Our weekly crypto derivatives analytics report delves into macro events, the current state of crypto and trading signals from spot trading volume, and futures, options and perpetual contracts.

BTC’s rejection of prices above $100K and ETH’s downward bounce near $4K have had a significant impact on derivatives markets. The pullback in spot prices intensified due to liquidations of overleveraged long positions in perpetual swaps, leading to a decline in open interest, particularly in ETH, and a reset of previously high funding rates to lower, yet still positive, levels. 

In the futures market, open interest remains below pre-November 2024 expiration levels, with positions concentrated in the December end-of-year contract. Meanwhile, perpetuals funding rates have been recalibrated following the liquidation wave. In options, ETH’s term structure is inverted, contrasting with BTC’s flat shape, as realized volatility has exceeded forward-looking expectations for the second time since late September.

Please check out the report’s highlights.

The surge in ETH perpetual positions that contributed to last week’s increase in open interest has now reversed. This shift coincides with a sharp decline in funding rates for the contracts, suggesting it was driven by the liquidation of overleveraged long positions. Notably, despite a similar drop in funding rates for long positions, activity in BTC perpetual contracts has remained mostly stable throughout December 2024, spiking only during BTC's brief rise above $100K late last week.

The previously high and exuberant funding rates in nearly all perpetual markets (as noted in last week’s analysis) have subsided following a substantial liquidation of heavily leveraged long positions. Although this shift reflects much lower levels of bullish positioning, funding rates haven’t plummeted to significantly negative levels after the flash sell-off, and are currently trading sideways around 0.01%. This behavior suggests a reset in leveraged exposure, typically seen when expectations for further spot rallies become overly optimistic.

Unlike the balanced levels in BTC options markets, ETH's open interest remains tilted toward bullish calls, primarily set for December’s end-of-year expiration. However, trading volumes have decreased during the recent period of sideways spot price movement. The volatility term structure remains inverted, as longer-dated volatility expectations remain anchored around 70%, while shorter-dated expirations have reacted to spot price fluctuations following the Nov 5, 2024 U.S. elections.

Advanced

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Bybit X Block Scholes Crypto Derivatives Analytics Report (Dec 11, 2024): ETH Perp Positions Fall as ETH Options Still More Bullish Than BTC Options

Learn all about Master Traders in crypto copy trading and how to choose the best Master Trader to maximise your profits even as a novice trader.

 is one of the best ways for traders to emulate the success of established traders and earn profits on par with these market gurus. A well-established strategy in traditional finance, copy trading has also proved itself to be a popular tool in the crypto market. In copy trading, there is perhaps no element more important than choosing the right Master Trader. This choice will make or break your crypto copy trading. Read on to learn all about copy trading and Master Traders to get the most out of your trading.

Copy trading is a popular trading strategy whereby a novice trader or follower replicates orders placed by an established trader with a track record of positive returns, known as a Master Trader. You can choose to manually copy a Master Trader’s strategy, or simply use automated software to copy their orders. For example, 

 for easy and flexible automated crypto copy trading where you can freely communicate with top-tier Master Traders.

Copy trading is often compared to — or even confused with — mirror trading, which is largely a similar strategy in which you precisely follow the market moves of an established trader in an automated fashion. The key difference between copy trading and mirror trading is that the former leaves you room for applying your own customization and judgment when replicating the market moves of your chosen trader. 

Meanwhile, mirror trading mandates following the trader’s moves exactly, even when you disagree with a particular order or strategy.

With copy trading, beginners can become profitable even without deep knowledge of the market and trading methodologies. It’s also a great time saver, as nearly all of it is automated, and relies on the established trader’s moves. Copy trading, similar to other automated trading strategies, also removes the element of emotion from your decisions and performance.

An experienced trader who would like to share their knowledge and trading strategy with others can become a Master Trader. In doing so, they also earn additional profits from their dedicated followers, since no one acts as a copy trading master without being reimbursed for it.

Currently, Bybit supports crypto copy trading only for the Derivatives markets. Traders whose strategies are followed earn 10% fees on profits generated by their followers.

A Master Trader is a trader whose strategies and moves are being copied by others, known as followers. Master Traders have a track record of great performance and positive returns. You wouldn’t want to copy their trades otherwise, would you? They don’t necessarily need to be the biggest names in the market, or have millions of traders following them on social media. Massive fame and celebrity-like status are, thankfully, not a requirement. Great Master Traders often maintain low profiles but deliver results in terms of profitability and 

The primary profit source for Master Traders in copy trading comes from the fees charged on their followers’ returns. Because copy trading is automated, attributing the profits earned by a follower to a specific Master Trader is easy. As noted above, 

In addition to this main profit source, Master Traders also benefit from their activity indirectly by creating a follower base, a great reputational benefit for any trader.

Choosing a good Master Trader (MT) is undoubtedly going to be the key element in your copy trading strategy, particularly if you’re a novice trader. 

You can copy up to ten Master Traders at the same time. However, the settings for each MT are different and independent. It's worth noting that the performance of both USDT Perpetual Trades and Trading Bots created via Copy Trading will be considered when ranking MTs. 

To begin, familiarize yourself with the six categories on the 

 page, tailored to different risk appetites: 

Grasping these distinctions can help you align your risk appetite with the trading approaches of the top MTs, resulting in a smoother copy trading journey and higher chances of success.

 category appeals to those seeking significant short-term returns. Master Traders in this group have achieved the highest ROI in the past seven and 90 days, indicating that they may possess excellent trading skills or have made some high-risk, high-reward trades. However, it's essential to recognize that high short-term ROI doesn't necessarily guarantee long-term sustained profitability.

If you're looking at long-term consistent profitability, the section entitled 

Traders With the Highest Profit for Followers 

showcases Master Traders who have earned the highest profits (in USDT) for their followers and maintained a positive ROI over the past 90 days. Consistent profitability indicates that these MTs could produce reliable profits. 

Nevertheless, past performance doesn't guarantee future results, and you should still exercise caution by assessing each Master Trader's abilities and the risks involved.

 section caters to those interested in day trading. MTs in this group are intraday traders who have achieved an ROI of over 20% and a win rate of more than 50% over the past seven days. Their high returns within a short period — coupled with a higher success rate — suggest that they possess good market insights and quick decision-making abilities suited for intraday trading. Note that the fast-paced nature of day trading comes with inherent volatility, which results in substantial losses if trades don’t move in the anticipated direction.

category is ideal. It consists of Master Traders who have achieved an ROI of over 10% and a maximum 

 of 20% in the past 30 days. These MTs typically demonstrate better risk management strategies and capital management abilities, making them more attractive to conservative traders who prioritize preserving their capital. Nevertheless, it’s still crucial to be aware that, while risks may be mitigated, they aren't fully eliminated, so you may still incur losses.

 category caters to people seeking consistency and balance in risk and return. MTs in this category have actively traded for more than 30 days and achieved a positive 30-day ROI. To verify their consistency, the MT should not have an inactive badge (which is placed on a trader who hasn't opened a position in the Past seven days or traded in the past 14 days). Note that following MTs who demonstrate consistent risk and reward isn’t a foolproof plan as they still face potential losses.

 category are new Master Traders (who might be experienced, but are new on the 

 page). These traders have traded for less than 30 days and achieved a positive 7-day ROI. Calculated risk-takers who are constantly on the hunt for new opportunities will find this category exciting. Naturally, new MTs lack a proven track record, so you’ll need to evaluate each one carefully before choosing an MT from this category.

Tips on Choosing the Best Master Trader for You

While Bybit already helps you filter top traders according to your risk appetite, it’s also important to understand the metrics used to rank the performance of Master Traders in order to make an informed decision when choosing a Master Trader.

It’s not recommended that you simply follow popular MTs with a higher follower count (and even higher cumulative profits) without considering other metrics. This is because an MT's popularity doesn't indicate reliability or guarantee future success. Instead, it’s advisable to balance the popularity indicator with actual performance metrics, as outlined below. 

Total Profit = Current Account Equity − Previous Account Equity − Total Deposits + Total Withdrawals

 (UTA), ROI is calculated in a similar way, but the Total Profit is determined using a more complex formula: 

Total Profit = Realized PnL + Funding Fee Income − Trading Fee + Current Unrealized PnL − Previous Unrealized PnL

While these metrics may offer comprehensive details of an MT's performance, the following criteria are more universally understood and effective for evaluating performance at a glance.

Typically presented as a percentage, ROI indicates an MT's return on an investment. Various factors are considered when calculating the ROI, including the total profit and account equity (wallet balance + unrealized PnL). Unrealized PnL includes positions held in USDT Perpetual trades and Trading Bots. To gauge if a trader has consistent profitability, review their ROI for the past 7, 30 and 90 days.

Win rates reveal an MT's ability to close trades profitably. However, it’s critical to balance win rates with ROI to ensure that an MT’s emphasis on small, frequent wins doesn’t impact their overall profits.

This term refers to the consistency and predictability of a Master Trader's drawdowns over time. In the context of copy trading, it indicates the trader's ability to manage risks in order to prevent erratic or excessively large equity declines. As a follower, especially if you’re risk averse, a lower and stable maximum drawdown (the largest percentage drop from a peak) reflects careful risk management. 

A Master Trader's trading consistency and activity are also crucial factors when making a decision on whose trades to copy. Thus, it’s important to focus on an MT's performance over the past 7, 30 and 90 days. Since the crypto market is highly volatile, it’s essential to establish if the MT has consistently sustained profits across changing market conditions. 

Key factors to consider include the following.

: Metrics like average weekly trades or holding times can determine the aggressiveness or conservativeness of a trader's approach.

: Consider ROI volatility metrics to assess how stable or risky the MT’s returns are.

Becoming a Master Trader on Bybit is a form of investing. You not only get to promote your investing strategy, but you can share in the profits earned by your followers for copying your trading strategy. 

To become a Master Trader on Bybit, you'll need a 

 (either the standard Subaccount, or the Unified Trading Subaccount). 

 that the Unified Trading Subaccount only allows Master Traders to conduct USDT Perpetual trading, while you can trade a variety of other products with a standard Subaccount (which your followers won’t copy).

Once you’ve successfully applied, you'll need to complete new Master Trader missions in the mission center. Completing these missions allows you to be featured on the 

Once you've completed the compulsory missions, you'll enter into Bybit's Master Trader Level System, which is categorized into four tiers: 

. As you gain more followers, you'll be upgraded to the next tier. The higher your level, the greater the perks you unlock. 

There's also a Master Trader Level evaluation, which is done once you complete the required tasks and pass a review by Bybit. You'll be rated based on your account balance, 30-day cumulative profit and maximum drawdown in the past seven days. 

Copy trading is a great way for novice crypto traders to become profitable from Day One of their trading activities by following an established Master Trader. More experienced followers can also improve their returns and save time by adopting copy trading. For Master Traders, copy trading represents a great avenue for additional profits. Thus, no matter your trading experience or success rate, you can reap significant benefits from copy trading.

Beginner

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How to Choose a Master Trader to Magnify Profits (Complete Guide)

Ubisoft and Arbitrum are launching a Web3 shooter game, Captain Laserhawk, on December 18th. 

Daily Top Performer — Sui Network (SUI)

The S&P 500 rose 0.82%, boosted by positive inflation data. Investors are now looking ahead to producer inflation data and earnings reports. Coindesk Indices, an index measuring broader cryptocurrency market performance was up by 6.02%, with Bitcoin and Ether rising by 5.11% and 5.41%, respectively in the past 24 hours.

Today's top performer is SUI, which surged 30.9% after Backpack announced a partnership with Sui to expand its crypto ecosystem.

Sui Network (SUI), launched on May 3, 2023, is a Layer 1 blockchain designed by Mysten Labs to enhance web3 functionality and scalability, focusing on smart contract efficiency and NFT gaming development. The project is led by former Meta executives from the Novi digital wallet team. 

, a popular crypto exchange and wallet. This collaboration aims to enhance the user experience for both platforms, providing Sui users with a reliable wallet solution and expanding Backpack's user base to include Sui enthusiasts.

Check Out the Latest Prices, Charts, and Data of 

Ubisoft and Arbitrum are launching a Web3 shooter game, 

, on December 18th. 1  The game will feature characters from various Ubisoft franchises and will utilize NFTs and blockchain technology on the Arbitrum network. 2  This launch signifies a step forward in Web3 gaming, with growing interest and investments in the sector. 

Yesterday, the total inflows into Bitcoin spot ETFs reached $223.1 million. Grayscale Bitcoin Trust (GBTC) saw inflows of $20.1 million, while other non-GBTC funds attracted $203.0 million. 

If you received the FRAME airdrop in December 2023, you're likely eligible for an 

 on the Abstract chain. The FRAME allocation has been integrated into Abstract's loyalty system, suggesting similar qualifications for both airdrops.

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Ubisoft and Arbitrum Team Up for Web3 Shooter Launch

A crypto trading competition is a contest where traders do their best to earn the highest return on their investment. Discover the benefits of joining one here!

Competitions aren’t only about winning, though rewards are definitely an attractive boon. Rather, they serve the important purposes of seeing how well you stack up with others and pushing yourself to improve in a wide variety of ways. Honing your skills is particularly helpful during a crypto bull market, a time where traders might see more gains than losses. Moreover, the rewards given out during a crypto trading competition will definitely help you capitalize on the bullish trend. But before you join a crypto trading competition, it’s important to understand what the contests entail and the specific benefits that you can expect.

A crypto trading competition is a contest sponsored by a broker or its affiliates where traders do their best to earn the highest return on their investment. Both the initial investment amount and the contest time period are moderated during the contest.

As you get better acquainted with crypto market trading competitions, you will find both live and demo contests offered by various exchanges and platforms, including Bybit. Live contests use real trading accounts and real assets, and demo accounts are used for demo contests. 

Contest participants may need to meet specific requirements, such as having a minimum amount of assets in their account or having other qualifications. The specific rules for these contests and how winners are determined vary as well. Some contests, for example, may limit the markets that the participants can trade in. For a trader to get the most out of a crypto trading contest, the contest should use or simulate actual 

The length of these competitions may vary from 24 hours to more than two weeks. Winners may receive cash or crypto prizes in many cases, and prizes are usually disbursed at the end of the contest even if daily prizes are awarded.

Benefits of Joining a Crypto Trading Competition

During a bull market, many crypto traders may be eager to invest. They may have already enjoyed significant financial gains, or may be excited about the potential for further profits as the crypto market trends upward.

In the current bull market, there are great opportunities for traders to generate profits and enjoy other benefits. By participating in a crypto trading competition, you could take advantage of the significant benefits that contribute to your potential success in exciting ways. What are the top benefits of crypto trading competitions?

In a bull market, asset values are higher than average, and traders have positive sentiments about the market. Your own trading activity may increase as well because of the trading gains that you’ve experienced and a decreased aversion to risk. 

However, the prizes for a crypto trading competition can also be significant. Often, these contests have multiple winners, and this expands your opportunity to gain financially from your participation. Your crypto trading competition winnings can augment your trading gains in the bull market and motivate you to continue to look for opportunities for financial gain.

Crypto traders can gain a significant amount of knowledge by reading about trading activities and strategies, but nothing compares to the value of real-life experience. Live trading allows you to test your knowledge and strategies, and these experiences can guide your future trading activities. Competitions in the current market uptrend may be particularly advantageous as they can open your eyes to opportunities that exist in real life rather than in theory.

Whether you are a new crypto trader with untested skills or you are looking for ways to improve your skills and increase gains, refining your trading skills is essential. Upgrading your trading skills and strategies can elevate your confidence. Confidence may soar in a bull market, so boosting your confidence can help you to make trading decisions based on knowledge and experience rather than on emotion.

By checking out some of the winner boards for previous crypto trading competitions, you’ll undoubtedly see impressive gains that may seem unattainable to you. After all, during a bull market, traders tend to make larger or riskier trades to maximize their gains. However, a crypto trading competition may inspire you to be more aggressive with your trading strategies than you may be without unnecessarily exposing yourself to potential losses.

You know what your real-life returns on trading in the crypto market have been, but how do you compare to other traders? A crypto trading competition holds many factors steady, such as markets you can trade in and the amount of your starting investment. A competition makes it easier to make an apples-to-apples comparison with other traders. Do you want to know how you stack up to people in your investment group? Simply get them to participate in the competition to find out. In addition, you will have bragging rights if you win the competition.

Managing risk and mitigating exposure to loss are important aspects of success in crypto trading regardless of the market conditions. Still, you may wonder if you are being too conservative with your trading strategy. If you participate in a trading competition, you can learn about the actual risks and rewards for strategies that you may otherwise not be inclined to try. A crypto trading competition also gives you the opportunity to test different risk management strategies and to compare your results with others to see how your strategies stack up.

You may have developed a trading strategy that works well for you based on your established trading activities, but can you replicate the same results with other types of crypto assets? In a crypto trading competition, you can test your strategy under different parameters. By doing so, you may be able to fine-tune your strategy so that it is even more profitable in a market uptrend or to prepare yourself for a bear market down the road.

Encourage You to Get Out of Your Comfort Zone

The most successful people often place emphasis on getting out of their comfort zone. They have come across great opportunities by moving away from what is familiar and known, which could hold true for you in the crypto market. A crypto trading competition exposes you to new trading strategies, and it encourages you to think creatively to improve rather than stay in a comfortable rut. As a result, you could see greater results from your crypto trades by getting involved in competitions from time to time.

Bybit has hosted several prominent crypto trading competitions in recent years. These competitions have provided traders with excellent opportunities to earn prizes and hone their crypto trading skills. In addition, they have been able to test new strategies and compare their strategies with other traders. What are some of the most notable trading competitions hosted by Bybit recently?

 (World Series of Trade) was once again hosted by Bybit in 2024, with a total prize pool of 10,000,000 USDT. Competitions at WSOT 2023 included a Squad Showdown, Copy Trading Fest, Buddy Rally and 

 USDT each, while the prize pool for the 

was 1,000,000 MNT. In addition, Bybit contributed to the 

75 ETH to sponsor Ethereum’s first Attackathon

 to support the growth of the crypto industry. The WSOT 2024 broke its previous records 

with over 77,000 traders from 161 countries generating $100 billion in trading volume. 

 is an event with monthly trading competitions designed to test and reward traders' skills throughout the year. Users can trade any Derivatives contract, including USDC contracts, and win exclusive prizes such as BTC and USDT. The event also shines the spotlight on five of the biggest events of 2024: Wish Upon a Bitcoin, BTC Halving Event, VIP Grand Prix Series 3, VIP Gala 2024 and Bybit’s 6th Anniversary. 

SEA Games Derivatives Trading Competition

 features two main events, the Squad Trading Volume Competition and Squad PnL (%) Trading Competition, with a total prize pool of 120,000 USDT, held from May 8, 2024, 10AM UTC to May 31, 2024, 10AM UTC. For the Squad Trading Volume Competition, squads were ranked based on their Derivatives trading volume. On the other hand, squads participating in the Squad PnL (%) Trading Competition were ranked based on their Derivatives trading PnL (%). In addition, participants who have made their first-time deposits of at least $100 via P2P during the event received a $10 airdrop at the end of the competition.

Bybit hosts several crypto trading tournaments throughout the year for traders to compete. These competitions present crypto traders with great opportunities to test their strategies, refine their skills, win lucrative prizes and take advantage of other benefits. Whether you're looking to boost your trading prowess or enjoy exclusive perks, joining a Bybit trading competition can be a highly rewarding and enriching experience.

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Benefits of Joining a Crypto Trading Competition During a Bull Market

Crypto

Trading

Investing

APY is the annualized rate of return from an investment, factoring in compound interest that accrues or grows with the balance by the standard. However, the calculation may differ from exchanges. Learn more.

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In the past few years, the bank savings interest rate has been on the decline, given the state of inflation. One prominent example is the U.S. Bank Standard Savings account, with an annualized percentage yield (APY) of 

 as of 16 April 2023. With such low bank interest rates, people have been attracted by the cryptocurrency market’s passive yields through avenues such as staking, yield farming and cryptocurrency lending.

APY is a common term used in traditional finance, as well as in the cryptocurrency market, to indicate the rate of return gained over the course of a year. The other commonly used metric displayed for users is the annual percentage rate (APR). The main difference between the two lies in whether the returns earned by users are simple or compounded.

This article will explain what APY is, how it differs from simple interest rate and APR, the factors that affect APY and some of the cryptocurrency avenues that involve APY. Understanding APY can aid you in comparing the returns you’ll receive from various investment opportunities.

What Is Annualized Percentage Yield (APY)?

APY refers to an annualized actual interest rate of return earned from an investment, factoring in compound interest that accrues or grows with the balance. Compound interest includes interest earned from the initial deposit, plus the interest earned on that interest. To put it another way, APY is a way to track how interest accumulates over time.

Although commonly associated with traditional savings, APY is a crucial metric for cryptocurrency savings programs and works in a similar way. Cryptocurrency investors can earn APY by staking their cryptos, putting them in savings accounts or providing liquidity to liquidity pools via yield farming. 

You can quickly get started earning APY on your cryptocurrency through crypto 

Typically, investors earn interest in the same crypto that they’ve deposited. However, there are instances where one can be paid in either the same or a different currency.

However, there are other ways of calculating APY, depending upon the exchange. For example, Bybit offers flexible savings plans that allow users to stake and unstake tokens anytime to collect guaranteed yields without the element of compounding interest. The APY is calculated in a simple interest format, where the daily yield represents the interest rate that will be deposited into your wallet based on the number of tokens you’ve staked. 

Daily yield = Number of total tokens staked × (APY for the staked token ÷ 365)

For example, if you’ve staked 10,000 USDT for guaranteed APY at 9%, you can collect 2.5 USDT the next day. The calculation is represented as 10,000 × (0.09 ÷ 365) = 2.4657 USDT.

However, if you’ve chosen to unstake your tokens after collecting daily yields, no yield will be credited to your account. Essentially, any changes to the initial staked asset will affect your daily yield. 

Simple Interest Rate vs. Annualized Percentage Yield

While APY refers to the projected rate of annual return gained on a deposit or stake after compounding interest, a simple interest rate only considers the interest earned on the original stake. 

Compounding is a powerful investment tool since it enables you to earn additional income over time. Compound interest refers to the amount received on both the principal amount and the interest that accumulates over time. With each additional period, the interest paid on the overall balance also increases, since the account balance is increasing.

Rates of return can be difficult to compare across different investments if they have different compounding periods. One may compound daily, while another compounds quarterly or biannually. It’s critical to know how often that compounding occurs, since the more often a deposit compounds, the faster the investment grows

To make it easier to understand, consider staking $1,000 at an interest rate of 12% per annum in January 2021. After one year in January 2022, using a simple interest rate calculation, you’ll receive a total of $1,000 × (1 + 12%) = $1,120.

The same $1,000 staked at 12% per annum, but with biannual compounding of interest in the first six months, will give you $1,000 × (1 + 6%) = $1,060, or the total after six months.

After a year, you’ll earn 1,060 × (1+ 6%) = $1,123.60 

That extra $3.60 comes from the power of compound interest. Therefore, your annualized percentage yield is the return you’ll receive over the year: $1,123.6 ÷ $1,000 − 1, or 12.36%.

The 7-day APY is an annualized yield using 7-day returns. It’s calculated by taking the net difference in price from 7 days ago to today, and generating an annual percentage. 

The formula to calculate 7-day APY is as follows:

This calculated amount helps investors understand the weekly yield or return. Find out the annual interest yield using the 

: The crypto APY calculator suggested here may not be accurate, as the calculation is highly dependent upon the terms and conditions of the platform's staking policies and/or the yields.

APY represents your rate of return (the amount of profit or earnings you can make).

, your ultimate earnings will differ. The holding period will determine how much you actually earn. 

What Is the Annual Percentage Rate (APR)? 

APR, or annual percentage rate, is the interest you earn from your invested assets in a year, expressed as a percentage. This figure may include fees that borrowers pay. It’s a useful tool for comparing different investment products, since it provides a consistent basis for presenting annual interest rate data. 

APY and APR sound very similar. However, unlike APY, APR doesn’t factor in compounding

For example, if you stake 10,000 coins at an APR of 10%, you’ll earn 1,000 coins as interest after one year. But with APY, the situation changes significantly. 

To calculate APR, you can use the following formula: 

APR = [(Fees + Interest) ÷ Principal] ÷ n × 365 × 100 

In traditional finance, APR is often used to discuss terms for borrowers — for instance, the credit card interest rate that borrowers pay. This percentage rate of interest can also refer to the percentage paid to investors. In general, the APY for a loan is higher than its corresponding APR because of the effects of compounding.

Cryptocurrency assets and activities are usually compounding investments. Instead of simply collecting a flat yield once a year, as in the case of APR, cryptocurrency investments tend to involve reinvestment and make use of compounded interest to help investors boost their rewards. Hence, APR, which is good for flat figures, isn’t too useful when it comes to compounding assets, such as cryptocurrencies. This is also the key reason why most cryptos show APY instead of APR — to provide a better gauge of investment returns.

Another difference is that APR is usually inclusive of all charges, whereas APY only calculates interest rates.

One important note is that because APY includes compounding in its calculation, it will always produce a higher interest rate.

Inflation refers to the loss in value of a currency over time. Within the cryptocurrency market, inflation refers to the process of adding new tokens to the blockchain network, usually at a predetermined rate. The appeal of cryptocurrencies such as Bitcoin is that they’re designed to have predictable, low inflation rates. 

The rate of inflation for a particular network affects its staking returns. If your coin experiences inflation rates higher than your APY, then your earnings are eroding just as quickly as you’re adding them.

As with any market economy, supply and demand influence pricing. An owner of a cryptocurrency can effectively lend it to generate interest income. Since interest is earned based on the demand to borrow that crypto, market dynamics can determine the rates. 

The interest rate charged for borrowing money tends to be lower when there’s plenty of supply and higher when it’s scarce. Similarly, cryptocurrency APY is variable, changing according to the liquidity and level of demand for each coin.

It’s typical of newly launched projects to offer sky-high lending APYs, in order to encourage new users to come onboard and provide liquidity to their token — which will also aid in increasing the demand for the project’s token. However, as time passes, this APY will eventually fall, offsetting the initial, artificially propped-up numbers.

Calculation of APY is also influenced by the amount of compounding applied, which can vary. Remember that APY increases as the number of compounding periods increases. 

Let’s look at an example. If you deposit $100,000 compounded monthly at 5% per annum, your APY will be 5.116%. The calculation used is 100,000 × (1 + 0.05 ÷ 12)

. Your balance will be $105,116 by the end of the year. 

On the other hand, if compounding is done on a daily basis, then your APY will be 5.126%, with a final balance of $105,127 by the end of the year. The calculation used is 100,000 × (1 + 0.05 ÷ 365)

The more opportunities your interest has to grow, the more it can earn. 

Cryptocurrency Investments That Involve APY

 type, then you don’t have to just store your crypto in a wallet and wait for it to appreciate. There are ways to invest your cryptocurrency and draw on the magic of compound interest or APY in order to grow and multiply your assets.

If your target time horizon in crypto is for the long term, you can get a lot more mileage out of your holdings with cryptocurrency lending and borrowing.

Cryptocurrency lending works pretty much the same way as traditional lending, except you’re lending cryptocurrency rather than paper money. When you lend out your cryptocurrency on a decentralized platform to borrowers, you earn interest or crypto dividends. Depending on the platform, the interest rates can range from 3% to 17%. This is evidently a larger range compared to the TradFi markets, with interest rates ranging between 

While cryptocurrency lending provides investors with a passive income stream, borrowers also benefit from enjoying additional liquidity. 

Let’s say you have 10 bitcoins, and you need some cash urgently — but you don’t want to sell any of your Bitcoin because you believe its value will “go parabolic” in the future. You fear that if you offload your Bitcoin, you could end up with less of it when you repurchase it at a later date, due to an increase in Bitcoin’s price. 

Cryptocurrency lending platforms will allow you to use your 10 bitcoins as collateral to receive a loan. However, you may be required to 

, a fancy way of saying you’ll have to lock in far more cryptocurrency than the amount you want to take as a loan. 

When you repay your loan in full, your collateral will be returned. The amount repaid will depend upon the APY of the loan, which determines the interest rate paid. Hence, borrowers will always prefer a lower borrowing APY, as it means a lower cost for them.

Lending platforms connect cryptocurrency lenders to borrowers. Here’s how 

A borrower requests a loan from a lending platform. Once the platform approves the request, the borrower must lock some of their cryptocurrency as collateral for the lending. The lender funds the loan and receives interest payments periodically at the agreed-upon APY. This continues until the end of the loan tenor.

Cryptocurrency Annualized Percentage Yield (APY) vs Annual Percentage Rate (APR)

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