Impact of Staking On Prices

It’s possible to make a decent income from staking your coins to earn some interest or rewards. But when you stake your coins, it affects your blockchain protocol and prices of the coins in a certain way. Does staking your coins have an effect on their price?

In this article, we’ll find out if they do. We’ll also look at the pros and cons of staking and the best places to stake crypto.

Does Staking Lock The Price

Staking does not lock the price of your crypto assets. Instead, it locks a specific number of your coins for a fixed period to help secure the blockchain and validate transactions.

Once you stake your coins, they’ll earn certain rewards or interest that you can redeem at the end of the staking period.

How Staking Works

If you’re new to this idea, staking is how you secure and grow any blockchain that uses the proof-of-stake model to validate transactions. Participants who stake their coins often earn rewards when new blocks are mined. 

To stake, you pledge a specific number of coins to the crypto protocol for a given period.

In turn, the protocol will choose you to validate blocks of transactions. As your staked coins help the protocol mine new blocks, it mints new coins and awards them to you for validating transactions.

The more you stake, the more likely you’ll be chosen to validate transactions. Also, the staked coins remain in your possession, and you can unstake and trade them at any time after the staking period elapses.  

Why Staking Doesn’t Lock The Price

When you stake your coins, you can’t lock their value to a fixed dollar price. Just like other currencies in the market, your coins may gain or lose value based on external factors that have nothing to do with your stake or blockchain.

The price of crypto coins can be affected by:

  • Bad news
  • Uncertainty of the future of a coin’s value
  • Actions of massive coin holders
  • Security breaches 
  • High inflation rates

These factors may expose your coins to impermanent loss. However, staking is often more profitable as the rewards gained may offset any losses you may have incurred. 

How Does Staking Affect The Price?

Staking can raise or lower the price of your coins because it’s affected by the market forces of supply and demand.

If more people stake, there will be fewer coins circulating in the crypto market. A shortage of coins and an increase in demand for them will cause a rally in coin prices. 

On the flip side, if fewer people stake their coins, crypto assets that depend on the proof of stake model will crumble. As more people trade or cash out of crypto positions, the price of the asset will tank. 

Does Staking Increase the Price?

Mostly, it does.

As we mentioned above, the more people stake, the better the coin performs. As staked coins go into validating transactions and mining new blocks, this increases the value of the asset.

Staking also helps the network mine more coins, creating a demand for them in the crypto market.

What Is The Downside of Staking?

  • Staking does not guarantee rewards. The return rates may even be negative, especially in a bear market. Don’t always assume any reward you earn from staking will be valuable.
  • Some projects require you to stake a specific number of their crypto coins to qualify as a validator. This may lock out smaller players who can only stake fewer coins, or big players who want to take minor risks.
  • The world of cryptocurrency has scammers who run pump and dump schemes on unsuspecting investors. It may be hard to distinguish a real and a fake staking project. 
  • The allure of high rewards from staking may cause you to deposit your coin without paying attention to the key fundamentals and technology of the underlying crypto coin. In the event its blockchain breaks down, your rewards may not be as expected.

How Do Staking Rewards Work?

There are several ways to look at how staking rewards work. The most reliable way is to use a staking calculator.

Staking calculators display the value of the reward you’ll earn based on an interest rate calculated over a specific period.

Besides that, coins with higher value are more rewarding to stake. Also, the longer you hold your asset, the higher the reward you receive at the end of the period. 

To better understand this aspect, check out these coins and their corresponding rewards and annual interest rates in the market 

  • Cardano (ADA)    –     24%
  • Tezos (XYZ)        –    6% Annual
  • EOS            –    3.2% Annual
  • Ethereum        –    (5-17)% per year
  • Cosmos (ATOM)    –    7% Annual

Most blockchains reset their staking rewards rates and remain active throughout the year. This makes it easy to predict your total earnings from all the coins you staked.

How Does Staking Crypto Make Money

There are many ways to earn cash via staking crypto. Let’s explore some common methods.

Holding

This strategy is quite common and straightforward. All you need to do is deposit your tokens in your wallet and hold them for a period. They’ll earn rewards.

Dividends 

Dividends are payouts you receive for holding your assets in your wallet for a long period. The only major downside of this strategy is that dividend payments are low.

Check out 10 questions we answered about staking and dividends.

Trading

You can use trading tools and technical analysis to understand and predict moves in the price of your coins.

You can make money by selling your coins when its value rallies or buying them when the market falls.

Check Does Staking Crypto Compound?

Does Staking Reduce Circulating Supply?

It does, but only to a certain extent.

Staking makes your tokens scarce in the market. That means there’s fewer coins trading, and more coins helping to validate transactions and secure the blockchain. As the system mines more coins, this increases the circulating supply.

Read more at Impact Of Staking On Circulating Supply.

Can You Stake on Coinbase?

Yes. Coinbase allows you to stake your coins on their platform.

Coinbase requires you to have a minimum holding balance to be eligible for rewards. Some protocols will allow you to earn using Proof of Stake.

Depending on the asset you want to stake, you may have to agree to other terms and conditions.

You’ll still have full ownership of the crypto you staked. In case of a slashing incident, Coinbase reserves the right to choose if to replace your assets. 

As you stake, some assets may lock up. So, Coinbase holds on to a small amount of crypto to guarantee liquidity anytime you want to get out of a position.

Is Staking Crypto Worth it?

Staking Crypto is rewarding.

It’s an easy way to earn passive income. If you own coins or buy them, you can stake them at the right price and hold them for a specified period. Once your coin value rises, you’ll enjoy free rewards for your investment 

Read more about this here

Where Is The Best Place to Stake Crypto?

Here are some wallets that allow you to stake your crypto without having to look for exchanges:

Trust Wallet

Trust wallet is a wallet with an easy interface that you can install on your devices and stake right away. It allows you to send, receive, and store different crypto coins. Also, you can use it to store private keys to secure yourself on the network. It features backups for recovery in case you lose your data.

The Trust wallet supports close to 10 different coins, including: 

  • TRON (TRX) 
  • Tezos (XTZ)
  • Cosmos (ATOM)
  • VeChain (VET)
  • Callisto (CLO)
  • Kava (KAVA)
  • TomoChain (TOMO)
  • IoTex (IOTX)
  • Algorand.

This wallet comes with an inbuilt and decentralized exchange with a web 3.0 browser that can connect to hundreds of decentralized applications directly from the Trust wallet.

Atomic Wallet

Atomic wallet is a top-notch decentralized cryptocurrency wallet built to function as both a crypto wallet and exchange. With it, you can buy crypto straight from your bank. Atomic wallet currently supports over 500 coins and tokens.

You can stake your crypto funds and earn rewards directly from validators. 

As of now, the wallet supports staking for 8 different coins:

  • Cosmos (ATOM)
  • Tezos (XTZ)
  • Ontology (ONT)
  • Komodo (KMD)
  • TRON (TRX)
  • NEO (NEO)
  • VeChain (VET)
  • Algorand.

In addition, Atomic Wallet will include other new 4 coins in their list. These include 

  • Cardano (ADA)
  • AWC (AWC)
  • Icon (ICX)
  • Band (IFX)

Stakebox

Stakebox is a hardware wallet that requires minimal power to stake cryptocurrencies. You won’t need to connect your device to the internet in case you want to stake coins. That gives you the freedom to earn crypto rewards from the comfort of your home, office with no interference. 

This wallet supports various cryptos, including: 

  • Neblion
  • Denarius
  • WhiteCoin
  • Cloakcoin
  • Pinkcoin
  • QTUM
  • Reddcoin

Does Staking Have Impermanent Loss?

Yes, it does.

If you stake your crypto in a liquidity pool, the value of the assets you deposit may change compared to when you deposited them.

Big changes expose you to impermanent loss, and you may withdraw your assets at a lesser dollar value than before.

Does Staking Use Power?

Yes, it does, although minimal.

Staking consumes a small amount of energy, which makes it environmentally friendly compared to proof-of-work mining pools. 

How Does Proof Of Stake Use Less Energy?

Coins that use the proof of stake have nodes which allows you to stake and get rewarded. Nodes also check and add blocks to the chain. Since nodes are virtual spaces that require little energy to work, they can run off a computer device.

Final Thoughts

Staking affects the price of the underlying crpto coin. Mostly, the effects are positive, and they serve to strengthen the network. It’s an excellent way to make passive income as well.