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Simply put, ethical investing is the practice of applying your core values and principles to your investment decisions. Many people think that if they invest ethically, they must suffer when it comes to their expected returns, but that is not necessarily the case. In the US alone, ethical investing has become a $17.1 trillion dollar industry, with over 800 investment companies involved. As many investors have developed a greater awareness of the wider impact that their investment decisions can have, ethical investing has taken precedence as a matter of social responsibility. With the first socially responsible mutual fund, Pax World, launching in 1971, companies are now under pressure to respond to investors' demand for more ethical and responsible practices across all levels of business. However, this is not just a crucial subject for active investors, but for any individual who holds money in the bank. Due to the nature of the fractional reserve banking system, the majority of cash left in the bank is pooled and loaned out to individuals or businesses. These loans could inadvertently be funding activities that the client is not aware of or ones that adversely affect the wider environment - such as heavily polluting industries. What is ethical investing? Ethical - also termed responsible - investing, is a value-based approach to investment, that considers the guiding principles of companies and industries, besides the potential profit to be gained. The act of ESG investing (focusing on environmental, social, and governance issues) is just one category of ethical investment which enables a commitment to financial decisions that stand for change. Another way that ethical investment can be envisioned is through impact investment, as outlined below: Positive impact investing: where investors choose industries and companies that align with their values, one example being investment into the production of green energy. Negative impact investing: where investors avoid industries and companies whose values do not align with their own, and decide to omit them from their portfolio. Types of ethical investing When people are investing ethically, the guidelines they follow can be social, moral, political, and/or environmental. In particular, religious values can often play a significant role when investors decide if they should invest or not. For example, Sharia law discourages investment in tobacco and alcoholic substances, or any investment mechanism that is debt-based. This means that Islamic investors must seek out Sharia-compliant companies, such as Kinesis, in order to engage in this form of responsible investing. With public-private partnership projects positioned to support the full integration of the Kinesis system into the Indonesian national postal service, financial inclusion is provided for through the system's usage-based yield model on gold, which serves Indonesian nationals with the stable value of gold. In recent years, the environmental crisis is becoming one of growing concern, hence why environmental or green investing is finding its way into investors’ ethical agendas. Ethical investing in this field is centred around a commitment to sustainability and questioning whether a product is environmentally harmful, such as through the manufacturing processes involved, before investing. Profitability of ethical investing People often still believe that if they invest ethically, they need to compromise on performance and returns, but this is not always the case. However, the narrative that choosing from a more restricted investment pool of responsible funds might lessen the potential for financial returns, is still a concern for some investors. Despite this, evidence shows that performance-wise, responsible funds can match and even out-perform mainstream, traditional funds. For instance, Morningstar UK Sustainability Index performed better than FTSE 100 and FTSE All-Share in the last few years. To further aid investors in making decisions about ethical investing, companies are awarded an ESG score, which helps determine the company’s projected long-term exposure to environmental, social, and governance risks. A company’s ESG score also extends to how the company treats its employees internally, in order to establish if best practices are being met in this area. Lately, tech companies have taken the lead in ethical investing, with Microsoft earning a remarkably high ESG score of 76.3. Advantages and disadvantages One of the most significant advantages of ethical investing is that it helps investors benefit emotionally and financially when a company shares their values. It follows through with the concept that individuals should not have to sacrifice their principles when directing their cash flow. What’s more, ethical investment can also provide the means for long-term, sustainable growth. A further advantage of ethical investing is that when others consider ethical investment as important to them, it can encourage other businesses to improve their practices to attract funding. This further stimulates market competition in the name of ethical investment, as companies begin driving their efforts towards the same missions. This can simultaneously discourage investors from buying shares in companies that are not following the same ethical or responsible principles. As for the downsides of ethical investment, one issue that plagues this field, as well as businesses branded as sustainable, is the act of “greenwashing”. There is ample wiggle room in the realm of ethical investment since the terms "sustainability" or "eco-friendly" can be highly subjective. Companies can latch onto investor sentiment to do good, rather than ensuring they follow through with claims of sustainability in the long term. For instance, companies that claim to be eco-friendly may simply consider the end result of a product, without evaluating the process through which it was developed or created. Overall, since personal principles are dynamic and constantly evolving, a commitment to frequent reevaluation of your portfolio is needed, as well as a strong awareness of your own ethical principles. Future of Ethical Investing In the near-long-term future, ethical investment looks as though it's here to stay, with consumers now putting more focus on issues of personal and corporate responsibility in the investment landscape. Companies attempting to be more sustainable can indicate that they are gearing towards long-term positive impact and planning, providing greater certainty about the longevity of an investor's chosen investment vehicle. In the past, the main focus for investors was on eliminating specific companies and industries like arms or alcohol, in negative impact investing. However, today there is a focus on the transition towards better systems or investment strategies that impact the world more positively, as well as developing more awareness about monetary flows, and the resulting effects they have. While ethical investment is often looked upon with cynicism, the underlying directive of moving towards fairer, more ethical systems of business can be impactful when done correctly. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
The fractional-reserve banking system sits at the backbone of the modern-day economy. It functions as a debit and interest creation system, designed to grow the economy and increase the lending powers of central banks. Fractional reserve banking, otherwise referred to as FRB, requires that banks only hold a portion of customer deposits in their reserves, in order to use the remaining funds to make new loans and pay out interest. This enables banks to invest money that would otherwise sit idle, while earning on the difference between interest they pay out to customers and the interest they charge to borrowers for taking out loans. In this article, we’ll unpack the fractional-reserve system, how it works, and whether there is a possibility for an alternative. The fractional-reserve banking system The fractional-reserve banking system allows banks to grow the supply of money in the economy by making new loans and awarding interest, while also meeting customer withdrawal requests. The reserves are stored within a country’s central bank, smaller-scale banks, or ATMs. The fractional reserve system was created following the Great Depression. After the stock market crash in 1929, people made more withdrawals than the banks could supply, based on fears surrounding the institution's insolvency. This is what is known as a “bank run”, which led to the central bank using up their cash reserves to the point of default. To ensure this issue didn’t happen again, the US government introduced reserve requirements to protect depositor funds from risky investments. Simply put, banks are only required to keep a percentage of the deposits in their cash vault as reserves, and may lend out the rest. However, this proved to be less than a final solution, as shown by the financial crash of 2007-8 - the effects of which are still evident today. Reserve requirements The reserve requirement is the amount of funds banks must have in their vaults, based on customer deposits. This is set to ensure that banks can meet liabilities if sudden withdrawals occur, just as they did in the Great Depression. Reserve requirements are one way to influence the monetary supply in the economy. They simultaneously serve the purpose of allowing banks to give out loans to borrowers, and still provide cash to customers who want to make withdrawals. The Federal Reserve, the US central bank, sets the reserve requirement for all banks in the country. Previously, it required banks to hold a marginal reserve of 10%. In March 2020, the reserve requirement was set to zero following the Federal Reserve’s shift to an “ample-reserves system” in response to the COVID-19 pandemic. With currently no indication as to whether the reserve requirement will be implemented again, the US central bank can use the increased liquidity to lend to individuals and businesses. Although, as the country is already witness to, it is this dovish policy stance that has contributed to increased inflation levels, with the US inflation rate now at its highest level in 40 years. While banks in the United Kingdom have no reserve requirement, they have agreed to keep the minimum reserve ratios of 12.5% and finance houses at least 10%. How fractional reserve banking works Under the fractional-reserve banking system, banks may loan out 90% of the total deposits to other individuals and businesses, while keeping 10% as physical cash in their vaults. However, your account balance shows 100% of those funds when you deposit money - which is, perhaps, a less than truthful representation. Since the fractional reserve system is designed to grow the amount of money in the economy, the banks use the same lump sum as a deposit and as an investment. To demonstrate this, imagine you add £1,000 into a new economy. 1. You deposit £1,000 into a bank account, giving the new system £1,000. 2. The bank lends out 90% of your deposit, or £900, to another customer: Customer A. 3. Your account balance is still £1,000, and Customer A has borrowed £900 and added it to their account. The system has a total of £1,900 deposited and invested. 4. Customer A spends the £900 they borrowed and gives it to a new recipient, Customer B. Customer B deposits £900 into their bank account. 5. Customer B’s bank now has £900 in deposits and can lend out 90%, or £810. 6. Customer C borrows £810. You still have £1,000 in your account, Customer A still has £900 in their account, and now Customer C has £810 in their account. The economy now has a total of £2,710 (£1,000 + £900 + £810). This growth of the total monetary supply is known as the “money multiplier” effect. The bank continues to lend out 90% of its deposits, putting more money into the economy to be spent. As the money is spent, it’s deposited into more bank accounts, and 90% of those deposits are lent out. All the while, banks keep the remaining 10% of those deposits in reserves. The cycle continues, the money supply increases, and the economy grows. The downsides of fractional reserve banking The fractional reserve banking system has been shown to successfully stimulates economic growth, but when out of hand, can lead to a frenzy of mass withdrawal that further highlights the issue of non-backed, unallocated currency. What’s more, the system itself depends on the money multiplier effect, which generates a significant amount of debt within the country, and does not necessarily protect those within the economy itself. A major concern of this particular method of banking is that there is a lack of assets that back the currency in the system. Without the backing of physical commodities or tangible assets, there is a concern that customers will eventually lose confidence in the system, such as in the events of the Great Depression. The US Banking Act of 1933 set up the Federal Deposit Insurance Corporation (FDIC) due to the catastrophes of the Great Depression. The FDIC provides insurance to protect customer deposits and boost trust in the banking system. However, the FDIC only provides insurance and protection up to a minimal amount, varying year on year, which means that any sum of money over that respective amount is left unprotected. Alternatives to fractional reserve banking A full-reserve banking system is one alternative to the fractional reserve system. In this system, banks must keep 100% of all deposits in their vaults at all times. This could cover all bank deposits or only deposits made to checking and savings accounts. If banks are required to keep 100% of the deposits, they cannot lend any cash out. The higher the reserve requirement, the less cash can be lent out and circulated in the economy. This would mean that the economy would not benefit from the money multiplier effect, as demonstrated above. However, continuing to rely on the fractional reserve system without question cannot be the answer. Precisely because fiat currency, which backs the fractional reserve system, has no intrinsic value, growth in the economy occurs with only a fractional amount of asset backing. This leaves those transacting in fiat currency, vulnerable to the effects of inflation and further leaves individuals unable to completely rely on the security of their cash deposits. With interest rates maintaining low levels, leaving money idle in the context of a fractional reserve system may not be the most profitable position for it. Instead, it could be wiser to invest that money, and better yet, ensure that the money is invested into a safe-haven, secure asset. Investing in precious metals is a prime option for those seeking to save their money effectively, with monetary systems such as Kinesis also offering a competitive yield on stored bullion. In this way, investors can store a portion of their money in gold and silver, outside of the traditional banking system in order to protect their wealth in the long run. Thinking about gold investment? Learn More
Preserving the use of cash at first seems like a project doomed to fail, and one that exists in opposition to the progressive, accelerating use of digital currencies, such as crypto. So, who is it that’s seeking to prevent the supposed “death” of cash? You would be surprised to know that it's not just traditionalists or technological Luddites, but there are many with diverse agendas determined to keep their cash firmly in hand. In this article, we explore the beginnings of money, its evolution and whether cash will survive in the wake of fintech, and digitised monetary solutions. The Beginning of Money Before the existence of money, the bartering system was firmly in place. This system of trade worked if both parties were interested in exchanging for what the other had to offer. While this clearly functioned well when individuals were trading like for like (i.e apples for oranges), this didn’t work if one party clearly benefited more than the other. Replacing the bartering system, came with the intention to overcome this issue. As a result, the idea of commodity money was born, in which the valuation of money was determined by the commodity it was made from. Commodities like precious metals, acted as the monetary solution for a time, being an effective store of value and unit of account. However, the numerous qualities of physical gold or silver, for example, were greatly outweighed by a major quality inherent to money: its portability. As a physical bar or coin, it was not practical nor logical to trade gold in this way, especially when making frequent daily trades. This signalled the need for an alternative - although, as we will uncover, one which carries significant flaws. Paper Money Was Born The normative system of money that currently operates today is known as representative money, in which money is just that: a representation of value that is universally accepted by all who use it. It began with certification issued by a central authority, which enabled the exchange of a ‘note’ for commodities, such as gold or silver. China was the first known country to begin issuing IOU certificates on paper for trading on a global scale. This category of money is also known as “fiat currency”, which would set the tone for the current banking model. Banking became mainstream in the 19th century, and more specifically fractional reserve banking - a protocol on which most developed nations operate. This protocol dictated that banks only need to keep a small portion of the money they issued, and the rest could be issued via loans, for example. However, the major pitfalls of the fiat system came to light most recently during the 2007-8 financial crisis, which created shockwaves still felt today. After excessive lending, governments had to borrow billions of taxpayers' money to bail out the banks, which increased the total supply of fiat money, and led to their overall depreciation in value. What’s more, this crisis was enabled by the fact that the dollar, at the heart of the crisis, was not tied to any commodity, and hence, held no intrinsic value. Prior to the crash, Nixon saw an end to the gold standard in 1973, which meant that American citizens could no longer trade their dollars for gold bullion. From this moment onwards, the world continued trading in dollars (USD), British pounds (GBP), and other fiat currencies, but without the backing of anything with intrinsic value or being pegged to any commodity. Today, countries such as America and the UK, are now seeing the devastating effects caused by a reliance on fiat currency, and the cataclysmic issue with the current economic model as a whole. As of the latest inflation data, the CPI index currently rests at 7% in the US, which is the highest level of inflation America has seen in the last 40 years. The very fact that money, or cash, can be manipulated and injected into the economy, means that fiat currencies are losing value day by day, especially when they are kept in the bank. Another point worth mentioning is simply the belief people still have in the value of these currencies, even when the only differentiator between the banknote you hold and any other paper is trust! Evolution of Money In most developed countries, traders are happy to accept card payments, while in uncertain times, people tend to hold cash more often. As a result of the pandemic, many retailers globally shifted their sales online, with one study showing that around US$5 trillion had shifted to online purchases. In the United Kingdom, according to a major report in 2019 on access to cash, only about 30% of the population used cash. However, due to safety and convenience, many people are switching to other payment methods. We’re now seeing significant growth in the blockchain industry and digital wallets. At the end of 2019, there were 40 million wallet users, while that number almost doubled to 80 million in 2021. Since blockchain payments don’t require centralised authority, as cash does, there now exist many partnerships between blockchain companies and big enterprises like Circle, Visa, and MicroStrategy. Facebook (now Meta) making huge steps towards adoption in the crypto space. Not to mention, Bitcoin is now officially legal tender in El Salvador. While this is occurring in developed nations, cash is still a primary form of money in developing countries, despite various technological advancements. This is partly due to bank fees and taxes, which are often too high for citizens to pay. A Question of Privacy Privacy is another key reason why people are still using cash. When two people meet in person and make a cash transaction, nobody knows about that besides them. This is a major reason why governments have an interest in eliminating cash payments, as a way to seriously combat criminal activity. Although it would be naive to suggest that the abolition of cash would equate to the complete eradication of crime - it could simply lead to further creativity in that department. Aside from this, it seems the new generation of consumers is now already swapping out privacy for convenience, which is creating a greater demand for cashless payment systems that prioritise efficiency. After all, a cashless payment system can be more time-efficient, whereas physical cash is less so and can be lost or stolen. Future of Money Today coins and cash have been partially forgotten, seeing a massive decline in transactions, especially during the pandemic. Nowadays, most transactions are completed via card and e-banking, and due to that, we can now send money globally in a matter of seconds. However the issue with cash, and more widely fiat currency remains. They are wrapped up in the same overarching problem, whether in physical form or digitised, cash money is still vulnerable to the economic fallacy of the system as a whole. In a monetary sense, it successfully functioned as a medium of exchange but has failed to store value effectively over time, leading investors to seek more efficient stores for wealth. Many are now turning back to the original commodities that stored wealth, that being gold and silver, as well as cryptocurrencies such as Bitcoin. Commodities like gold, when digitised, can be spent as digital currency. What’s more, gold-backed digital currency could now have all the prerequisite qualities vital to being effective, sustainable and secure money. While the outlook for money is yet unclear, what we can be sure of: the future is not fiat. Thinking about gold investment? Learn More
Most often the effects of inflation go unnoticed, especially when they vary fractionally, month-on-month. However, when rates are surging, and there's a rise in fuel and energy costs, the pressure on individuals is universally felt. Inflation is the loss of purchasing power over time. It means that the nation’s currency is reducing in value, while goods and services are becoming increasingly more expensive over time. Most recently, Turkey has been in the spotlight earlier this year for its sky-high inflation rate, last reported at 36% amid the country’s financial turmoil. Many are now seeking investment alternatives to offset the damaging effects of inflation. As a more recent strategy, investors are now turning to cryptocurrencies like Bitcoin, as a store of wealth, instead of leaving their money in the bank. Even though cryptocurrencies may not be the best store of value, due to their evident volatility, it is clear to see that investors are desperately seeking an alternative to fiat currencies - and their vulnerability against inflation. This article uncovers 10 investment strategies that can help you stay ahead of the curve, in order to protect your savings in the current, inflation-heavy environment. Staying ahead of inflation Real asset prices are increasing day by day and many are noticing that living is becoming more and more expensive. In October 2021 inflation rates in the United States reached their all-time high at 6.2%, while inflation rates in the United Kingdom noticeably increased to above 2%. In many countries, inflation rates outpace the rate at which salary increases, at a great disadvantage to people and their hard-earned cash. Now, inflation rates are at an all-time high since those reached in 2009 - during the aftermath of the financial crisis. Inflation rates over the last 100 years 1. Gold Gold has historically been the asset class to successfully hedge against inflation, thereby proving it as a safe store of value. Other precious metals’ historical performance during times of increased inflation rates varied highly, whereas gold has maintained a steady increase of at least 500% in the past 20 years. In the 1970s gold performed strongly in comparison to fiat currencies, while during the 1980s the returns were negative. More importantly, gold performs well during times of high volatility, especially within bear markets, even outperforming the stock market at times. With monetary platforms like Kinesis, investors can combat inflation by storing their gold in the Kinesis ecosystem, and simultaneously, earn a yield on their stored bullion holdings. In addition to the competitive appreciation of gold as an asset class, the yield enables users to gain a competitively high, positive return on their gold investment. 2. Cryptocurrency In the past few years, cryptocurrency markets noticed a huge surge and reached almost 3 trillion. Some of the currencies have even had 10,000x gains - enough to show an outperformance of all other asset classes. The reasoning behind using crypto as a hedge against inflation is that most of them have a limited - or finite - supply. For example, there is a total of 21 million Bitcoins which means that as more people want to hold them the demand will increase, while the supply stays the same. The biggest disadvantage of Bitcoin and other cryptocurrencies is their extremely high volatility. Due to this fact, you can see a mixed performance against fiat, but if you look at a longer time frame, the value of Bitcoin is increasing in comparison to fiat. Bitcoin volatility vs other asset classes 3. Real Estate Buying a property and investing in real estate may be a good option to combat inflation. However, unlike the other assets mentioned above, it is no simple task to dip in and out of property investment, due to it being illiquid and requiring extensive management from the property owner. In the case of rental property, investors can manage - and hope to offset - the effects of inflation through contingencies like raising the rent for tenants each year. However, when inflation is escalating at an alarming rate, as it is today, this is not entirely feasible. The biggest obstacle in the current economic environment is that residential properties are already overvalued in most countries. This is currently an issue in China’s property market, where house prices in Hong Kong have now surged to at least 46 times an individual's average income. 4. Commodities Commodities have proved to be one of the best assets used as a hedge against inflation. One study by Vanguard, for example, showed that for each 1% increase in inflation, commodities’ value increased between 7% and 9%. When we are talking about commodities we usually think about oil, agricultural crops, and livestock. However, commodities like oil are now beginning to lose ground as a thought-out investment, when a new wave of energy innovations like photovoltaic technology, could hold more potential for longevity. Commodities perform well in specific situations but most of the time they are outperformed by other assets like stocks. 5. Equities In the past, the value of stocks outpaced inflation by around 7% on a yearly basis. This is one of the reasons why equities are usually one of the assets that investors give themselves the highest exposure to. Investing in equities is a long-term game because during periods of increased inflation equities don’t tend to perform that well. The reason is that as prices rise, businesses have higher expenses, and that limits their growth as well as stock value. Investing in a single stock can be a risky investment strategy, so it's best to thoroughly consider the short, medium and long-term gain before committing to this investment type. 6. Dividend-paying stocks Choosing stocks that have a long history of paying dividends regularly is another good way to combat inflation. Some companies have even increased the dividends that they are paying out each year, such as 3M, and IBM. In addition to stock dividends, crypto dividends are another option for investors looking to increase their passive income on their crypto assets. Crypto dividends are awarded to investors for completing certain actions with their crypto, such as through staking. However, it is important to consider the complexities here, by questioning whether there are terms for receiving crypto dividends, such as “lock-in periods”, for instance, where you cannot access your investment. 7. Inflation-protected annuity An annuity is a guaranteed payment from the insurance company that many people use for their retirement. The amount of money that you are being paid is usually lower in comparison to other asset classes, but the risk is also lower. There is also a possibility to add inflation protection, where the money you receive is connected to the CPI index. 8. Short-term bonds Short-term bonds are highly liquid and have a maturity of between 1 and 4 years. They are one of the safest options that are used during times of increased inflation, especially in comparison to equities. Usually, increased inflation rates are followed by increased interest rates as well. This was observed last year, and continues at present, after the hawkish decision of the Federal Reserve produced an all-time high for the US Treasury bond yield, now sitting at 1.82%. 9. Fixed-rate loan Another option is taking a fixed-rate mortgage loan for 20-30 years with low interest, meaning that the rate stays the same in spite of any changes to the baseline interest rate of your country’s respective central bank. However, it should be noted that any debt obligations always carry a certain level of risk. 10. TIPS Treasury inflation-protected securities are bonds issued by the US government. They rise together with inflation since it’s measured by the CPI, Consumer Price Index. When the value of TIPS increases, the interest paid increases as well, which protects investors especially during uncertain times of higher inflation. What is the future? Inflation is one of the many factors that investors need to be prepared for, especially when they are building an investment portfolio. To combat inflation it’s best not to leave your money “under the mattress”, but instead, invest it in various asset classes that hold - or better - increase in value over time, leveraging the initial value of your investment. At times when inflation rates are on the rise could be the best moment to review your portfolio and investment decisions. Everyone wants to take home the value of their hard-earned cash, without worrying about losing that value due to uncontrollable factors, such as inflation. Since inflationary environments are becoming more of a norm than a rarity, investors must prepare to operate in a way that maximises the value of their investments, through analysing and diversifying their portfolio. Want to protect your money in gold? Learn More
A dividend is a share of profit paid by the company to its investors and shareholders. Currently, the interest rate that you get from banks is negligible, and stocks usually pay between 4-6%. Some coins with a higher market cap pay up to 10% and crypto stable coins pay up to 20%, while on some cryptocurrencies some people have earned up to 100% per year. Usually, when people think about dividends they think of those that traditionally come from stock market investments. Crypto dividends appeared in 2018, with the introduction of decentralised finance. This gave people the ability to do yield farming, staking, liquidity providing, lending, and earn interest on their investment. Crypto dividends and different earning methods experienced a huge surge of demand and despite high volatility, they became the best way of earning interest. Just a few days ago, a tech and infrastructure company called BTCS Inc. announced that they will be the first Nasdaq-listed company to pay dividends to their shareholders in Bitcoin. Right after the announcement, their stock price increased by 44%. What are crypto dividends? Crypto dividends are rewards that are earned for holding or performing a specific action with different assets. The amount of dividend granted is frequently based upon the amount of cryptocurrency the investor holds or, if they receive dividends for performing a specific action, this could be through staking or claiming a reward on their platform. The interest rate is usually represented in annual percentage yield (or APY) and represents the returns over a period of a year. How to earn crypto dividends When it comes to the stock market, investors are paid from the profit that a company generates. In the cryptocurrency markets, there are many different principles of how and when dividends are paid. The most popular ways of earning dividends in the blockchain space are by staking, yield farming, lending, and airdrops. Staking is used in proof of stake protocols to verify transactions on the blockchain network. The number of coins you stake usually correlates with the number of transactions you verify and you receive rewards based on that. Yield farming is when you provide liquidity on a trading pair and you gain interest based on the usage of this trading pair. Usually, the returns on yield farming are higher but there is a risk of losing your investment if there is a drastic change in price. This is called impermanent loss. Crypto lending or borrowing is where you lend your cryptocurrency asset for a rate of interest that is repaid after a certain time. Usually, people offer their ETH or BTC as collateral to take stable coins or fiat which they can use to buy more crypto, gold, or even real estate. Crypto airdrops are distributions of specific coins or tokens to a community, usually in response to performing some action required by the company that offers the airdrop. The biggest airdrop was performed by Decred and the users that are still holding their tokens are estimated to have around $500,000. Another way to earn a passive income is through investing in stable coins, for example, by earning a return - or yield. Most often, your return is paid in the currency that you invested in, as is the case on the Kinesis Money platform which pays out in physical gold and silver, for storing precious metals in its ecosystem. As with investing, it is important to consider the extent of the risk posed, as well as things like safety or “lock-in” terms. With stable coins like Kinesis' KAU and KAG, there is the added benefit of securing value over time with the currencies backed by physical precious metals, in addition to no “lock-in” terms, that gives utility and liquidity to users’ investments. Crypto dividends methods and coins Depending on your preference, you should choose a combination of options that will combine high returns for the risk you are willing to take. Here are some of the best options for earning interest on your crypto. Ethereum 2.0 is currently the asset that is staked the most with almost 160 billion. The largest platform for staking ETH 2.0 is Lido finance with an interest rate of 4.8%. Even though the risk and reward ratio is great, you won’t be able to use your Ethereum until ETH 2.0 is released — and the date for that is still unknown. Curve finance or CRV is the largest liquidity pool built on the Ethereum chain. Currently, there are 23.3 billion assets locked on the platform. The curve became famous for its market-making algorithm which allows users to exchange stable coins that are pegged to fiat. The interest rate for fiat is pretty high, around 20%, and since prices won’t change a lot, it decreases the chances of impermanent loss. Maker DAO or MKR is a decentralised lending and borrowing platform. It is currently second (by size) with 19 billion assets locked. On Maker DAO, usually, people provide ETH or some other cryptocurrency as collateral and loan DAI as a stable coin. If the price of collateral goes down, you either need to provide more of it or you need to accept a 13% loss. There are many ways and platforms where you can earn dividends on your assets. Make sure to do your own research, especially if you are looking to earn interest on some smaller coins. Trading vs dividends Many people think that they need to do daily or swing trading to get earnings in the crypto markets but, as we’ve discussed, there are other ways of getting passive income. Daily traders try to identify good entry and exit points and execute the trades from a few minutes to a few hours. Swing traders are doing the same thing, but usually, the trades last from a few days up to a few months. Since the frequency of the trades in swing trading is lower they are usually aiming for a bigger return per trade. In today's markets, crypto dividends can be high, and just by holding or staking assets, investors can outperform most traders. Also, volatility is decreasing over time which lowers the potential for traders to identify good entry and exit points and get the same returns as they were able to do in the past. Due to this, most people will fare better by staking and earning passive income than trading. Future of crypto dividends Decentralised finance is still a new and fast-evolving field in the blockchain space. We had many different tries and different approaches to earning interest on your crypto. Many of them failed, many of them are still in the experimental phase and evolving as well. The most recent boom was Olympus DAO and its forks that are giving over 1000x per year if the price remains the same. We are still early and decentralised finance is one of the most bullish segments in the blockchain industry. To find out more about cryptocurrency investment, see our blog Learn More This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
Traders and experts often discuss gold and the commodities market, but the specific terms “gold” and “bullion” are actually quite different. While gold encompasses all forms of the metal and ways to trade in its market, including coins and bars, bullion includes the physical forms of other precious metals also traded, like silver and platinum. It’s important to understand these differences and the various forms gold can be invested in, so you can choose the best form for your goals and needs. The Gold Market Trading in the commodity market includes precious metals like gold, silver, and platinum. Historically, gold is valuable and has been used as currency. Its price remained relatively consistent until the 2008 financial crisis, when its price nearly doubled. In 2019 the price of gold increased by 13%, while in 2020 it went up by an incredible 26%. By contrast, 2021 wasn’t a great year for gold, due, in part, to the Federal Reserve announcing that the banks would increase interest rates sooner than expected. That caused the price of gold to decline by almost 4% in comparison to 2020. Gold price in 2021 There are many reasons to invest in gold since it is often viewed as a safe option compared with other investments. It often happens that the value of other asset classes like the FTSE 100 goes down, while the price of gold goes up. Here are some of the reasons gold is a good investment: Preservation. Gold’s long history makes it an attractive, secure form of long-term investment and wealth preservation. Its value continues to grow slowly, though it is less impacted by inflation and volatility. Hedging. Generally, gold maintains its value or prices even improve as the dollar falls. It is also not directly impacted by interest rates and is a scarce asset. This behaviour makes investing in gold a popular hedging technique, acting as insurance against economic events. Portfolio diversification. A portfolio made up of many different types of assets generally reduces risk and is stronger against volatility. Gold is often negatively correlated to the stock market, meaning that even as the stock market falls, gold may remain steady or prices may increase. Including gold can help diversify your portfolio and provide some protection against unforeseen events. Stock opportunities. Stocks in gold companies can usually maintain profitability even when the gold price is low. Many companies also pay dividends, making gold stocks a valuable buy for investors. Gold trading can take on a variety of forms: you can trade physical gold, purchase shares in gold mining companies, invest in gold ETFs, or trade in gold options and futures. Each of these methods provides different benefits and challenges and involves using different risk strategies. In this article, we’ll focus on trading in physical gold through bullion, coins, and bars. Investing in Bullion Gold bullion is physical gold that is at least 99.5% pure, in the form of bars or ingots. Investors can purchase bullion from banks or brokers online or in person, and store it themselves or with a third-party custodian. While you can buy the actual bars, investing in gold and silver bullion is easier to do via ETFs or futures contracts. It can sometimes even be considered legal tender. ETFs contain a collection of securities, which typically track an underlying index. Gold bullion ETFs track gold certificates, which can be exchanged for physical gold or the cash equivalent. While it’s not the same as owning a physical gold bar, investing in gold ETFs still grants access to the bullion market. Futures contracts are agreements to sell and deliver gold bullion to the buyer at a set date for a set price. Until this happens, the buyer only owns a paper gold contract, which can be sold before the expiry date or rolled forward into a new one. It’s worth noting that this trade is in contracts, not shares. They can be quite profitable but also lead to heavy losses if the bullion price changes unfavourably. As a result, futures trading is usually suited for experienced investors. Options contracts are similar to futures in that the buyer and seller agree on a specific price of gold at a certain date. The difference is that with options trading the buyer doesn’t have an obligation to go through with the purchase while on the futures contract the trade will be executed. Banks often hold gold bullion as reserves, which is used to settle an international debt or stimulate the economy through lending. A central bank lends gold bullion to a bank, which sells the gold or lends it to mining companies, while the central bank receives the cash equivalent. If the bank sells bullion on the spot market, it receives cash. This addition of gold in the market reduces its price, hopefully enough that the bank can buy it back at a lower price than it was originally sold for. If the bank lends the bullion to a mining company, it is usually repaid from the company’s future mining output. A mining firm would borrow the gold to finance a project or in a forward hedge contract, in which gold that has not yet been mined is pre-sold to buyers. Investing in Gold Coins Another way to invest in gold is to buy gold coins or bars; physical forms of gold that are typically more available and more manageable for everyday use. Coins, naturally, are more flexible, since you could sell a portion of your gold collection by selling some coins rather than your entire gold bar. Some coins may also have varying values if they are rare or antiques. Gold coins or bars can be purchased online or in person, too, through brokers, banks, or pawnshops, and stored independently. As the historical basis for most nations’ currency, gold coins can be safe investments and sold when the market price best suits the investor. Pros and Cons of Physical Gold Both of these methods involve owning physical gold, which has the benefit of control and the challenge of actual storage. Since investors hold the physical bar or coins, they can sell at any time the price is most attractive, and hold it when it is not. As outlined above, gold is generally considered a safe investment and a way to diversify and hedge your investment portfolio. However, it can be difficult to store bars of gold – they take up a lot of space, and could be lost or stolen. Many brokers offer insurance options for physical gold, or it can be stored at a bank. There are some websites where you can buy, sell, and store physical gold through a broker, and thus not have the responsibility of storing it yourself. Gold vs Bullion When comparing the difference between investing in gold or in bullion, it is important to consider your investment needs. While investment in bullion through ETFs, Futures or Options contracts enable you to incorporate gold into your portfolio, investors, however, do not have legal title ownership of the bullion. Instead, investors simply profit from the speculative or tracked value of gold as an asset, such as through its market price or the extent of its availability on the market. For investors looking to access the fullest extent of benefits that physical gold offers, investment in gold coins, bars or digital gold, could be considered a preferable option. In this way, investors can build their wealth, by being protected against market volatility, currency fluctuations and inflation risks, as well as being able to physically redeem their gold. Ultimately, the best investment choice will greatly depend on the investor’s goals, and the extent to which they intend to utilise their gold investment. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.