Stacking is a way of earning passive income from cryptocurrencies based on the Proof-of-Stake (PoS) consensus algorithm and its variants.
The essence of Stacking is to block a certain amount of coins in a wallet to get the right to participate directly or through intermediaries in the maintenance of the blockchain of a given asset and receive compensation for it. Stacking has a similar role in PoS-blockchains as mining in the bitcoin network.
Stacking appears to be a profitable alternative to simply holding cryptocurrencies in a wallet, being analogous to a bank deposit in the crypto industry. Stacking returns vary depending on the blockchain and can be as high as tens of percent per annum or higher.
What is Proof-of-Stake (PoS) and how does it relate to stacking?
Proof-of-Stake is a consensus mechanism in which the right to generate new blocks, verify transactions, and include them in the blockchain according to a certain algorithm is played out between computing nodes based on how much of a given blockchain’s coins they own.
In a basic scenario, a node that owns 1% of all coins in circulation receives the right to process 1% of the blocks, and for its work it receives 1% of all rewards of the network. However, many cryptocurrencies also consider the tenure of coins and other factors. Stacking is getting the very reward for producing new blocks and verifying data with its share (native coins).
How does stacking work in Proof-of-Stake?
In “classic” PoS cryptocurrencies, each official wallet acts as a full node, meaning it verifies and validates transactions and produces new blocks.
Technical requirements differ from one blockchain to another: some networks only need a home computer to deploy and manage a node, while others require professional server hardware. In this way, the blockchain is decentralized and secure without the huge energy costs inherent in Proof-of-Work consensus cryptocurrencies.
The terms of participation in stacking may vary. The general mechanism is to buy the native coin you want to participate in stacking and send it to a smart contract yourself (e.g., through a wallet) or pass it to a validator.
Depending on the speed of coin issuance, stacking yields can reach tens or hundreds of percent. At the same time, it is a way of issuing cryptocurrencies, so too high a rate of reward can lead to coin inflation, which will have a negative impact on profits.
Who are the stacking providers?
Stacking is a popular strategy for investing in digital assets. However, setting up a node or stacking in an individual crypto project can be quite time-consuming.
Therefore, special platforms that provide all-in-one stacking services have become widespread in the cryptocurrency market. They are applications where users can simply send their funds to various pools via the provider’s wallet.
Stacking providers also analyze the current profitability of stacking in the selected network and show other necessary data. Stacking platforms make it as easy as possible for users by charging a small commission on the compensation they receive.
What are the risks of stacking cryptocurrencies?
Stacking appears to be a profitable and relatively safe alternative to simply storing cryptocurrencies in a wallet, promising returns that can be substantial. However, there are a lot of risks that can significantly reduce expected returns and even lead to losses:
- Since stacking participants earn income in coins of a given cryptocurrency, fluctuations in its exchange rate affect the value of invested funds and the actual stacking returns;
- The high stacking yield offered by some PoS-cryptocurrencies (tens and hundreds of percent annually) is achieved due to the high speed of coin issuance. This often leads to a rapid drop in the market price of the coin and a rapid depreciation of the investment in this cryptocurrency;
- Requirements for stackers may include blocking of coins for a period ranging from several days to several months. During this period, the owner cannot withdraw and sell their coins;
- stacking cryptocurrencies using stacking providers carries all the risks associated with trusting a third party, which may be subject to a hacker attack or misappropriate assets collected from stackers.
BTC Rejected Off $64,000 As Crypto Market Suffers $600 Million Of Liquidations
The price of Bitcoin (BTC) experienced massive volatility on Wednesday, soaring to nearly $64,000 before sinking again to $60,500 within one hour.
Amid the chaos, crypto traders have experienced $638 million in liquidation over the past 24 hours, including $391 million of liquidations in the past 4 hours alone.
- According to Coinglass, about $55 million of liquidations in the last hour impacted a consortium of little-known altcoins, while $96 million was liquidated on BTC trades directly.
- Meanwhile, ETH traders suffered $45 million of liquidations, and DOGE traders lost $29 million.
- In the past 24 hours, a massive 168,988 traders were liquidated. The largest single liquidation occurred on OKX on a BTC-USDT trade for $9.45 million.
- The price of BTC is $61,400 at writing time, up 21% within the past five days alone.
- Many credit the asset’s recent surge to the launch of several bitcoin ETFs last month.
- BlackRock’s Bitcoin ETF – the largest of all newcomers – now holds over $8 billion in BTC, and absorbed a record $520 million of flows on Tuesday.
BlackRock Bitcoin ETF Smashes Daily Inflow Record, Ranks 2nd In United States
BlackRock’s Bitcoin (BTC) ETF has cracked a new daily inflow record, helping push Bitcoin’s above $60,000 for the first time since November 2021.
The iShares Bitcoin Trust (IBIT) absorbed another $520 million on Tuesday, bringing the fund’s total flows since launch above $6.5 billion. Furthermore, thanks to Bitcoin’s rising price during that period, the value of the firm’s Bitcoin stash has appreciated to over $8 billion.
BlackRock Breaking Record
By comparison, Fidelity’s Bitcoin ETF now holds $5.6 billion in BTC, but absorbed a much smaller $126 million flow on Tuesday.
Meanwhile, Grayscale – IBIT’s largest competitor – suffered another $125 million of outflows. Though Grayscale still bears a significant lead in total assets at $25 billion, BlackRock’s ETF is slowly gaining ground against the incumbent fund due to its much lower management fee.
According to Bloomberg ETF analyst Eric Balchunas, BlackRock’s stellar inflow figure made it the number two ETF for inflows in the United States yesterday, only behind BlackRock’s iShares Core S&P 500 ETF (IVV).
“This means a good portion of that massive volume was new buying vs arb/algo,” Balchunas wrote to X on Tuesday.
The analyst also noted that individual trades for IBIT’s ETF surpassed those of both the SPY and QQQ. This suggests that a large component of buyers trading the ETFs are retail-based – an unexpected finding given the ETF’s popularity as an institutional trading ground.
Bitcoin ETFs And Surging Price
The price of Bitcoin has skyrocketed by over 25% in the past five days, now trading at over $63,000 at writing time. Many analysts credit its success to the launch of Bitcoin spot ETFs, which have collectively absorbed over $6.7 billion of flows since going live on January 11.
After 30 days, BlackRock and Fidelity’s Bitcoin funds had already broken records as the two most successful ETF launches in history based on flows. BlackRock also tapped a new daily high for trading volume on Monday, surpassing $1.3 billion and entering into the top 11 ETFs in the country by volume.
Bitcoin now approaches its all-time high of $69,000 USD, though, in some currency denominations, it has already broken its prior records. For instance, one BTC is now worth over 95,000 Australian dollars, compared to $87,000 at its peak in November 2021.
3 Catalysts That Suggest More Gains for Bitcoin After Price Broke $60K
Bitcoin surged above $61,000 on Wednesday, marking its highest level since November 2021. The rally seems fueled by significant inflows into US-based spot Bitcoin ETFs.
With bullish momentum building, all eyes are on the leading crypto asset’s trajectory, and data suggest that it might be able to break its previously established all-time high of $69,045.
MVRV Ratio Signals Buying Opportunity
The MVRV Ratio, derived from dividing an asset’s market capitalization by its realized capitalization, serves as a pivotal metric in cryptocurrency trading. When below 1, it indicates most holders are at a loss, signaling a potential buying opportunity.
On the other hand, a rising ratio suggests increased profit-taking, potentially leading to selling pressure and market corrections.
Historically, an MVRV Ratio nearing 4 signaled market tops, though this threshold has decreased in each cycle. According to Intotheblock’s latest observation, the value stands at 2.22, essentially hinting at a bullish market that is not yet excessively overheated.
Subdued Retail Crowd
Despite Bitcoin’s remarkable price movement, current data suggests an absence of retail investors. While there has been a rise in the number of new addresses, Intotheblock said it is likely attributed to active market participants engaging with Ordinals.
However, new addresses have since declined and remain relatively consistent. The same pattern is observed with active addresses. Both Google trends and app store data show no significant surge in retail interest yet.
On-chain volume is gradually increasing, reminiscent of the early phases of the 2021 bull market, but it has not reached the frenzy levels seen during the peak.
This implies that institutional investors might be driving this phase, with attention focused on ETFs as potential accumulators.
Despite Bitcoin’s incredible price movement, current data indicates a quiet retail front💤
➖While there was a boost in new addresses, this was likely related to active market participants engaging with Ordinals. New addresses have dropped since and remain relatively stable. The… pic.twitter.com/uS1Gxd3Rg2
— IntoTheBlock (@intotheblock) February 28, 2024
Meanwhile, those monitoring altcoins are speculating on whether renewed retail interest will shift Bitcoin’s upward trend towards broader market movements. However, the upcoming halving could change this dynamic and push the crypto asset to a new peak.
Bitcoin Halving: A Major Catalyst
The analysis from ITB suggests that the upcoming Bitcoin halving in April typically triggers a surge in price according to historical patterns. However, in the current cycle, the price rally has occurred earlier than anticipated.
This deviation may imply that investors are aware of the potential impact of the halving and are adjusting their investments accordingly ahead of time. In short, these market players are anticipating and acting upon the expected price movement associated with the halving event well before it actually takes place.
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