🧘♂️Worst Kept Secret
Market Meditations | May 5, 2021
Today, we turn our attention to another means of building wealth: staking. We will explore: what staking entails from a technological perspective, what it means for an investor and how you can get started with your first staking investment today.
Read, enjoy and share with your network.
At Market Meditations, we firmly believe that crypto should be accessible to everyone. That’s why we are delighted to be partnered with Exodus, one of the top cryptocurrency wallet providers.
What is Staking From A Technological Perspective
Staking can be considered a less resource-intensive alternative to mining. It involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. To understand staking, we must understand Proof of Stake (PoS) and Proof of Work (PoW). Let’s address them one at a time.
Proof of Work
PoW is the mechanism that allows transactions to be gathered into blocks. These blocks are linked together to create the blockchain. More specifically, miners compete to solve a complex mathematical puzzle, and whoever solves it first gets the right to add the next block to the blockchain.
✅ Advantages? PoW has proven to be a very robust mechanism to facilitate consensus in a decentralised manner.
❌ Disadvantages? It involves a lot of arbitrary competition. The puzzle the miners are competing to solve serves no purpose other than keeping the network secure.
Proof of Stake
The main idea is that participants can lock coins (their ‘stake’) and at particular intervals, the protocol randomly assigns the right to one of them to validate the next block. The probability of being chosen tends to be proportional to the amount of coins: the more coins locked up, the higher the chances.
✅ Advantages? Some argue that the production of blocks through staking enables a higher degree of scalability for blockchains (what determines which participants create a block isn’t based on their ability to solve hash challenges as it is with PoW). This is one of the reasons the Ethereum network is planned to migrate from PoW to PoS in a set of technical upgrades collectively referred to as ETH 2.0.
❌ Disadvantages? Locking up funds in a smart contract is prone to bugs, so it’s always important to use high quality wallets or exchanges.
What does Staking Mean For an Investor
If you are not interested in the technological perspective, it is sufficient to think of staking as the act of locking cryptocurrencies to receive rewards. Or, if you like, the equivalent of opening a savings account on the blockchain. Like a savings account, your balance will accrue additional income. While each Proof of Stake blockchain has its particular staking currency, some networks adopt a two-token system where the rewards are paid in a second token. Each blockchain network may use a different way of calculating staking rewards.
For some other networks, staking rewards are determined as a fixed percentage. A predictable reward schedule rather than a probabilistic chance of receiving a block reward may look favourable to some. And since this is public information, it may incentivise participants to get involved in staking.
Risks of Staking
Market Risk: even if you’re earning 25% APY, if the price of the asset you’re staking decreases significantly, you will have still lost money.
Liquidity Risk: if the asset you’re staking is illiquid, converting it back to stablecoins or Bitcoin could present a challenge.
Lockup Periods: occasionally, a requirement for staking is locking up your crypto for a fixed period of time anywhere from 24 hours to a few years. If you’re unable to sell your crypto due to the lockup period, you could lose money.
Validator Risks: if you’re running your own validator node, this is a highly technical (and costly) process. Make sure to take this into account.
Get Started with Your First Staking Investment Today
In most cases, you’ll be able to stake your coins directly from your crypto wallet, such as your Exodus wallet. On the other hand, many exchanges (such as FTX) offer staking services to their users. Note you are not directly involved in staking but rather, you are contributing to a staking pool: a staking pool is a group of coin holders merging their resources to increase their chances of validating blocks and receiving rewards. Many pool providers charge a fee from the staking rewards that are distributed to participants.
1️⃣ Staking With Your Crypto Wallet
Staking inside of Exodus is as simple as finding the crypto you want to stake and start earning rewards. Cryptos you can stake on Exodus: Algorand, Cardano, Cosmos, NEO/GAS, ONT/ONG, Solana, Tezos and VET/VTHO. Exodus provides a video guide on how to start staking both on your mobile or desktop.
Step 1 – If you don’t already have Exodus on your mobile or desktop, begin by deciding where you want to download it.
Step 2 – Once you have downloaded Exodus, click on settings and navigate to the Apps tab, where you will want to select the ‘Rewards’ option.
Step 3 – You’ll then see the cryptos that have earning potential and their APY rates. Each crypto asset has its own rules which are revealed when you click ‘Get Rewards’.
2️⃣ Staking With Your Crypto Exchange
Using FTX as an example, you can use the exchange to stake FTT (their native token). Note that if you click on our referral link, you will be eligible to receive a discount. FTX provide a 4 step guide on getting started:
Step 1 – Go to https://ftx.com/markets and pick your FTT pair
Step 2 – Go to the FTT page (https://ftx.com/ftt) or click “FTT” on the top bar
Step 3 – Scroll down to “FTT Staking” and click “Stake”
Step 4 – Put in the amount and click “Stake”
And thus concludes our staking guide. Looking for more ways to generate passive income? It has been our intention for some time to provide our readership with means to build wealth. And so, we can direct you to the following resources: Passive Income Guide, Building a Bull Market Edge through Stablecoin Yields and Yield Farming Guide.
Chainlink Real Estate?
SmartZip, an automated marketing and predictive analytics platform for the real estate industry has announced last night their decision to launch their own Chainlink node. This node enables SmartZip to supply data such as property prices, geographic patterns and trends, predictive pricing models, market valuations, and more in a secure, reliable way through cryptography. Let’s take a look at the details.
According to Robert Reardon, General Manager of SmartZip, “Chainlink offers SmartZip a quick, easy, and secure solution for transitioning our current API infrastructure to support blockchain networks.” More specifically, Chainlink sets itself apart in the following ways:
Data Signing: all on-chain data is authenticated by the node
Blockchain Agnostic: the node enables SmartZip to collect all data through one funnel
Secure Infrastructure: audited, open-source software
This is not the first time we’ve seen Chainlink being used by companies in the real-world. As crypto traders and investors, it’s important to separate projects with real fundamental use-cases and projects that are simply pump and dumps. This doesn’t mean projects without use-cases cannot pump (in fact, we’ve seen that these at times pump the hardest). The takeaway here is that you need to create a strategy that works for your risk tolerance and time horizon and this strategy may differ depending on the coin that you’re trading or investing in.
Trading 101: Crypto Market Cycles with Koroush AK
In this episode, we talk about maximizing returns through the understanding of market cycles. Key Takeaways:
Market cycles showcase tendencies that can inform your trading. There are no certainties in financial markets however understanding tendencies unlocks the ability to win more often than you lose and in doing so, become a profitable trader.
Markets will oscillate between the secular (long-term) trend or midpoint. There will be times where asset valuations exceed this reasonable midpoint and vice versa. Consider the long term trend and position your portfolio for a reversion back to that midpoint.
Consider investor behaviour to ascertain what stage of the market we are in. When valuations are excessively high, sentiment will be positive. Market participants will have made money so will be happy to hold their assets and will likely be aggressively taking on risk. When valuations are excessively low, the opposite will be true.
Money flows in crypto tend to follow a cyclical pattern. As traders in Bitcoin see the price rise and their profits increase, they will begin to rotate into assets that have not yet pumped. This flow is often Bitcoin – large caps – mid caps – low caps. When ETH/BTC is bullish and Bitcoin dominance is dropping it is a sign that capital is flowing out of Bitcoin, into Altcoins.
It is near impossible to accurately predict the perfect time to rotate. Sell too early or too late and you may miss out on a parabolic move up. To overcome this, don’t trade with your entire portfolio and instead, hold some Bitcoin as a long term investment that you never rotate. In addition, consider rotating incrementally at fixed intervals.
Be cautious when rotating assets out of Bitcoin into lower market cap altcoins. Liquidity decreases during this rotation making it easier for a small group of investors to manipulate the price, thus increasing your risk. To help mitigate this, diversify your altcoin selection and consider rotating some profits into stablecoins, giving you purchasing power in the event of a correction.
Always trade with the market. Not even the most bullish technical altcoin set up will play out if Bitcoin begins dropping aggressively. Form your view on the overall trend of the market and ensure never to trade against that view.
Some of the links we’ve included are affiliate, they give you rewards and discounts and earn us a commission. Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.