Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Answered: The most confusing question in Crypto

Currencies / cryptocurrency Nov 09, 2021 - 05:02 PM GMT

By: Submissions

Currencies

By Chris Reilly, Executive Editor, RiskHedge When you buy a crypto…

What are you really investing in?

In today’s special edition of the RiskHedge Report, we’ll set aside the gains cryptos have been handing out of 6,000%, 8,000%, and 12,000%…

To answer this basic but crucial question.

***



Chris Reilly: Stephen, a RiskHedge reader, asks a great question:

I do not understand how owning cryptos like Helium (HNT) or Ethereum (ETH) gives you ownership in the companies behind them.

Isn’t it more like buying jewelry from Tiffany’s? You own the jewelry which has value and could appreciate. But you do not own Tiffany’s stock.

You cannot vote for directors or officers of the company. And you cannot buy enough HNT or ETH to control either company.

Can you explain?

Stephen McBride: For over 100 years, there have been two main ways to invest in a business.

You can buy equity in a company—its stock.

Or you can buy the company’s debt—its bonds.

Crypto is a third new way to invest in businesses—tokens.

In many cases, tokens are the ONLY way to buy into rapidly growing crypto projects.

For example, there’s no Ethereum “stock.” Ethereum doesn’t issue bonds.

Instead, you buy its token, ETH, which represents ownership in the Ethereum network.

Chris: I think that’s what’s confusing people. How is owning ETH like “owning” Ethereum?

Stephen: Think about what it means to own a stock. When you become a shareholder in Apple (AAPL), you own a piece of its business. If you own 100 Apple shares, you own roughly 0.000001% of Apple Inc.

An ownership stake in Apple entitles you to three main things.

One, you profit from appreciation in the company’s share price.

Two, you can vote on key corporate matters, such as naming a board of directors.

Three, you’ll get any dividend Apple pays.

Chris: I see how point #1 is a direct parallel in crypto. When you own ETH, you profit from appreciation in its price.

In the last year, Ethereum has risen from $370 to about $4,500. ETH owners enjoyed those 950%+ profits.

Stephen: On point two, owning ETH entitles you to vote on key decisions. Just like owning AAPL gives you a vote in Apple’s decisions.

Now, most crypto investors don’t exercise these rights. And that’s okay… most Apple investors aren’t voting at Apple’s meetings, either.

And, as the reader question mentioned, it’s next-to-impossible for an average investor to accumulate enough of a token to influence management decisions. But that is the case with publicly traded companies as well.

In fact, in many cases, owning a crypto gives the average investor much more say over the direction of the business than a stock does. For example, token holders of the decentralized exchange Uniswap can vote on how its $7 billion Treasury is spent.

Chris: What about dividends? Ethereum doesn’t pay one.

Stephen: No, like almost all fast-growing tech companies, ETH doesn’t pay a dividend. It retains its earnings to pay developers and fund growth.

But plenty of cryptos do pay dividends. Like SushiSwap.

Sushi is an online exchange that allows you to buy and sell thousands of different cryptos. Over $15 billion worth of trades happened on its platform in the past month.

Chris: How does Sushi make money?

Stephen: It charges a 0.3% fee on each trade.

Investors who own one of SushiSwap’s tokens, called xSUSHI, get 0.05% of this fee. In the past month, Sushi has paid out $400,000 to token holders.

Chris: How is the dividend paid out?

Stephen: The company takes some of the cash generated from transaction fees and uses it to buy Sushi tokens in the open market. Then it gives these tokens to the holders.

So the dividend isn’t paid in cash; it’s paid in Sushi tokens. And the dividend is paid daily. When you own xSUSHI, your balance will rise every day.

It’s important to understand that all cryptos are different. They don’t all function like equity in a business. And some accrue value back to token holders in different ways.

For example, Maker (MKR) rewards token holders by buying MKR tokens off the market and “burning” them. In other words, they get deleted from existence.

Chris: Sounds similar to buybacks in the stock market…

Stephen: Exactly. By “buying back” tokens, the supply is reduced, and the remaining tokens increase in value.

Chris: You also mentioned during your Phase 2 Crypto Summit that cryptos allow you to invest in the technology and protocols that underpin crypto. How is that possible?

Stephen. Right. Cryptos give investors a whole new way to make money from technology.

Ever hear of Tim Berners-Lee?

He invented the World Wide Web. He literally wrote the code that the modern internet runs on.

Berners-Lee was named one of the 20th Century’s most important figures by Time magazine… honored at the Olympics… and knighted by the Queen of England.

You’d expect the man who invented the internet to be extremely rich, right? His code is behind every transaction we make on the internet today. Amazon (AMZN)Google (GOOG), and Facebook (FB) couldn’t exist without it.

But Berners-Lee never directly profited off his world-changing invention. He didn’t make a dime from the web.

Chris: Why?

Stephen: He gave the source code to the World Wide Web away for free. So no one owns the internet. There was no way to invest directly in the tech that made the internet possible.

That’s what’s different about cryptos. We can invest directly in the underlying technology.

In fact, crypto gave Tim Berners-Lee a way to finally profit off the Web.

He recently sold the original source code for the world wide web as a non-fungible token (NFT) for $5.4 million at a Sotheby’s auction house.

As I’ve explained, an NFT is a certificate of ownership stored on a blockchain. That’s the same technology behind Phase 2 Cryptos.

The bottom line is, after 30 years, crypto finally gave Berners-Lee a way to make money off of his invention.

This is important for crypto investors because this breakthrough allows us to invest in the tech behind rapidly growing Phase 2 Cryptos. Think of it like owning shares in the internet.

The Great Disruptors: 3 Breakthrough Stocks Set to Double Your Money"

Get my latest report where I reveal my three favorite stocks that will hand you 100% gains as they disrupt whole industries. Get your free copy here.

By Chris Reilly

http://www.riskhedge.com

© 2021 Copyright Stephen McBride - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in