Despite the prevailing market bearishness, numerous factors suggest that the next crypto cycle could outshine all previous ones in terms of growth and adoption. We'll explore the key insights and trends that support this bold prediction, offering a glimpse into the future of the crypto landscape.

Will 2023/2024 Kick off a New Bull Run?

The two leading Cryptos seem to be driving the catalyst for this case.

First, Bitcoin's next halving event is scheduled for April 2024. This event, which occurs approximately every four years, will reduce the number of Bitcoins generated as mining rewards by 50%, effectively lowering the supply of new Bitcoins entering the market.

Historically the 4-year Bitcoin halving cycle has correlated with the bull and bear periods of the Crypto market.

The 1 year leading up to the halving events has typically been the best time to accumulate, with the explosive upside potential happening for 1 year after the Bitcoin halvings.

Secondly, the Ethereum 2.0 upgrade will reach its final stages of development by the end of 2023. With the introduction of the Shanghai upgrade and proto-dank sharding, Ethereum will see significant improvements in scalability, security, and energy efficiency.

Ethereum's staking and transaction-burning mechanisms have also been fully implemented, significantly boosting the network's tokenomics demand.

Layer-2 Ecosystems have also finally matured, and we're even seeing the long-speculated zkRollups coming to mainnet.

This will undoubtedly attract more developers, users, and investors to the Ethereum ecosystem, further boosting its value and the overall cryptocurrency market.

Ethereum is about 40% as large as Bitcoin today, and it should no longer be treated as another Altcoin but rather as an industry-leading common good. I fully suspect the effects of Ethereum 2.0's increase in demand to kick in this cycle just like the Bitcoin halving, and for the two market leaders to drive the next bull market phase together.

7 Reasons Why the Next Bull Run Could Be the Most Explosive One Yet

1. Proofs of Concept and Emerging Use Cases

So far, much of the crypto space has been focused on proofs of concept. The only truly successful and sustainable use cases that have emerged are decentralized trading and lending/borrowing. However, there has been a lot of speculation around NFTs, metaverse, gaming, and zero-knowledge proofs (ZKs), even though users have mainly been attracted to these areas for speculation rather than actual use. As these technologies mature, we can expect more practical use cases to emerge, driving increased adoption.

2. Crypto Infrastructure Matures

We're finally reaching a point where crypto infrastructure no longer unreasonably limits what's possible, which means decentralized applications (dApps) can attract users who are genuinely interested in using the services, rather than merely speculating on future usage. This breakthrough will enable dApps to reach their full potential and become powerful catalysts for growth in the crypto space.

3. Adoption of Innovations

Initially, crypto attracted innovators who were passionate about the technology. However, as the technology matures and becomes more of an infrastructure for profound experiences, we can expect a more significant influx of users. This wider adoption will drive further growth and innovation in the crypto ecosystem, leading to even more exciting opportunities for users and investors alike.

4. The Grand Migration from Web 2 to Web 3

The next crypto cycle is expected to onboard the largest group of users ever seen, marking the beginning of a grand migration from Web 2 to Web 3. This shift will see the decentralization of the internet and the proliferation of decentralized applications, as more and more users recognize the benefits of a more secure, transparent, and user-controlled digital landscape.

5. The Emergence of Breakthrough dApps

A handful of dApps will likely catch fire and single-handedly onboard tens of millions of users almost overnight. These dApps may emerge from two sources: large corporations seeking to capitalize on the crypto trend, and grassroots projects built by dedicated developers who are passionate about creating transformative solutions. As these dApps gain traction, they will draw even more users into the crypto space and accelerate growth.

6. Regulatory Clarity

Although regulatory clarity in the U.S. remains a missing piece, the dApps that catch fire in the next cycle may do so without it, as they could be so innovative and unique that it will take years to classify them. This regulatory ambiguity may actually help fuel the growth of the crypto market by allowing innovative projects to flourish without being stifled by traditional regulatory constraints.

7. Convergence of Trends

The convergence of crypto, artificial intelligence (AI), and the metaverse is poised to produce something that will catch fire with incredible speed. With the infrastructure now in place, we're merely waiting for dreamers to unleash their visions on top of it. As these groundbreaking projects emerge, they will drive further innovation and investment in the crypto space, setting the stage for a truly explosive growth cycle.

In conclusion, the maturation of crypto infrastructure, the adoption of innovations, and the convergence of technology trends are all setting the stage for an unprecedented crypto cycle.

Feeling overwhelmed by all the content out there? Looking for a reliable source of helpful tips and tricks?

Follow me now and get access to exclusive content that I'm sharing every day. Plus, don't forget to share this helpful article with your friends and family so they can benefit from it too! Stay tuned for more valuable insights.

TL;DR

Before diving into the analysis process, it's essential to understand the fundamental aspects of DeFi projects.

Investors should identify the projects that fulfill the use cases they believe in and evaluate the team behind them. 

The technology that underpins a DeFi project is also a crucial factor in determining its viability and effectiveness. 

The strength of a project's community and its adoption by users are also significant indicators of its potential success.

What Are DeFi Protocols Used For?

The explosive growth of decentralized finance (DeFi) has revolutionized the financial landscape, offering a variety of innovative products and services. As a result, individuals now have unprecedented access to financial services and products without the need for intermediaries like banks or traditional financial institutions. 

DeFi has democratized finance, allowing anyone with an Internet connection to participate in activities, such as lending, borrowing, trading, and earning interest on their digital assets. However, with numerous projects entering the market, it's crucial to understand how to analyze DeFi projects effectively. This means investors should conduct thorough due diligence into a project before acquiring its tokens.

Understanding DeFi Fundamentals

Before diving into the analysis process, it's essential to comprehend the fundamental aspects of DeFi projects. DeFi refers to financial applications built on blockchain networks that aim to provide open, permissionless, and trustless alternatives to traditional financial services. These projects typically offer features such as lending and borrowing, decentralized exchanges, and yield farming.

Given the open, permissionless nature of this technology, there is a wide range of individuals and teams building a variety of applications covering a numerous use cases, such as giving users unprecedented control over their personal data and complete ownership of their digital assets. New entrants to the world of DeFi should approach these projects with caution and skepticism.

Why Is DeFi Due Diligence Important?

Conducting due diligence in DeFi is essential due to the unique characteristics and risks associated with this rapidly evolving sector. DeFi investment often involves risks, such as potential rug pulls, hacks, and the loss of a portion or all of the investor’s capital. Thoroughly assessing the project's fundamentals, team, technology, and security measures allows investors to make informed decisions and possibly avoid potential scams or poorly executed projects.

By conducting due diligence, investors can make informed decisions, mitigate risks, and identify investment opportunities that align with their investment objectives and risk tolerance. It helps establish a foundation of knowledge and understanding necessary to navigate the complex and dynamic DeFi landscape.

This requires individuals looking to get involved with the DeFi space to approach new projects while keeping the following factors in mind.

Popular Metrics That Help Evaluate a DeFi Protocol

There are several popular metrics that can provide valuable insights into the performance and potential of DeFi projects. These include the token’s 24-hour volume, inflation rate, price and market capitalization.

Total value locked (TVL)

Total value locked, or TVL, is an aggregate amount of funds locked into a DeFi protocol. You can think of TVL as the total amount of funds deposited by liquidity providers to one protocol. For example, Uniswap’s TVL is over $4 billion as of February 2023. That means users have deposited over $4 billion into Uniswap. You can look at the TVL to assess the overall interest in a particular DeFi protocol, or use it comparatively to see which DeFi protocol is “locking” in more value than others. Being able to attract a large TVL is usually a sign of robustness.  

Market capitalization

Market capitalization, or market cap, calculates the total value of a DeFi protocol's circulating supply of tokens. It is obtained by multiplying the current price of a token by the number of tokens in circulation. Market capitalization offers an overall assessment of the protocol's size and prominence. However, it’s essential to consider market cap in relation to other factors, such as the protocol's utility, adoption, and competition.

24-hour volume

The 24-hour volume measures the total value of trades executed within a specific DeFi protocol over a 24h time span. A high 24h volume indicates active trading and better liquidity, suggesting a vibrant ecosystem and market interest. A low 24h volume, on the other hand, signals low buying and selling of the protocol's tokens, indicating lower liquidity. A low 24-hour volume can have several implications, including a lack of interest or participation from traders and investors.

Inflation rate

Another important metric to consider is the inflation rate. Inflation rate refers to the rate at which new tokens are created within a DeFi protocol. A lower inflation rate can be favorable, as it indicates a more controlled token supply and potentially higher value over time. However, it's crucial to assess the overall tokenomics and distribution model to ensure that the protocol strikes a balance between incentivizing participants and maintaining token scarcity. This topic will be explored further in this article.

Price-to-sales ratio

Price-to-sales ratio is used to determine whether a DeFi protocol is undervalued or overvalued. To calculate the price-to sales ratio, divide the fully diluted market cap of a DeFi protocol by its annual revenue. The lower the ratio, the more undervalued the protocol may be, and vice versa. This works similarly to how the price-to-sales ratio is used in traditional financial markets to see if a stock is undervalued or overvalued.  

Unique address count

The unique wallet address count is a metric that measures the number of participants in a particular DeFi protocol. It’s a measure similar to unique users for traditional Web2 apps that calibrate user engagement. An increasing number of addresses could be a good indicator of growing popularity and adoption. It’s important to note that this metric can be manipulated and investors should use this metric in combination with other indicators. 

Evaluating the DeFi Project Team

Investors should identify DeFi projects that fulfill the use cases they believe in and evaluate the teams behind them. This can be done by examining the project's official website, whitepaper, leadership team, team member’s past work experience, and other documentation relevant to  the team members and their expertise. 

Look for experienced developers, advisors, and industry experts with a track record of successful projects. Assess the team's transparency, responsiveness, and engagement with the community on platforms such as Twitter, Reddit, Telegram, and Discord. Active involvement in open communication channels and regular updates on project development are positive signs that the team behind a project is committed to the use case they’re attempting to tackle.

On the other hand, an investor’s initial research could reveal that the team behind a project is unresponsive on social media or there is little transparency about the team. While these factors aren’t necessarily indications of a scam, they are red flags and investors should be cautious about getting involved with these projects.

Assessing DeFi Technology

The technology that underpins a DeFi project is a crucial factor in determining its viability and effectiveness. One of the key aspects to consider is the blockchain platform on which the project is built. 

Ethereum, for instance, is a popular choice, offering a robust and established infrastructure for DeFi applications. Other layer 1 blockchains have emerged as promising alternatives for scalable DeFi applications too. Investors looking to acquire DeFi tokens should weigh the pros and cons of the underlying blockchain to make an informed decision.

Another critical aspect is the evaluation of the smart contracts that power the DeFi project. Smart contracts are self-executing contracts on the blockchain with the terms of the agreement directly written into code. It’s essential for DeFi projects to regularly audit their smart contracts to mitigate potential vulnerabilities and protect user funds, even though an audit doesn’t necessarily guarantee security. Nevertheless, reviewing a project’s smart contract audit history can shed some light on the team’s efforts to safeguard users.

Interoperability is another crucial aspect of DeFi tokens that ensures seamless communication and interaction between different platforms and protocols. It allows tokens to be easily transferred, traded, and utilized across multiple decentralized applications (DApps) and blockchain networks. Investors should check how interoperable a DeFi token is before deciding to invest.

Analyzing the Tokenomics of DeFi Projects

Tokenomics refers to a project's token economy and the incentives it offers. Investors should begin by understanding the token's purpose within the ecosystem and its distribution model. 

This involves examining factors such as the total supply of tokens available and how they are allocated to different parties. These parties can include team members, community members, advisors, or other stakeholders. The distribution model helps determine the initial distribution of tokens and can impact factors like decentralization, governance of the project, and the potential for market manipulation.

Token issuance mechanisms are also important to consider. These mechanisms can include mining, staking, or other methods by which new tokens are created and distributed over time. Evaluating these mechanisms can help investors understand if the token is inflationary or deflationary, its scarcity, and the incentives provided to participants.

Assessing the project's revenue streams is also crucial. Understanding how the project generates income and sustains its operations provides insights into the potential value and sustainability of the token. This could include revenue generated from transaction fees, platform usage, or other sources.

Reviewing Security Measures

Given the occurrence of security breaches in the DeFi space, it’s crucial to assess a project's security measures. Look for regular audits conducted by reputable third-party firms, which is usually a good sign that the project is proactively identifying potential vulnerabilities to ensure smart contracts security. 

Bug bounty programs are another indicator that a project takes security seriously. In a bug bounty program, the organization sets out specific criteria, guidelines, and rewards for individuals who find and responsibly disclose valid security vulnerabilities. These programs often have a defined scope, which specifies the systems, platforms, or software that are eligible for bug hunting.

When a bug hunter discovers a vulnerability, they may submit a detailed report to the organization outlining the issue, its impact, and steps to reproduce it. The organization then verifies the reported vulnerability and, if valid, rewards the bug hunter with a bounty or a predetermined monetary reward.

Willingness to partake in this process to identify vulnerabilities may indicate a project’s commitment to keeping abreast of potential weaknesses and taking proactive steps to mitigate them.

Analyzing DeFi Communities and Adoption

The strength of a project's community and its adoption by users are essential indicators of its potential success. These indicators provide valuable insights into the project's viability, future growth prospects, and overall market acceptance.

Engaging with the project's community is essential to gain a deeper understanding of their sentiment, active participation, and overall enthusiasm. This interaction allows you to assess the level of support, engagement, and trust within the community.

Social media platforms like Twitter, Reddit, Telegram, or Discord provide a wealth of information about the project's community. Investors should monitor discussions, comments, and the level of activity on these platforms, looking for signs of positive sentiment, active discussions, and a growing number of followers. Positive sentiment indicates community trust and enthusiasm for the project.

Closing Thoughts

Analyzing a DeFi project is a critical process to make informed investment decisions in the rapidly expanding decentralized finance space. By considering factors such as the project team, technology, tokenomics, security, and community engagement, investors can gain a comprehensive understanding of the project's potential.

Even so, it’s critical to never invest more than you can afford to lose. While the above factors are crucial to making informed decisions, this list isn’t exhaustive and investors should practice caution and approach DeFi projects with skepticism.

Further Reading: 

What Is Real Yield in DeFi?

Four Ways to DYOR on DeFi Yield Farms

How AI Will Influence DeFi: Promises and Delusions

What Are Flash Loans in DeFi?

Disclaimer and Risk Warning: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

TL;DR

An air-gapped wallet is a type of crypto wallet that is designed to be completely disconnected from the internet and any form of wireless communication.

An air-gapped wallet generally signs transactions in an offline environment and interacts with online devices via QR codes or micro-SD cards.

Air-gapped wallets are generally considered more secure than other types of wallets. 

Air-gapped wallets are not entirely foolproof and require a high level of user responsibility. They are more suitable for those who hold substantial amounts of assets for the long term. 

What Is an Air-Gapped Wallet?

An air-gapped wallet is a type of cryptocurrency wallet that is designed to remain disconnected from the Internet and any form of wireless communication. The types of wireless communication that air-gapped wallets are disconnected from include Bluetooth, wifi, NFC (near-field communication), and sometimes even USB drives. 

The term “air gap” comes from the concept of having a physical “gap of air” between the wallet device and any online networks or wireless communication, providing an extra layer of security against hacks and exploits. 

How Does An Air-Gapped Wallet Work? 

In order to facilitate transactions while remaining disconnected from the Internet and wireless communication, air-gapped wallets rely on scannable QR codes or micro-SD cards, which are small removable memory cards in which transaction data can be stored. 

Air-gapped wallets commonly employ computer-based software applications that support Partially Signed Bitcoin Transactions (PSBTs) for Bitcoin or other similar partially signed transactions for different cryptocurrencies.

Let’s examine how an air-gapped wallet works in making a Bitcoin transaction. 

Step 1: Creating a Partially Signed Bitcoin Transaction (PSBT)

Users generally set up a transaction on an online device with a Bitcoin wallet, specifying the recipient’s Bitcoin address and the amount to be sent. 

Since this online device doesn’t have the user’s private key, it cannot fully sign the transaction. Instead, a Partially Signed Bitcoin Transaction (PSBT) is created with all the transaction details except the digital signature signed by the user’s private key. 

Step 2: Signing the transaction 

The unsigned transaction is transferred to the user’s air-gapped wallet by scanning a QR code. The transaction can also be recorded and stored as a file that can be read by a micro-SD card.  

The air-gapped wallet has the private key and signs the transaction in the offline environment. It’s important to note that the air-gapped wallet is never connected to the Internet or wireless communications, which should, in theory, keep the private key safe.

Step 3: Broadcasting the transaction

The fully-signed transaction is transferred back to the online device, once again via a QR code or micro-SD card. 

The online device broadcasts the signed transaction to the Bitcoin network. The transaction is then processed and confirmed by miners and recorded on the blockchain, like any other transaction. 

Types of Air-Gapped Wallets

Air-gapped wallets can come in a variety of different forms but the following are the most common air-gapped wallets. 

Air-gapped hardware wallets

These are specially-built hardware devices designed to store private keys offline. These wallets generally facilitate transactions without ever exposing the private keys to an online environment or wireless communications. 

These devices usually have a digital screen to display transaction information and physical or touch buttons to manually approve transactions.

Air-gapped computers 

Users can also dedicate an entire computer to serve as an air-gapped wallet. This computer is usually never connected to the Internet and is used exclusively for storing private keys and signing transactions. 

The unsigned transactions are conveyed to air-gapped computers typically via a USB stick and the signed transactions are transferred out the same way. This approach can be more complex and requires a higher level of technical skills.

Air-gapped smartphones 

Similar to air-gapped computers, a smartphone can also be used as an air-gapped wallet. The phones can be factory reset and set up without any connection to the Internet. Wallet software is installed via an SD card or similar methods. This can also be complex and will require advanced technical skills.

Differences Between Air-Gapped Wallets and Other Types of Wallets 

To better understand air-gapped wallets, it’s useful to see how they compare with other types of wallets. 

There are different ways to categorize wallets, and let’s see where an air-gapped wallet fits in each classification. 

Categorizing crypto wallets based on connectivity

Hot wallets

A hot wallet is any wallet that is connected somehow to the internet. These wallets are easy to set up, and the funds are quickly accessible, making them convenient for traders and other frequent users.

Cold wallets 

A cold wallet is disconnected from the Internet and uses a physical medium to store the keys offline. A cold wallet tends to be a safer alternative to storing crypto. This method is also known as cold storage and is suitable for long-term investors or "HODLers."

An air-gapped wallet is a specific type of cold wallet, but not all cold wallets are necessarily air-gapped wallets.  

Categorizing crypto wallets based on physical form

Hardware wallets

A hardware wallet is a physical device that stores your private keys offline. They are cold wallets and similarly offer a higher level of security. They are typically used for long-term storage of large amounts of cryptocurrencies. 

Software wallets

A software wallet is a program or an app that is installed on your computer or smartphone. They are generally connected to the Internet and are therefore hot wallets. This category includes web wallets, desktop wallets, and mobile wallets. 

Paper wallets

A paper wallet is a piece of paper on which a crypto address and its private key are physically printed out in the form of QR codes. These codes can then be scanned to execute cryptocurrency transactions.

An air-gapped wallet is a type of hardware wallet, but not all hardware wallets are air-gapped wallets. A paper wallet can be technically considered an air-gapped wallet, but making transactions with a paper wallet often requires the private keys to be imported into a software wallet, which would break the air gap.

Categorizing crypto wallets based on control over private keys

Custodial wallets

Private keys to custodial wallets are controlled by a third party, such as an exchange. They are often easier to use but are much riskier than non-custodial wallets as the holder will rely on the third party for the security of their cryptocurrencies. 

Non-custodial wallets

These are wallets where the user has full control of their private keys. These wallets allow users to have full control of their cryptocurrencies and no third party is involved. Most desktop wallets, mobile wallets, and hardware wallets belong to this category.

An air-gapped wallet is a type of non-custodial wallet, but not all non-custodial wallets are air-gapped wallets. 

Differences Between Air-Gapped Wallets and Hardware Wallets 

Air-gapped wallets are a type of hardware wallet, but there are some key differences between the two. 

Connection to the Internet

An air-gapped wallet is never connected to the Internet. As mentioned above, air-gapped wallets conduct transactions by ensuring the private keys remain offline at all times.

A hardware wallet also stores keys offline but typically connects to an Internet-connected device to sign transactions. The private keys are designed to never leave the hardware wallet but hardware wallets do connect to an online device during the transaction signing process.

User Experience

Air-gapped wallets may require more steps to make a transaction, while hardware wallets usually offer a more straightforward process for signing transactions, as they're designed to connect directly with an online device.

However, hardware wallets generally still offer a high level of security when used correctly, as they're designed to keep the private keys isolated even when the device is connected. 

Both air-gapped wallets and hardware wallets offer a high level of security by keeping private keys offline, with air-gapped wallets taking an extra step in maintaining a strict separation from Internet-connected devices. 

Is an Air-Gapped Wallet More Secure? 

The crypto community generally considers air-gapped wallets more secure than other types of wallets. 

This added security comes from the fact that an air-gapped wallet is created and used on a device that is never connected to the Internet, isolating it from online threats such as hacking, phishing, and malware. 

Air-gapped wallets store the private keys on devices that are completely offline, making it harder for malicious actors to steal the private keys without physical access to the device. 

What Are the Risks and Limitations of Air-Gapped Wallets? 

Air-gapped wallets are highly secure but it doesn’t mean they are infallible. There are still potential security vulnerabilities. If an air-gapped device is ever connected to the Internet mistakenly by the user, or if malicious software is introduced to the device through a USB stick (some air-gapped wallets use USB for charging and updates) or any other medium, the security of the device can be compromised.

There are also challenges for the user to maintain good physical protection of the air-gapped wallets from theft, damage, or loss. Users should follow best practices and keep backups of their keys securely to safeguard themselves against such risks. Lastly, ensuring correct and proper usage of air-gapped wallets requires a high degree of technical know-how. 

Choosing the Right Air-Gapped Wallet

Crypto holders who have decided to invest in an air-gapped wallet should consider the following factors before choosing their device:

Compatibility

Ensure that the wallet supports the cryptocurrencies you intend to store. Different wallets may have varying levels of support for different cryptocurrencies — for instance, some wallets are designed to only store bitcoins. It’s crucial to check if your desired currencies are supported before making a decision.

Reputation and reviews

Research the wallet's reputation and read reviews from other users in the crypto community on platforms such as Twitter, Discord, and Reddit. The level of trust and support from the cryptocurrency community is also a crucial factor to consider. Well-established wallets with a strong community presence are generally more reliable and less likely to have security vulnerabilities. 

Consider purchasing a wallet developed by a brand that has a strong track record and positive feedback regarding its security, reliability, and customer support.

Development community

Assess the wallet's development community on platforms such as GitHub and look out for ongoing updates. Active development indicates that the wallet is regularly maintained, with potential bug fixes and security enhancements.

User experience

Consider the ease of use and user interface of the wallet. A well-designed and intuitive interface can make managing your funds more convenient and user-friendly.

Closing Thoughts 

Air-gapped wallets offer a high level of security for cryptocurrency users, especially those who hold substantial amounts of assets for the long term. They provide a robust defense against online threats by storing private keys on a device that is never connected to the Internet or any form of wireless communication. 

Despite these advantages, air-gapped wallets are not entirely foolproof and require a high level of user responsibility. The security is primarily based on maintaining the integrity of the air gap and ensuring the physical safety of the device. 

Air-gapped wallets may not be necessary for every user. Users who transact frequently or only hold a small amount of cryptocurrency may find other forms of wallets more convenient. The choice of wallet ultimately depends on the user’s needs, risk tolerance, and ability to manage the wallet's security. 

Further Reading: 

What Is a Crypto Wallet?

What Is a Hardware Wallet (and Why You Should Use One)

Custodial vs. Non-Custodial Wallets: What's the Difference?

How to Secure Your Cryptocurrency


Disclaimer and Risk Warning: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

TL;DR

Investing may be a good way to build wealth over the long term, but it can be daunting to figure out where to start as a beginner. 

Building a personal investment portfolio is an important step toward achieving financial goals, and it requires careful planning and consideration of several factors, including the nature of these goals and risk tolerance. 

Regular monitoring and adjusting a portfolio is necessary to maintain an investor's desired asset allocation.

What Is an Investment Portfolio?

An individual's investment portfolio is the collection of assets they own, including stocks, bonds, and cryptocurrencies.

Investing can be a great way to build wealth over the long term, but figuring out where to start can be overwhelming. This is especially true when newer investment options like cryptocurrencies are thrown into the mix. 

Building a personal investment portfolio is a crucial step toward achieving financial goals, and it requires careful planning and consideration of a few factors. Let's take a closer look at a few key considerations involved in building a personal investment portfolio.

Evaluating Risk Tolerance in Portfolio Planning

Risk tolerance refers to an investor's willingness and ability to withstand losses. For beginners, this means taking into account considerations such as their end goals, their current financial situation, and their understanding of investment products, among other factors.

Defining goals

The first step an investor could take to determine their risk tolerance is to define their financial goals. For example, common long-term investment goals may include saving for retirement or building wealth for future generations, while short-term goals may include purchasing a car or pursuing higher education in the near future.

These goals may have knock-on effects on risk management and tolerance because financial goals could dictate an investor's time horizon, which is the length of time they plan to hold their assets before cashing in on them. 

The longer the time horizon, the bigger the risk an investor may take, as long-term gains may counterbalance short-term price dips. Entering the market with shorter time horizons, such as planning to buy a house in two years, means losing a portion of the capital to short-term price fluctuations could set this goal back significantly.

Current financial situation and obligations

Being fully aware of current financial obligations can help determine how much money investors may invest without compromising their ability to pay bills, debts, and other necessary expenses.

For instance, an individual with a stable income and an emergency fund that could cover medical expenses, a job loss, or home repairs may be more willing to take on riskier investments, such as cryptocurrencies. The recommended emergency fund is generally enough to cover an individual's financial obligations for the estimated time it might take them to find a new job in their industry and specialization.

On the other hand, someone who has yet to save up for emergencies might need to consider a cash-heavy investment mix so that an unexpected setback won't result in having to liquidate high-risk assets, potentially incurring a loss.

Understanding different asset classes while investing

Another factor investors might need to consider when making decisions on risk tolerance is their knowledge and experience with the assets they plan to add to their portfolio, especially if this involves cryptocurrencies. For example, if they have a good understanding of the crypto market and how crypto wallets work, they may feel more comfortable taking on the risks associated with this investment. 

However, investors who are new to crypto may want to start with a smaller capital and increase their holdings as they get more comfortable with the market and the volatility that comes with it.

Strategizing Asset Allocation for a Balanced Investment Portfolio

Asset allocation is the process of dividing investments into different asset classes, such as stocks, bonds, cash, and alternative investments like cryptocurrencies. Striking the right balance could give investors a leg up in achieving their goals. 

Generally, a conservative investor may choose to have a higher percentage of bonds and cash in their portfolio, while an investor with a longer time horizon might choose to have a higher portion of individual stocks and crypto assets. It's important to note that asset allocation is not a one-time decision and may need to be adjusted over time as investment goals and risk tolerance change.

For instance, an investor with a large cash reserve may allocate 70% of their capital to stocks, 20% to bonds, and 10% to cash. Choosing to allocate 70% of their portfolio to stocks might be deemed risky. Still, if this investor is able to cover unexpected expenses with their 10% cash reserve, they might feel comfortable taking this risk.

Alternatively, someone close to retirement might choose to hold more bonds and cash while allocating a small portion of their holdings to stocks and crypto. If their cash can cover their expenses in retirement, they could hold a small portion of their funds in riskier assets.

How to Diversify Your Investment Portfolio

A diversified portfolio can allow investors to weather price dips in individual stocks and cryptocurrencies. Investors may choose to minimize the risk of loss due to the concentration of investments in one geographic area or sector by spreading investments across different asset classes, sectors, and regions.

Investors could diversify by investing in mutual funds or exchange-traded funds (ETFs). But note that diversification does not guarantee a profit or protect against loss in a declining market. While it's a good strategy, it's not risk-free.

Mutual funds and ETFs may be more suitable for investors who prefer a hands-off approach to diversifying, as accredited financial institutions choose the bundle of stocks and shares included in these funds. The S&P 500 and the FTSE 100 are prime examples of funds that offer a hands-off approach. Investors could allocate a portion of their salaries to purchasing these products each month.

If an investor prefers diversifying by picking their own investments, There are a variety of investment products available, including individual stocks, bonds, and crypto. It's essential to conduct thorough research and understand each investment's risk and potential return. Tools such as Morningstar, Bloomberg, and CoinMarketCap are good starting points.

How to Monitor and Rebalance Your Investment Portfolio

Building a personal investment portfolio is not a one-time event. It might be an ongoing process that requires regular monitoring and adjustment. Investors may need to rebalance their portfolios periodically to maintain their desired asset allocation. 

Investors may also need to adjust their portfolios if their investment goals or risk tolerance change. Let's say an investor has a diversified portfolio that comprises 60% stocks, 30% bonds, and 10% cash. After finding themselves in a better financial situation, they may now have a higher risk tolerance and be willing to take on additional risk in their investments in pursuit of greater returns. Assuming the investor has done their research, they might adjust their portfolio to hold less cash and more bitcoin. By increasing their bitcoin holdings, they are increasing their potential for higher returns, taking on more risk in doing so.

On the other hand, rebalancing a portfolio could involve letting go of riskier assets in favor of more conservative options. For instance, an investor approaching retirement might let go of some of their riskier investments while holding onto bonds and cash.

It's important to note that adjusting a portfolio based on risk tolerance is a personal decision that should be carefully considered and aligned with financial goals and investment strategy. It's also important to regularly review and rebalance a portfolio as goals draw nearer.

Closing Thoughts

Building a personal investment portfolio is a complex process that requires time, patience, and an honest look at an individual's current and expected financial situation. There's no one-size-fits-all approach to building an investment portfolio. 

While researching the right assets to hold, new investors need to be mindful of their risk tolerance at all times and avoid financial gurus that may tout specific investments or portfolios promising astronomical returns with minimal risk. This process may take time, but new investors could come out of this process more confident in their ability to manage their portfolio.

Further Reading

What Is Cryptocurrency?

How to Set Personal Financial Goals and Reach Them 

Why and How to Do Your Own Research (DYOR) When Investing in Crypto

Five Risk Management Strategies

Disclaimer and Risk Warning: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Discover who owns the most Bitcoins in the cryptocurrency market. Meet the whales and explore their holdings.

Key Points:

The largest holders of Bitcoin, including creator Satoshi Nakamoto, major exchanges like Binance, and public figures like the Winklevoss twins, play a significant role in market dynamics and the overall sentiment towards Bitcoin.

The distribution of its major holders can significantly influence the value of Bitcoin, and if they engage in significant buying or selling, it can cause rapid price changes.

Bitcoin (BTC), the cryptocurrency that started it all, has been a disruptive force globally. Its unique attributes, including decentralization, limited supply, and peer-to-peer transactions, have caused a cultural shift in how we transact and trust traditional financial institutions. Bitcoin's popularity has skyrocketed, and as it continues to gain momentum, there is a growing curiosity about the biggest Bitcoin holders in this market.

Understanding who owns the most Bitcoin provides valuable insights into the market's dynamics and potential future movements. The significance of Bitcoin's largest holders is in their ability to influence the price of Bitcoin and overall market sentiment.

The biggest holders of Bitcoin range from the pseudonymous Satoshi, to Michael Saylor

Who are Bitcoin Whales?

Bitcoin whales are individuals or entities who own a significant amount of bitcoins. They possess substantial influence over the cryptocurrency market due to their large holdings. These whales often have the ability to impact prices and make significant trading moves, attracting attention from other market participants. Let's look at a few Bitcoin millionaires with large Bitcoin holdings.

Satoshi Nakamoto

Satoshi Nakamoto, the pseudonymous creator of Bitcoin, is among the biggest, if not the largest holder of Bitcoin. Nakamoto is believed to own approximately 1 million Bitcoins, acquired through early mining activities. These holdings, however, have remained dormant for over a decade, with Nakamoto's wallets untouched.

The impact of Nakamoto's dormant Bitcoins is substantial. If these coins were to enter the market suddenly, the supply could significantly increase, potentially affecting Bitcoin's price. Yet, Nakamoto's long-held silence and inactivity have led many to believe that these Bitcoins may never re-enter circulation. The mystery surrounding Nakamoto and his vast, untouched Bitcoin fortune only adds to the intrigue and speculation in the Bitcoin market.

Cryptocurrency Exchanges

Cryptocurrency exchanges such as Binance, Coinbase, and Kraken are among the key holders of Bitcoin. As trading platforms, these exchanges serve as custodians of Bitcoin for millions of users across the globe, making them some of the most substantial collective holders of this digital asset.

The primary reason behind these exchanges holding a large number of Bitcoins is the nature of their services. They facilitate the buying, selling, and storing Bitcoin and other cryptocurrencies. Users deposit their Bitcoins into exchange wallets, and the exchange then holds these Bitcoins on behalf of the users until they decide to withdraw or trade them. Thus, while the exchanges technically manage significant Bitcoin holdings, the ownership of these coins lies with their individual users.

However, the sheer volume of Bitcoin managed by these exchanges underscores the extent of their operations and the level of trust users place in them. The presence of these exchanges also plays a vital role in the liquidity of Bitcoin. Pooling a vast amount of Bitcoin in one place allows for efficient trading, ensuring that users can buy or sell Bitcoin at any given time.

Moreover, as significant holders of Bitcoin, these exchanges have a considerable influence on the Bitcoin market. Large-scale transactions or security breaches at these exchanges can lead to substantial price fluctuations. As such, these exchanges' operational health and security measures are of critical interest to all Bitcoin market participants.

MicroStrategy & Michael Saylor

When it comes to corporate Bitcoin ownership, MicroStrategy, led by CEO Michael Saylor, takes the crown. Saylor has become a vocal Bitcoin advocate, leading his company to invest heavily in cryptocurrency as a hedge against inflation.

MicroStrategy's Bitcoin acquisition strategy has been aggressive, taking advantage of price dips to increase its holdings. As of now, MicroStrategy and Saylor personally own over 100,000 Bitcoins combined. Saylor's bold strategy has not only boosted the company's performance but also cemented his and MicroStrategy's place among Bitcoin's biggest holders.

Jed McCaleb

Jed McCaleb, known for founding Mt. Gox and co-founding Ripple (XRP), is another notable Bitcoin holder. Although precise figures are hard to come by, McCaleb's early involvement in the crypto industry suggests significant Bitcoin holdings. McCaleb's influence on the market is notable due to his ongoing involvement in the crypto sphere.

McCaleb left Ripple not long after creating XRP, going on to found his own blockchain project - Stellar (XLM).

Chris Larsen

Chris Larsen, the co-founder of Ripple, is also a significant Bitcoin holder. Like McCaleb, Larsen's exact Bitcoin holdings are unknown, but his early involvement in the cryptocurrency industry and his role at Ripple, a major player in the crypto world, suggest that he holds a substantial amount of Bitcoin.

Tyler & Cameron Winklevoss

Tyler and Cameron Winklevoss, famously known as the Winklevoss twins, have established a significant presence in the world of Bitcoin. They are widely recognized as early adopters and proponents of BTC. Their investments in the early stages of Bitcoin's life cycle have made them amass a substantial amount of the digital asset. It is widely believed that the twins own around 1% of all Bitcoins currently in circulation.

Their Bitcoin journey started in 2013 when they used part of the $65 million they received from their lawsuit against Facebook to buy $11 million worth of Bitcoin. This investment has multiplied many times over, making them among the first Bitcoin billionaires.

The twins' influence extends far beyond their Bitcoin holdings. Recognizing the potential of the growing cryptocurrency market, they co-founded Gemini, a cryptocurrency broker and a stablecoin titled Gemini Dollar (GUSD). Gemini became a respected broker but recently filed for Chapter 11 bankruptcy.

Why Who Owns The Most Bitcoin Matters

Many individuals and entities own Bitcoin, from well-known figures like Satoshi Nakamoto and the Winklevoss twins to corporations such as MicroStrategy and large-scale crypto exchanges. These major holders have the potential to impact the market through their buying and selling activities or public endorsements of Bitcoin.

How Bitcoin is distributed among its owners significantly impacts how its value fluctuates and impacts the market. Prices can drop sharply if big holders suddenly sell off a lot of Bitcoin. On the other hand, if they make a big purchase, prices can soar. Plus, since Bitcoin is decentralized and there's a chance that some wallets are lost or forgotten, there may be a significant amount of Bitcoin that's not actually in circulation.

As Bitcoin continues to mature and gain mainstream acceptance, the identity and influence of its biggest holders will remain topics of interest. Understanding these dynamics is crucial for anyone involved in the Bitcoin market, whether as an investor, trader, or observer.

#cryptowhales #cryptoholdings #cryptomillionare #cryptocurrency

The crypto market cap, surpassing one trillion dollars, represents the collective value of all cryptocurrencies currently in circulation.

Key Takeaways:

The total crypto market cap, which exceeds one trillion dollars, represents the cumulative value of all cryptocurrencies in circulation and provides a holistic view of a cryptocurrency's value and insights into the health and depth of the crypto industry.

Major contributors to the total crypto market cap include Bitcoin, Ethereum, and USDT, with their market caps indicating their respective influence and importance within the crypto market.

In the traditional financial sense, market capitalization or market cap refers to the total dollar value of a company's outstanding shares of stock. It is a key metric used to assess a company's worth and market position. However, when talking about crypto, the application of the market cap concept takes a slightly different form.

What is Crypto Market Cap?

The crypto market cap indicates the overall value of a particular cryptocurrency that is currently in circulation. As of now, the total crypto market cap exceeds one trillion dollars. This value is calculated by multiplying the current market price of one unit of the cryptocurrency by the total number of coins that are currently available. Unlike the price of one coin, which can sometimes be deceptive, the market cap provides a more comprehensive perspective of the cryptocurrency's true worth and magnitude.

For example, a cryptocurrency might have a high individual coin price. Still, if only a few coins are in circulation, its market cap would be relatively small, indicating that it's a minor participant in the market. A cryptocurrency with a lower individual price but a high number of coins in circulation could have a large market cap, marking it as a significant asset in the market.

How to Calculate Crypto Market Cap

CoinMarketCap is a valuable tool for tracking the market cap of individual cryptocurrencies and the total crypto market cap. The platform uses a simple yet effective formula for calculating market cap: Price x Circulating Supply.

(How to calculate market cap for shares or crypto tokens)

The circulating supply refers to the number of coins available for public trading, a crucial element in determining market cap. It differs from the total supply, which includes all coins in existence, and the max supply, which is the total number of coins that will ever exist. The circulating supply is significant because it represents coins that can affect the market price, impacting the market cap.

Top Cryptocurrencies contributing to the Total Crypto Market Cap

The total crypto market cap is heavily influenced by the most prominent coins in the market, namely Bitcoin, Ethereum, and Tether (USDT). These cryptocurrencies hold substantial market caps, contributing significantly to the total crypto market cap.

Bitcoin's market cap is the largest, primarily due to its widespread acceptance, increased adoption, and the fact that it is frequently used as a benchmark to gauge the health of the entire crypto market. At the time of writing, its market cap sits at over $500 billion.

Ethereum has the second-largest cryptocurrency by market cap, with over $200 billion at the time of writing. Ethereum's value is driven by its place as a smart contract platform, which has been instrumental in the proliferation of Decentralized Applications (dApps) and the inception of Decentralized Finance (DeFi). Furthermore, Ethereum's platform hosts a myriad of other cryptocurrencies and tokens, adding to its overall importance and influence on the total crypto market cap.

Tether (USDT) is significant in the crypto market cap hierarchy. Tether is a type of cryptocurrency known as a stablecoin, which is designed to maintain a value pegged to a specific asset or a pool of assets – in Tether's case, the US dollar. Its primary function is to provide stability in the notoriously volatile crypto market, and it's widely used as a hedging tool during periods of significant volatility. Moreover, it offers a quick and efficient means of transferring value across different cryptocurrency exchanges, contributing to its substantial trading volume and market cap.

Bottom Line

The total crypto market cap is a vital tool for anyone involved or interested in the cryptocurrency market. It offers a comprehensive measure of a cryptocurrency's worth, making it a vital tool in assessing the relative size and rank of various cryptocurrencies.

The total crypto market cap is not just a numerical figure; it's a reflection of the overall health, size, and depth of the crypto industry. It provides insight into the market's liquidity, investor perception, and the potential profitability of investing in a particular cryptocurrency.

#cryptomarketcap #cryptomarket #cryptocurrency