Welcome to my blog post where we answer the burning question of whether staked crypto increases in value.
If you’re anything like me, you’re always looking for ways to increase your investments’ value. One strategy that’s become increasingly popular is staking crypto. But what exactly does staking mean?
In layman’s terms, staking is when you hold a certain amount of cryptocurrency in a wallet for a specified period and, in return, earn rewards for helping to secure the network.
Think of it like earning interest on your savings account.
Now, the big question on everyone’s mind does stake crypto increases in value. After all, it’s all about maximizing your investment, right? Well, according to a recent report from Forbes and my experience with staking, the answer is a resounding yes.
The Forbes report found that the average annual return for top-staking cryptocurrencies is a whopping 4-5% in 2023, plus its price movement benefit!
However, this depends if the actual coin price movement increase or decreases.
So, if you’re curious about staking and want to know more about whether it’s a viable investment strategy, you’re in the right place.
In this blog, we’ll dive deeper into how staking works, what factors can affect its value, and look at historical performance to see if staked crypto is still worth your time and money.
Let’s get started!
How does staking work?
Staking is a process where cryptocurrency holders are incentivized to hold their coins and help validate transactions on a blockchain network.
This is done by depositing or “staking” a certain amount of cryptocurrency into a wallet or smart contract, which is then used to secure the network and validate transactions.
The process of staking can vary depending on the blockchain network, but it typically involves a few key steps.
First, you need to choose a suitable staking service provider or validator to work with.
This can involve researching different providers, checking their track records, and comparing fees and rewards.
Once you’ve chosen a provider, you’ll need to set up a staking wallet and deposit your cryptocurrency into it.
This usually involves creating a new wallet address and transferring your coins into it.
After your coins have been deposited into the staking wallet, they’ll be locked up for a specified period, which can range from a few days to several months or even years.
During this time, you’ll earn rewards for staking your coins and helping to secure the network.
The benefits of staking are many, including the potential for higher returns compared to traditional investments like stocks and bonds.
According to staking Staking Rewards data, As at the time of writing this article, some cryptocurrencies offer staking rewards of 20-46%, which is significantly higher than most savings accounts and other low-risk investments.
Staking also helps to promote network security and stability by incentivizing users to hold and use the cryptocurrency, rather than just trading it for short-term gains.
This can help increase demand for the currency, which can in turn drive up its value over time.
Factors that after whether your staked crypto increase in value or decreases
While staking crypto can be a lucrative investment strategy, several factors can affect the value of your staked coins.
Here are five key factors to consider:
Market demand and supply
As with any investment, the basic law of supply and demand applies to staked crypto.
If demand for a particular cryptocurrency is high, and the supply is limited, the value of that cryptocurrency will likely increase.
Conversely, if demand is low and supply is high, the value of the currency may decrease.
Network adoption and usage
The more people who use a particular cryptocurrency, the more valuable it becomes.
If a blockchain network is widely adopted and used for a variety of purposes, such as payments, smart contracts, and other applications, the demand for the underlying cryptocurrency may increase.
Network upgrades and developments
The value of a cryptocurrency can be affected by the development and implementation of new features, upgrades, and improvements to the network.
This can include things like faster transaction speeds, improved security, and better user experience, which can attract more users and increase demand.
Competition from other networks
The cryptocurrency space is highly competitive, with many blockchain networks vying for market share and user adoption.
If a new, innovative blockchain network emerges and gains popularity, it could siphon demand away from existing networks and decrease the value of their associated cryptocurrencies.
Global economic conditions
Finally, the value of staked crypto can be affected by broader economic trends and conditions.
In times of economic uncertainty, investors may flock to safe-haven assets like gold and Bitcoin, which can increase demand for those assets and decrease demand for emerging proof of stake cryptocurrencies.
The historical price performance to verify whether staked crypto increase in value truly
Staked cryptocurrencies have been around for several years now, and some have a proven track record of delivering strong returns to investors.
Here’s a look at some examples of staked cryptocurrencies, their historical performance,
Cardano (ADA)
In Cardano’s case, the price Market cap swung in the same direction as the Staking market cap.
This indicates that staked assets increase in value as more of the asset is being staked.
The reason is due to demand and supply chain.
If demand for a particular cryptocurrency is high, and the supply is limited, the value of that cryptocurrency will likely increase
Cosmos (ATOM )
Analysing the historical performance of Cosmos price Market cap vs the total staking Market cap.
The chart shows that when the staking market cap dip, the price market cap of Cosmos also decline.
Conversely, when cosmos staking market cap begin to rise around Jan. 3 to Jan.18
2023, the overall market cap also goes up
This is proof that staked crypto increases in value in response to an increase in the staking market cap.
In simpler terms, the more token staked, the higher the price of that token, hence the increase in token staked.
As mentioned earlier, One of the reasons for the strong performance of staked cryptocurrencies is that they often have a lower circulating supply than non-staked cryptocurrencies.
This can create a situation where there is more demand than supply, driving up the price of the cryptocurrency.
Another factor that has contributed to the strong performance of staked cryptocurrencies is the trend towards decentralized finance (DeFi) applications.
Many staked cryptocurrencies are used as the underlying currency for DeFi applications, which has driven demand for those cryptocurrencies and pushed up their prices.
Comparison to non-staked cryptocurrencies:
While staked cryptocurrencies have generally performed well over the past year, it’s worth noting that non-staked cryptocurrencies like Bitcoin and Litecoin have also seen significant price increases.
For example, the price of Bitcoin increased by over 400% from May 2020 to May 2021, while Litecoin increased by over 800%.
That being said, staked cryptocurrencies have some unique advantages over non-staked cryptocurrencies.
By staking your coins, you can earn rewards for helping to secure the network, which can provide a steady stream of passive income.
Additionally, staking can help to promote network security and stability, which can increase the value of the cryptocurrency over time.
Potential risks of staking
While staking can be a potentially lucrative investment strategy, it’s important to understand the potential risks involved.
Here are some of the key risks associated with staking:
Technical risks:
Staking requires technical knowledge and expertise.
If you’re not familiar with how staking works or the underlying technology behind the cryptocurrency you’re staking, you could potentially make mistakes that result in lost funds.
For example, if you stake your coins on a poorly designed or vulnerable network, you could be at risk of losing your investment due to hacking or technical issues.
Market volatility risks:
As with any investment, there is a risk that the value of the cryptocurrency you’re staking could decline.
Market volatility can be especially pronounced in the cryptocurrency space, where prices can be highly volatile and subject to sudden swings.
If the price of the cryptocurrency you’re staking declines, you could potentially lose money.
Regulatory risks:
Regulatory risks are a concern in the cryptocurrency space, as governments around the world are still grappling with how to regulate cryptocurrencies.
If a government were to introduce new regulations that negatively impact the cryptocurrency you’re staking, you could potentially lose money.
Additionally, if a cryptocurrency is found to violate existing regulations, it could be subject to legal action or other penalties.
However, there are steps you can take to mitigate these risks.
For example, you can conduct thorough research before staking your coins to ensure that you’re staking on a reputable network with a track record of security and stability.
Additionally, you can diversify your staking portfolio to reduce your exposure to any one particular cryptocurrency or network.
Finally, you should always stay up-to-date on regulatory developments and be prepared to adjust your staking strategy if necessary.
I’m a pharmacist by profession, but my passion for cryptocurrency has led me down a different path. I’ve been staking crypto for years, and I’m always eager to learn more about this exciting and ever-changing field.
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