfolio.

◉ Real-world value

Unlike the vast majority of altcoins, Stellar has proven its utility. Over time, the usage of cryptocurrency will most likely increase. Stellar is positioned well for future growth in the high-stakes corporate space.

◉ No pending lawsuit

Nobody knows what the repercussions of the pending Ripple lawsuit will have on XRP. Since Stellar Lumens is almost identical to XRP, market share may very well drift in its direction should the SEC rule unfavorably.

◉ Accessibility

Some of the more exotic altcoins are difficult to trade, forcing would-be buyers to go through complex and time-consuming affairs just to get access. The Stellars XLM coin is available to trade on most exchanges. This allows for greater market access.

5. US Dollar Stable Coin with BlockFi (USDC)

Market Cap: $23 billion

System: Interest-bearing acount

The last coin on our list isn’t particularly a coin at all, but the interest that can potentially be made on coins. BlockFi treats your coins in the same fashion banks treat your cash; by paying interest. 

BlockFi is currently paying out eye-opening APY interest rates on several cryptocurrencies held with them, including Bitcoin and Ethereum. For some coins, the rate you receive depends on the amount of coin you have with them, e.g, if you own 5 Ethereum coins held with BlockFi, you would receive a 1.5% APY interest rate with them. Not bad! How can they afford to do this? Like banks, BlockFi is also in the business of lending money, and they do this at rates far higher than the rates they are paying us, the lenders. 

But it isn’t Bitcoin or other currencies that made the number 5 spot on our list, it’s the USDC (US Dollar Coin) held specifically at BlockFi. Why? Right now, BlockFi is paying an interest rate of 9% APY for USDC held with them. That’s incredible! So, what’s USDC?

Stablecoins

USDC is a stablecoin. Stablecoins are pegged to the market value of a currency or commodity. The USDC is pegged to (you guessed it) the US Dollar. This makes for a far less volatile coin. The current USDC price is therefore $1, as you would suspect. 

With the best traditional saving account rates on the market currently paying around 0.05% interest, BlockFi’s return is exponentially better.

If you’re interested in opening an account with BlockFi, projectfinance has an affiliate program with them where you can get up to $250 in free bitcoin for depositing funds into one of the two stable coins they offer, both of which pay over 7% in interest. 

However, this high interest rate comes not without risk. Your money in the bank comes with a 250k FDIC (Federal Deposit Insurance Corporation) insurance policy from Uncle Sam should that bank go belly-up. BlockFi? Not so much. This is assuming the worst-case scenario, and with crypto, you always have to keep that in mind.

Runner Up Altcoins

  • Bitcoin Cash (BCH)
  • Polkadot (PKD)
  • Monero (XMR)

Conclusion

There are over 4,000 different Cryptocurrencies in existence. Investing in any of these coins is a risk, no matter how you look at it. Who’s to say next year a far superior coin won’t be created, making all the Bitcoin and Ethereum of the world dinosaurs? What will it be? Peaches and Cream coin? Dalmatian Coin? Who knows. 

That being said, crypto does seem at the moment to be a viable hedge against the mounting debt and nascent inflation mentioned at the beginning of this article. Just remember, never invest more than you’re willing to lose. Invest small, lose small.

*Notable and very deliberate exclusion: Dogecoin (DOGE)

Happy trading.