Image Credit: Quote Inspector (Flickr)

Bitcoin and Ethereum are Usually Grouped Together, Should They Be?

 

The two largest cryptocurrencies based on valuation are Bitcoin (BTC) and Ethereum (ETH). Both are powered by blockchain and the complex technology of distributed ledgers and cryptography. But they differ quite a bit in their purpose and trade differently. While speculators may not concern themselves with the differences, understanding each of their functions and limits allows better decision-making for those that are involved.

Differences

The
whitepaper that launched Bitcoin 13 years ago this week has an unknown author, as the creator(s) of Bitcoin remains a mystery. The founder of Ethereum, Vitalik Buterin, was only16 when he started a publication called Bitcoin Magazine; at 21-years-old (2015), he launched Ethereum.

Bitcoin was created as an alternative to currency to be accepted as a medium of exchange and store of value. Unlike Bitcoin, the goal of Ethereum is not just to serve as an alternative monetary system, although Ether does, but rather to facilitate and monetize the operation of the Ethereum smart contract and decentralized application (dapp) platform.  Decentralized applications are open source and, to date, provide a foundation for products and services such as finance, art, games, tokens, and media applications.

For most of its six-plus-year history, Ether (ETH) has been close behind Bitcoin (BTC) on rankings of the top cryptocurrencies by outstanding value. That being said, it is worth noting that the total valuation of Bitcoin is double that of Ether ($1.16T vs. $507B) as of November 4, 2021. The performance of Ether, on the other hand, has been stronger over the years. Year-to-date, as seen on the graph below, ETH is up over 1100%, while Bitcoin’s increase is a respectable 363%.

 

Aside from their covert and overt beginnings, there are other key differences.  For example, transactions on the Ethereum platform may contain executable code, while data affixed to Bitcoin transactions are only for note keeping. Another difference is confirmation of a transaction; Ethereum transactions are confirmed in seconds, while Bitcoin still takes a minute or more.  

 

Take Away

Ethereum or Ether is traded as a digital asset on exchanges in the same fashion as Bitcoin and other cryptocurrencies. It also has functionality beyond storing value and use as a medium of exchange. The Ethereum network, unlike Bitcoin, is also used to run applications. The better-understood Bitcoin is also a speculative digital asset that can store value and be used in transactions where accepted. This is its stated purpose; it is not used to create other products or services.

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading:

Has Bitcoin Lived up to the Original Vision?

What the Approved Bitcoin ETFs Do for the Markets

Imagine a Bitcoin ETF with no Underlying Bitcoin

SEC Investigates Digital Engagement Practices in Broker Apps

 

Sources:

 https://coinmarketcap.com/

https://investorplace.com/2021/04/ethereum-will-continue-to-outperform-bitcoin-partly-due-to-its-smart-contract-ability/

https://www.investopedia.com/articles/investing/031416/bitcoin-vs-ethereum-driven-different-purposes.asp

https://www.investopedia.com/terms/c/cryptocurrency.asp

 

Stay up to date. Follow us:

Helius Medical Technologies, Inc. Receives PoNS® Market Authorization in Australia Helius Medical Technologies announced it received market authorization from the Australian Therapeutic Goods Administration (TGA) for the sale of PoNS as a Class IIa medical device Research, News & Market Data on Helius Medical Watch recent presentation from Helius Medical

Gray Reports Third Quarter Operating Results Gray Television announced financial results for the third quarter ended September 30, 2021 Gray Television announced a quarterly cash dividend of $0.08 per share Research, News & Market Data on Gray Television

Genco Shipping & Trading Limited Announces Third Quarter Financial Results Genco Shipping & Trading announced its financial results for the three months and nine months ended September 30, 2021 See today’s research report from Poe Fratt, Senior Research Analyst at Noble Capital Markets Research, News & Market Data on Genco

Kratos Reports Third Quarter Financial Results Kratos Defense & Security Solutions reported its third quarter 2021 financial results Research, News & Market Data on Kratos

Esports Entertainment Group Announces Launch of Public Offering of 1,500,000 Shares of Preferred Stock Esports Entertainment Group announced it has commenced an underwritten registered public offering of its 10.0% Series A Cumulative Redeemable Convertible Preferred Stock See today’s research report from Michael Kupinski, Director of Research at Noble Capital Markets Research, News & Market Data on EEG Watch recent presentation from EEG

 

Stay up to date. Follow us:

	Image Credit: Federal Reserve (Flickr)

Tapering Begins, Low Rates Will Persist, Here’s Why

 

The much-anticipated Fed statement after its two-day November meeting was released just after 2 o’clock, and there were some surprises for some but it met expectations for most Fed watchers. Its policy stance is still quite dovish despite recent inflation numbers.  The statement, which summarizes the Fed’s intentions, laid out plans for reduced bond and mortgage purchases while at the same time mentioning the target for the overnight bank lending, Fed funds rate.

 

The Fed confirmed that it would begin tapering by reducing its monthly bond purchases. It has been supporting the interest rate market and adding money to the system through $120 billion in bond purchases each month. The purchases include U.S. Treasury debt and mortgage-backed securities. This monetary policy shift will begin this month. The Fed announced it would do this by reducing monthly purchases by $10 billion for bonds and $5 billion monthly for mortgage-backed securities. The statement includes language that says that although this is the plan they deem prudent, they may change it if conditions change. 

 

What economists listened for in the statement was the word “transitory” as it relates to inflation. Recent data shows inflation is running higher than we have seen in well over a decade and hasn’t shown any clear sign of declining or being short-lived. In their statement, Fed officials acknowledged that inflation may be above their 2% target longer than originally thought, but they attribute the recent price increases to “supply and demand imbalance related to the pandemic and reopening of the economy.”

 

Expectations that the Fed would have to move
early and aggressively have risen recently, they had originally indicated that rates would remain near current levels until 2023 and purchases would continue into 2023. That the Fed is continuing to call inflation “transitory” suggests that the it will keep a steady hand and slowly undo the extraordinarily high level of accommodation in the banking system.

 

Take-Away

The Fed has begun taking steps to reduce the historically high levels of stimulus within the banking system and economy. They are moving slowly as it is recognized that the economy is still quite fragile. The wild card is still inflation, price increases have already been a little stickier than the Fed expected. Should this continue, the Fed could accelerate their plans, should the economy show weakness, they left open the possibility of adjusting their tapering pace.

 

Suggested Reading:

The High Points of Fed Chairman Powell’s Presentation are Worth Understanding

Founder of WallStreetBets has a New Idea for CopyCat Investors

Yield Curve Control, Stock Prices, and Trust (July 2020)

Federal Reserve Board Chairman Powell’s Resolve on Display (June 2020)

 

Sources:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20211103a.htm

 

Stay up to date. Follow us:

Voyager Digital to Integrate Avalanche Staking, NFTs, and DeFi Applications Voyager Digital announced it is integrating with Avalanche to include transfers and staking of AVAX into its brokerage platform Research, News & Market Data on Voyager Digital Watch recent presentation from Voyager Digital

Lineage Cell Therapeutics To Report Third Quarter 2021 Financial Results And Provide Business Update On November 10, 2021 Lineage Cell Therapeutics announced that it will report its third quarter 2021 financial and operating results on Wednesday, November 10, 2021 Research, News & Market Data on Lineage Cell Therapeutics Watch recent presentation from Lineage Cell Therapeutics

Ocugen to Host Conference Call on Tuesday, November 9 at 8:30 a.m. ET to Discuss Third Quarter 2021 Financial Results and Provide Business Update Ocugen announced that it will host a conference call to discuss its third quarter 2021 financial results and provide a business update Research, News & Market Data on Ocugen Watch recent presentation from Ocugen

Comstock Mining Announces Notice of Third Quarter 2021 Results Business Update Webcast Via Zoom Comstock Mining announced it will host a conference call on Wednesday, November 10, 2021 to report Third Quarter results and provide a business update Research, News & Market Data on Comstock Mining Watch recent presentation from Comstock Mining

Sierra Metals Reports Q3-2021 Financial Results for Its Sociedad Minera Corona Subsidiary in Peru Sierra Metals announced the filing of Sociedad Minera Corona S.A.’s unaudited Financial Statements and the Management Discussion and Analysis for the third quarter of 2021 Research, News & Market Data on Sierra Metals Watch recent presentation from Sierra Metals

Federal Reserve issues FOMC statement The Federal Reserve Bank says: “Risks to economic outlook remain” and they will reduce the pace of monthly net asset purchases by $10 billion. Keeping target Fed Funds target at 0-.25%.

 

Stay up to date. Follow us:

	Image Credit: Ray Bilcliff (Pexels)

Why are Investors so Cocky? They Often Have a Biased Memory – and Selectively Forget Their Money-Losing Stocks

 

Stock investors mistakenly remember their past investments as better than they actually were, which leads them to be overconfident about how they’ll perform in the future, according to our new study.

Past research has shown that investors tend to be very overconfident. But there’s been little explanation as to why. We wondered whether a biased memory might play a role.

 

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It was written by and represents the research-based opinions of Philip Fernbach, Associate Professor of Marketing, University of Colorado Boulder and Daniel Walters Assistant Professor, INSEAD

 

So we recruited about 900 investors – mostly men, who dominate the finance industry – through online forums and panels and conducted three studies.

In one group, we asked 401 investors a series of questions intended to estimate their level of overconfidence, glean their actual performance and determine how frequently they trade. To measure overconfidence, we recorded how much they expected to beat the market over the next 12 months. We then asked them to recall, from memory, the performance of the two trades that had the biggest impact on their portfolio – whether positive or negative – over the previous year.

Finally, we told them to look up their financial statements and tell us how their trades actually performed.

We compared the figures they remembered with the figures they reported. We found that on average, investors overestimated their returns from their biggest trade by 4.3 percentage points and their second-biggest gain by 7.1 points. We also found that those who had the rosiest memories were the most overconfident and tended to trade the most frequently.

Our second study was similar to the first, except we asked 151 investors to recall up to 10 trades that had the biggest impact on their portfolios in 2020 and later show us the financial statements. With a larger sample of trades, we were able to isolate and measure the effects of two different types of memory bias – “distortion,” when someone remembers something more positive than the reality, and “selective forgetting” – to see if they could predict overconfidence.

 

 

Investors thought their trades had gained an average of 8 percentage points more than they actually did. Further analysis showed that distortion played a significant role in participants’ overconfidence. And we found that investors were much more likely to selectively forget their losses than their gains.

We also found that participants with larger memory biases – that is, bigger gaps between the numbers they initially recalled and the actual performance of their portfolios – tended to be more overconfident and traded more frequently.

In our third and final study, we wanted to see if an intervention could reduce overconfidence, so we recruited 366 more investors and asked half of them to review their actual returns from their financial statements before we measured overconfidence. We found that those who saw their actual returns still expected to beat the market but by much less than those who hadn’t seen their trades.

 

Why it Matters

Overconfident investors can not only be a hazard to themselves but can also contribute to massive market failures.

Investors brimming with confidence are more likely to take on more debt, overreact to market-related news and signals, buy overpriced investments and make more basic mistakes than peers who are less sure of themselves.

This overconfidence is often a contributing factor to market bubbles and crashes, like the 2008 financial crisis. Besides wiping out investors, the inevitable collapse of market bubbles ripples through the economy, often causing debt defaults, business bankruptcies and massive unemployment.

Our results suggest that biased memory likely contributes to this overconfidence.

What’s Next

We’d like to push this work in two directions. We’d like to run a field experiment looking at whether we can reduce overconfidence and improve returns among brokerage clients using the insights gleaned from our studies. Second, we’d like to further investigate the psychological processes underlying these effects.

We also want to communicate these results more broadly to the public to help investors make smarter decisions, so they are better positioned to protect and grow their wealth.

 

Suggested Reading:

No-Cost Brokers Like Robinhood May be the Big Winners with Rising Rates

Investing, Trading, and Gambling, Which are You Doing?

Irrational Pessimism – Why Value Investors Should Research Individual SPACs

Elon Musk’s Critical Tweets and Comments of White House Actions are Escalating

 

Stay up to date. Follow us:

Seanergy Maritime Holdings Corp. Reports Record Financial Results for the Third Quarter and Nine-Month Period Ended September 30, 2021 Seanergy Maritime announced its financial results for the third quarter ended September 30, 2021 Research, News & Market Data on Seanergy Maritime Watch recent presentation from Seanergy Maritime

 

Stay up to date. Follow us:

PDS Biotech Announces Agreement with University of Georgia to License Novel Proteins for Versamune-based Universal Flu Vaccine PDS Biotechnology announced an agreement to license COBRA (Computationally Optimized Broadly Reactive Antigen) antigens from the University of Georgia Research, News & Market Data on PDS Biotech Watch recent presentation from PDS Biotech

Chakana Reports 113m of 0.90 g/t Gold, 0.92% Copper and 72.8 g/t Silver (2.13% Cu-Eq) in Huancarama at Soledad, Peru Chakana Copper announced results from twelve resource definition holes drilled in Huancarama totaling 2,974.85m at the Soledad project, Ancash, Peru Research, News & Market Data on Chakana Copper Watch recent presentation from Chakana Copper

Helius Medical Technologies, Inc. to Release Third Quarter 2021 Financial Results on November 10, 2021 Helius Medical Technologies announced that the Company will release its third quarter 2021 financial results on Wednesday, November 10, 2021, after the market closes Research, News & Market Data on Helius Medical Watch recent presentation from Helius Medical

Comtech Confirms Receipt of Unsolicited Proposal Comtech Telecommunications confirmed receipt of an unsolicited, non-binding proposal from Acacia Research Corporation (NASDAQ: ACTG) Research, News & Market Data on Comtech Watch recent presentation from Comtech

Cocrystal Pharma Submits Pre-Investigational New Drug Briefing Package to the FDA for Clinical Development Guidance of CDI-45205 for COVID-19 Treatment Cocrystal Pharma announced the submission of a pre-Investigational New Drug briefing package to the U.S. Food and Drug Administration (FDA) for its broad-spectrum protease inhibitor CDI-45205 for the treatment of patients with COVID-19 Research, News & Market Data on Cocrystal Pharma Watch recent presentation from Cocrystal Pharma

Energy Fuels Announces Q3-2021 Results, Including Robust Balance Sheet, Market-Leading U.S. Uranium Position & Commercial Rare Earth Production Energy Fuels reported its financial results for the quarter ended September 30, 2021 Research, News & Market Data on Energy Fuels Watch recent presentation from Energy Fuels

Capstone Green Energy (NASDAQ:CGRN) To Power Groundbreaking Tire Recycling Plant in Scotland Capstone Green Energy announced that SCE Energy (scengy.com), Capstone’s exclusive distributor in Scotland and Northern United Kingdom, secured an order for four C1000 Signature Series microturbines for a groundbreaking tire recycling plant in Scotland Research, News & Market Data on Capstone Green Energy Watch recent presentation from Capstone Green Energy

 

Stay up to date. Follow us:

Voyager Digital Reports Revenue of US$175 Million for Fiscal 2021 and Provides Business Update Voyager Digital announced it has filed its full-year consolidated financials for the fiscal year ended June 30, 2021 and is pleased to provide shareholders with a business and operational update See today’s research report on Voyager Digital from Joe Gomes, Senior Research Analyst at Noble Capital Markets Research, News & Market Data on Voyager Digital Watch recent presentation from Voyager Digital

Travelzoo Reports Third Quarter 2021 Results Travelzoo announced financial results for the third quarter ended September 30, 2021 Research, News & Market Data on Travelzoo

Capstone Green Energy (NASDAQ:CGRN) to Announce Its Second Quarter Fiscal Year 2022 Financial Results on Wednesday, November 10, 2021 Capstone Green Energy announced that on Wednesday, November 10, 2021, after market close, it expects to release full financial results for its second quarter of fiscal year 2022, ended September 30, 2021 Research, News & Market Data on Capstone Green Energy Watch recent presentation from Capstone Green Energy

 

Stay up to date. Follow us:

Palladium One Reports Four New EM Targets at the Tyko Sulphide Copper- Nickel Project, Ontario, Canada Palladium One Mining announced that four significant, multi-line, Electromagnetic anomalies have been identified by a 3,100 line-kilometer Versatile Time Domain Electromagnetic airborne (“VTEMmax”) survey conducted during the summer field program Research, News & Market Data on Palladium One Watch recent presentation from Palladium One

1-800-FLOWERS.COM, Inc. Reports 9.0 Percent Revenue Growth for Its Fiscal 2022 First Quarter 1-800-FLOWERS.COM announced results for its fiscal 2022 first quarter ended September 26, 2021 See today’s FLWS research report from Michael Kupinski, Director of Research at Noble Capital Markets Research, News & Market Data on 1-800-FLOWERS.COM

Esports Entertainment Group Submits Transactional Waiver to New Jersey Division of Gaming Enforcement Esports Entertainment Group announced that its transactional waiver for the New Jersey Division of Gaming Enforcement has been submitted. Once approved, it would allow the Company to begin betting operations in the Garden State Research, News & Market Data on EEG Watch recent presentation from EEG

Voyager Digital Secures $75 Million Strategic Investment from Alameda Research Voyager Digital announced a $75 million investment from Alameda Research Research, News & Market Data on Voyager Digital Watch recent presentation from Voyager Digital

Capstone Green Energy (NASDAQ:CGRN) To Power Cutting Edge Microgrid With Integrated Electric Vehicle (EV) Charging Stations In Italy Capstone Green Energy announced that IBT Connecting Energies GmbH, Capstone’s exclusive distributor in Italy and Greece, secured an order for three C65 microturbines for a cutting edge microgrid with integrated electric vehicle charging stations in Italy Research, News & Market Data on Capstone Green Energy Watch recent presentation from Capstone Green Energy

 

Stay up to date. Follow us:

It’s Bitcoin’s 13th Anniversary, Has it Delivered on its Promise?

 

On the 13^th anniversary of the infamous white paper that gave birth to Bitcoin, the question is, “Has Bitcoin lived up to the original vision?”

The short answer is – Absolutely Yes.

The challenge is that there are two sides to Bitcoin

• Using Bitcoin – what is it and how it works, and
• Investing in Bitcoin – what it’s worth and where it’s going.

There’s a lot of hype about Bitcoin – but these two things are true.

• Many people use Bitcoin. Since its launch in 2009, more than 76 million people worldwide have used Bitcoin.
• Most investors have no idea how it works. One survey says that only about 17% of crypto investors “fully understand” their investment. In contrast, more than 33% have almost no idea how it works. This is not surprising since 40% of all crypto purchases come from new investors.

In this article, we’ll cover, what Bitcoin is and how it works.

We will cover Bitcoin investing in another post (receive Channelchek email updates).

 

How it All Started – The Birth of Bitcoin
October 31, 2008

On October 31, 2008, a nine-page white paper titled  “Bitcoin: A Peer-to-Peer Electronic Cash System” was published under the name Satoshi Nakamoto. As anyone familiar with Bitcoin history or legend knows, Nakamoto is a pseudonym. The search for the real “Nakamoto” has been going on since 2008.

The white paper had a brilliant and novel idea to fix an inherent and growing weakness in the current banking system.

 

Nakamoto Explains the Problem with the Banking System

The majority of commerce on the Internet relied almost exclusively on third-party banks and financial institutions to process electronic payments. This system works well for most transactions. But the weakness is the reliance on a “trust-based model.”

Banks deal with each other by trusting each other to process the transactions – but this trust is not absolute. Bank transactions can be reversed and are also subject to mediation. The increasing cost of mediation and reversal of transactions lead to increase costs.

Merchants hassle customers for information to try and minimize the certain, inevitable, and acceptable amount of fraud that occurs in this system

What was needed was a method allowing two willing parties to transact directly with each other without needing a trusted third party, namely banks.

The parties did not need to trust each other or even know each other. The transactions would be protected from fraud because they were “computationally impractical to reverse” and had routine escrow mechanisms.

And there is an impossible-to-change (can you say “blockchain”) timestamp server that generates proof of the chronology of the transaction.

 

Source: Bitcoin: A Peer-to-Peer Electronic Cash System (October 31, 2008)

 

So What is Bitcoin and is it a Currency?

Bitcoin is described as a decentralized digital currency.

It is known as a cryptocurrency because it uses cryptography algorithms for security.

That’s what Bitcoin is. Here is what Bitcoin is not:

• Physical. There are no coins or anything physical, only balances kept on an encrypted ledger.

• A Currency. The IRS classifies Bitcoin as property, like stocks painting or real estate. Although people use it like currency when they pay in Bitcoin, this can make tax time a bit of a nightmare to figure out. The IRS does a good job of explaining virtual currencies, cryptocurrencies and when a transaction is, or is not, taxable.

• Backed By Anything. Bitcoin is not backed by banks, gold, or anything of value.  Some people argue that money, like the US dollar, is not backed by anything either. Since the dollar went off the gold standard in 1976, the dollar has been a fiat currency. But it is backed by the “full faith and credit of the US government.” Bitcoins are backed by the full faith and credit on no one, no company, and no government.

 

An Absolute Limited Number of Bitcoins

Supporters argue that Bitcoins have value because there can only be a limited number of Bitcoins created. Ever.

And that number is 21 million.

When Nakamoto wrote the Bitcoin source code, he set the upper limit at 21 million Bitcoins. He gave no explanation. But supporters argue this gives value to Bitcoin.  They also believe this is a  massive advantage to Bitcoin, the world’s oldest cryptocurrency,  over other cryptocurrencies.

Bitcoins are created when they are “mined.”

“Mining” is done using sophisticated hardware and software to solve an extremely complex computational math problem. Whoever solves the problem first is awarded the next block of Bitcoins, and the process begins again.

According to Nakamoto’s source code, the ability to mine Bitcoins stops after 21 million are mined.

 

How Many Bitcoins are Currently in Circulation

As of August 2021, 18.7 million Bitcoins have been mined – that’s 83% of the total possible. You would think that the rest of the Bitcoins would be created in the next few years. But that would be wrong.

97% of Bitcoins will likely be mined within the next decade. But it is predicted that the remaining 3% will not be mined entirely until 2140, almost a century later.

This is because the code has an embedded process called “halving.” which reduces the number of Bitcoins released by 50% every four years.

Many investors believe this absolute limited supply creates a “store of value” that will continue to push up the price of Bitcoin. On the other hand, governments can print unlimited amounts of their fiat currencies, like dollars or rupees, which devalues their currencies.

 

Source: Bitcoin: A
Peer-to-Peer Electronic Cash System (October 31, 2008)

 

So, Has Bitcoin Lived Up to the Original
Vision?

Nakamoto wanted, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. “

Did he/she/they accomplish this vision?

Absolutely.

As of January 2020, Bitcoin reached 400,000 transactions per day, which is more than any other cryptocurrency.

Nakamoto wanted, “A purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.”

Did Nakatomi accomplish this vision?

Absolutely.

As of January 2020, Bitcoin reached 400,000 transactions per day, which is more than any other cryptocurrency.

The current price of a Bitcoin is over $60,000, and the market value of all Bitcoins in circulation today is about $866 billion.

Nakamoto reached his vision and more.

 

Suggested Reading:

Crypto’s Ancillary Businesses as an Opportunity for Investors

Opportunities and Challenges With Yield Farming

Why Researching Investment Ideas is Important

What the Approved Bitcoin ETFs do for the Markets

 

Sources:

How
Many People Own Blockchain

How
Much do Crypto Investors Know

Whitepaper –
Bitcoin Peer-Peer Electronic Cash System

IRS
– Virtual Currencies

IRS
— FAQ on Virtual Currency

Number
of Bitcoin Transactions Worldwide

 

Stay up to date. Follow us:

What Is Yield Farming and Why All the Hype?

 

Yield farming is the emerging trend in the crypto world that has grabbed the attention of many cryptocurrency enthusiasts. It looks very promising and is now considered one of the most popular ways of generating rewards with cryptocurrency holdings.

The crypto space is not only about Bitcoin. New multiple strategies and techniques have appeared within the decentralized finance (DeFi) infrastructure aimed at providing users with more opportunities to generate larger incomes. Currently, one of the hottest crypto trends is yield farming, which seems to have taken DeFi by storm.

Yield farming is about lending your funds to others with the help of ingenious computer programs called smart contracts. As a result, you earn fees in the form of cryptocurrency in exchange for your services. Sounds simple enough, right? But let’s not rush — there are a lot of pitfalls and complexities that you might encounter during the process. That’s why it’s important to ensure you have enough background knowledge before you get started.

 

 

What is Yield Farming?

Yield farming has rapidly forced its way into the decentralized finance (DeFi) world. It’s viewed as an effective strategy that investors turn to when they want to increase their investment returns. 

Yield farming provides the opportunity for crypto holders to lock up their holdings in return for rewards in the form of additional cryptocurrency.

 

How Does Yield Farming Work?

Yield farming requires liquidity providers and liquidity pools. To become a liquidity provider, all you have to do is to add your funds to a liquidity pool (smart contract), which is responsible for powering a marketplace where users carry out several procedures with their tokens, including borrowing, lending, and exchanging. Once you’ve locked up your funds in the pool, you’ll get fees that have been generated from the underlying DeFi platform or reward tokens. In addition, some protocols can even provide payouts in the form of multiple cryptocurrencies, allowing users to diversify their assets and lock those cryptocurrencies into other protocols to maximize yields.

 

Keep This In Mind 

Before getting into yield farming, make sure that you’re fully aware of the following basics:

 

• Liquidity providers deposit their funds into a liquidity pool.
• Deposited funds are stablecoins related to the USD such as DAI, USDC, USDT, etc.
• Your returns depend on how much you invest and what rules the protocol is based on.
• You’re able to create complex chains of investment once you decide to reinvest your reward tokens into other liquidity pools, which in turn offer various reward tokens.
• You should be aware that simply investing in ETH itself, for instance, isn’t considered to be yield farming. Lending out ETH on a decentralized non-custodial money market protocol and receiving rewards afterward — that’s yield farming.

 

Why All the Hype? 

The key advantage of yield farming is it offers an opportunity to provide investors a good profit. Currently, yield farming can potentially return more attractive interest rates than traditional banks. 

However, keep in mind there are some potential risks too.

During 2020 we witnessed a big increase in the popularity of yield farming. Large sums of revenue were generated via the Ethereum network; many yield farming platforms and DeFi projects are currently running on the Ethereum platform. In addition, yield farming grants benefits to various protocols, most of which are just emerging.  

Yield farming is becoming widely popular due to its ability to help a broad variety of projects gain initial liquidity and benefit lenders and borrowers. Yield farming also contributes vastly to greater efficiency when it comes to taking out loans.

 

What are the Advantages
and Disadvantages of Yield Farming?

Profit is one of the most obvious advantages of yield farming. Yield farmers who are among the first to implement a new project may be rewarded with tokens that rapidly appreciate. Huge gains are possible if they sell tokens at the right time. Those profits can be re-invested in other DeFi projects to increase yield even more.

Yield farmers must typically invest a substantial amount of money upfront to make any significant profits — even hundreds of thousands of dollars may be at stake. Yield farmers face a major liquidation risk if the price drops unexpectedly, as it did with HotdogSwap, due to the highly volatile nature of cryptocurrencies, particularly DeFi tokens.

Also, the most effective yield farming techniques are complex. As a result, those who don’t completely comprehend all of the underlying protocols are at greater risk.

Yield farmers have put their money on the project teams and the smart contract code that underpins them. Many developers and entrepreneurs are entering the DeFi space because of the opportunity for profit. They start projects from the ground up or even copy the code of their predecessors. Even if the project team is trustworthy, the code often remains untried, making it prone to bugs and vulnerable to attackers.

 

The Opportunities and Challenges with Yield Farming

The majority of the DeFi applications use the Ethereum blockchain, presenting some significant challenges for yield farmers. The Ethereum network is suffering scalability issues ahead of the 2.0 update. As yield farming becomes more common, the Ethereum network becomes clogged, resulting in long confirmation times and rising transaction fees.

Due to this situation, some have surmised that DeFi could end up self-cannibalizing. Ethereum’s problems, on the other hand, seem to be more likely to support other networks in the long run. The Binance Smart Chain, for example, has emerged as a viable alternative for yield farmers who flocked to the network to take advantage of new DeFi DApps like BurgerSwap.

Additionally, Ethereum’s existing DeFi operators are attempting to solve the problem with their second-layer solutions for the network. As a result, assuming that Ethereum’s issues do not prove fatal to DeFi, yield farming will continue to exist for some time to come.

 

The Five Yield Farming Protocols

To maximize the returns on their staked funds, yield farmers will frequently use a variety of DeFi platforms. These platforms include a variety of incentivized lending and liquidity pool borrowing options. Here are seven of the most popular yield farming techniques.

 

Compound

It is a money market for lending and borrowing funds, where users can gain algorithmically modified compound interest as well as the COMP governance token.

 

MakerDAO

It is a decentralized credit pioneer that allows users to borrow DAI, a USD-pegged stablecoin, by securing crypto as collateral. A “stability tax” is chargeable in place of interest.

 

Aave 

 It is a decentralized lending and borrowing protocol that allows users to borrow assets and receive compound interest for lending using the AAVE (previously LEND) token. Aave is popular for promoting flash loans and credit delegation. Borrowers can receive loans without putting up any collateral with this protocol.

 

Uniswap  

Is a well-known decentralized exchange (DEX) and automated market maker (AMM) that allows users to swap almost any ERC20 token pair without the use of a third party. Liquidity providers must stake 50/50 on both sides of the liquidity pool to gain a share fee and the UNI governance token.

 

Yearn.Finance 

It is a decentralized aggregation automation protocol. It enables yield farmers to use different lending protocols such as Aave and Compound to get the best yield. Yearn. finance uses rebasing to optimize the benefit of the most efficient yield farming services.

Curve, Harvest, Ren, and SushiSwap are some other notable yield farming protocols.

 

Yield Farming vs. Other Strategies 

Those who’ve just entered the cryptocurrency world may not be able to differentiate yield farming from other concepts such as liquidity mining, crypto mining, and staking. Even though they all have something in common and may look the same, in reality, they differ from one another and follow entirely different complex algorithms. We’re here to ensure that you won’t mix these concepts in the future and will be able to tell them apart.  

We hope in this article we’ve provided a fundamental understanding of Yield Farming. We will address Yield farming vs other strategies in an upcoming article, stay tuned.

 

About the Author:

Peter Spoleti is CEO of  Vertex Markets. Vertex uses AI to make B2B introductions providing a business
networking site free from guesswork as to where the most valuable business
interactions are found.

Contact Vertex Markets here.

 

Suggested Reading:

Blockchain Smart Contract Applications

Decentralized Apps Using Blockchain to Change the Internet

Robo-Attorneys Could Put Some Law Work at Risk

Can Wall Street Giants Put Crypto on the Menu?

 

Stay up to date. Follow us:

Voyager Digital Becomes the Official Cryptocurrency Brokerage Partner of the Dallas Mavericks Voyager Digital announced it has entered into a five-year exclusive, integrated partnership with the Dallas Mavericks Research, News & Market Data on Voyager Digital Watch recent presentation from Voyager Digital

Digerati Technologies Reports 142% Revenue Growth to $3.787 Million for Fourth Quarter FY2021 Digerati Technologies announced financial results for the three and twelve months ended July 31, 2021, the Company’s fourth quarter and annual year end for its Fiscal Year 2021 See today’s Digerati research report from Michael Kupinski, Director of Research at Noble Capital Markets Research, News & Market Data on Digerati Watch recent presentation from Digerati

Harte Hanks Hires Elliott Peterson As Chief Technology Officer Harte Hanks announced that it has named well-respected technology executive Elliott Peterson as the company’s new Chief Technology Officer Research, News & Market Data on Harte Hanks

Capstone Green Energy (NASDAQ:CGRN) Extends Channel Partnership With Baker Hughes (BKR) Expanding Territories Capstone Green Energy and Baker Hughes announced a common goal of producing commercially viable turbine systems capable of up to 100% hydrogen operation Research, News & Market Data on Capstone Green Energy Watch recent presentation from Capstone Green Energy

Ocugen, Inc. Announces Submission of Investigational New Drug Application with U.S. FDA to Initiate a Phase 3 Clinical Trial Evaluating COVID-19 Vaccine Candidate COVAXIN™ (BBV152) Ocugen announced that it has submitted an Investigational New Drug application with the US FDA to evaluate the COVID-19 vaccine candidate, BBV152, known as COVAXIN™ outside the United States Research, News & Market Data on Ocugen Watch recent presentation from Ocugen

 

Stay up to date. Follow us:

	
	Image Credit: Steve Jurvetson (flickr)

Tesla’s Market Cap Versus Tesla’s Market Share and Risk to Investors

Elon Musk was surprised at the price increase of Tesla stock as his personal worth rose by $36 billion yesterday (October 25). Shares of Tesla (TSLA) jumped by 12.7% to $1,024.86. This equated to a market capitalization of $1.01 trillion. The trillion number has been thrown around loosely in recent months, but it remains an unfathomable amount.

Risk to Index Investors

Tesla now has a price-earnings (P/E) ratio of 332. The automotive industry P/E ratios generally fall between 10 to 30 depending on expected results. In the broader market, there are very few trillion-dollar companies.  They are the top five companies by market cap in the S&P 500, Apple, Microsoft, Google parent Alphabet, Amazon, and Tesla. In the aggregate, they are worth $9.3 trillion. That’s almost 23% of the benchmark S&P 500 US stock index’s total value. Add in Facebook, which is a bit short of a trillion and these six stocks have a 25% influence over the S&P 500 movement. The result is risk is not as diversified as some investors might prefer in an index of 500 stocks.

Automotive Company Valuations

In just one day Tesla’s share price move increased its market value by $115 billion. The main driver was news that it might sell $4.2 billion of rental cars to Hertz through 2022. The potential sale of 100,000 vehicles by Tesla, pales in comparison to the 2-3 million average rental car sales by other automakers most years.

Mathematically, the $115 billion notch up in value added the equivalent of Daimler+Nissan+ Renault to Tesla’s value. Does this make sense? Elon Musk thinks it’s “strange.” He tweeted yesterday suggesting that the company doesn’t have a demand shortage, instead production is what limits higher sales.

Source: Ross Gerber/Elon Musk
Tweets October 26, 2021

 

Automotive Market Share

Worldwide, Tesla’s sales have soared over the years from zero to well-below average for an automaker. So far in 2021, Tesla has delivered 627,000 cars globally for the year. Total deliveries are expected to be at most 900,000. From all other car companies, total worldwide deliveries of light passenger vehicles are estimated to be 75 million. If these numbers play out, this would put Tesla’s market share at 1.2%. 

The 1.2% market share contrasts sharply with its excess valuation.

Take-Away

Increasingly, the market value of a handful of corporations have had significant influence over market index weights and the perceived direction of value of many other companies also in the index. With recent bullish times, these companies have helped drive stock market gains. The overall value of these few stocks could have an outsized impact if any one of them disappoints the market.

Tesla’s P/E ratio of 332 is extremely high. It’s based on potential and expectations. Demand for the vehicles the car manufacturer produces is currently high and largely unfulfilled. Ramping up production to be tens of times more than it is currently would bring expectations and reality more aligned. This is the bet investors that are holding Tesla directly and even those invested in indexes like the S&P 500 and Nasdaq 100 are placing.

Paul Hoffman

Managing Editor, Channelchek

Suggested Reading:

How Much is a Trillion?

Will U.S. Car Companies be Handed Different EV Advantages?

Michael Burry’s Earlier Bet Against Tesla Has Been Closed Out

Deflation Not Inflation is Risk Says Cathie Wood

 

 

Sources:

https://www.actionnewsnow.com/content/national/575610322.html

https://twitter.com/elonmusk/status/1452727731452588041?s=20

https://wolfstreet.com/2021/10/25/tesla-rental-deal-is-propaganda-coup-for-hertzs-selling-shareholders-tesla-but-sales-to-rental-fleets-are-low-quality-sales-automakers-dont-tout/

https://wolfstreet.com/2021/10/26/teslas-market-cap-gigantic-v-next-10-automakers-v-teslas-global-market-share-minuscule/

https://www.flickr.com/photos/44124348109@N01/36083811822

 

Stay up to date. Follow us: