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The Coming Regulation On Crypto And DeFi

Cryptocurrency has been in the news more and more over the past couple of years. From reporting on the stratospheric highs of Bitcoin in 2020-21 to the mess that FTX created, Crypto has become a media darling. 

A cryptocurrency is a form of decentralized finance, meaning that the type of financial device used, in this case, a “coin,” isn’t associated with any tangible item like gold or has the backing of a government, like a dollar. 

Instead, DeFi and Crypto gain their value based on supply and demand. There’s a limited amount of any “coin” available, and the need for that coin creates its value of it. As a result, this decentralized form of finance can have wild valuations losing and gaining dollars in mere minutes, increasing risk and rewarding investors spectacularly. 

Because of the volatility and unregulated nature of DeFi, governments across the globe are looking into the possibility of regulations to help stabilize the investment and make it harder for predatory actors to fraudulently control the market

In fact, the Biden Administration has a framework of regulations that they want to implement to make these DeFi and borderless transactions easier and more secure and to crack down on fraud throughout the marketplace. 

The framework stems from an Executive Order (E.O.) back in March of 2022 that directs the US government and Federal Agencies to examine the risks and benefits of Cryptocurrency and report recommendations to combat illicit transactions. 

Another significant development in the E.O. was the potential of substantial benefits that the Biden Administration believed would occur if the U.S. central bank were to create and distribute a digital coin as a form of the U.S. dollar. 

What Are Some Ways To Make Money With DeFi?

While governments are exploring ways to make DeFi secure and more standardized, investors in DeFi still have a lot of ways to invest and make money at a higher rate than traditional investments. 

There are five predominant ways to invest in Crypto and DeFi to make a sizable return, including the following;

  • DeFi Yield Farming
  • Day Trading
  • Long-Term Investing
  • Mining
  • Staking An Interest

DeFi yield farming: Yield farming allows you to earn rewards through interest by depositing and loaning out your cryptocurrency to other users. With DeFi yield farming, you’re loaning out your idle tokens and coins to others that pay you a return for the right to use your coins. 

One reason a person may want to borrow coins to create leverage in the market, such as a person would with traditional stocks to generate a majority of interest to apply pressure on a board or other entity. 

Day Trading: Crypto day trading is similar to traditional stocks. With day trading, a person buys and sells Crypto to take advantage of market volatility and benefit from those changes. 

The key to making a profit by daily trading is frequently making small incremental returns. However, it requires a high-level analysis of the market and trends to determine the proper timeline to purchase coins or to sell them and is not a strategy for amateur investors. 

Long-Term Investing: Long-term investing is a similar strategy to buying and holding. An investor purchases a coin and holds it for a designated period of time, riding out the ups and downs of the market with the hope that, over time, the appreciation of the coin increases. 

The idea is that the longer you hold your investment, the greater the return, and you make enough that cashing out with capital gains and the taxes accrued is less than the taxes paid during day trading. 

Mining: Mining is the action of verifying Blockchain transactions remotely through cloud mining, meaning that you would be tracking transactions in a pool with other miners and verifying the validity of other transactions within the Blockchain. 

Stake An Interest: Staking an interest is a form of investing that makes money on idle coins. Tokens are deposited into a blockchain protocol to keep them safe and will subsequently gain interest, which is the return you make on your deposit. 

While governments explore how to regulate and participate in Defi and Crypto, there are still plenty of ways for the investor to get into the game and make a sizable return before regulations are implemented. As more misconduct occurs, the faster the demand for rules will be, so the best time to get into DeFi investing is now. 

 

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