BinanceAcedemy

Key Takeaways

Maple Finance is a lending marketplace built on blockchain technology. It connects businesses needing loans with investors looking to earn returns.

Launched in 2019, Maple Finance aims to make lending simpler and more accessible through decentralized finance (DeFi).

Unlike many DeFi platforms that demand heavy collateral, Maple enables undercollateralized loans by leveraging the reputation of borrowers. Simply put, it focuses on loans that require less upfront security.

What Is Maple Finance?

Maple Finance is a lending marketplace built on blockchain technology, primarily Ethereum. The marketplace can serve institutions (like crypto firms or financial entities) and accredited individual investors.

The platform tackles a common DeFi issue: the need for borrowers to lock up more assets than they borrow. By using borrowers’ reputations to secure loans, Maple offers a more flexible approach, blending traditional financial checks with blockchain’s transparency.

How Does Maple Finance Work?

Maple Finance acts like a bridge between those who want to lend money and those who need to borrow it. Lenders pool their funds in what’s called Liquidity Pools, which are overseen by Pool Delegates. These pools then fund loans to businesses, with blockchain ensuring everything is secure and trackable.

Liquidity pools and lending

Liquidity Pools are the backbone of Maple’s lending system. Lenders, including institutions and accredited individuals, deposit digital assets (such as USDC or other stablecoins) into these pools to earn interest.

Pool Delegates manage the pools, deciding who gets loans and on what terms. Lenders gain access to a range of high-quality borrowers, earning steady returns from short-term, overcollateralized loans.

You don’t need to own Maple’s token, SYRUP, to lend. Through the Maple WebApp, lenders can add funds, keep an eye on their investments, and withdraw money following the guidelines. This setup is designed to prioritize reliable returns and easy access to funds, with all loans backed by collateral to reduce risks.

Borrowing money

Borrowers on Maple are mainly businesses, such as crypto companies or financial institutions, looking for flexible financing. To get a loan, they sign up on the Maple WebApp and go through a review process run by Pool Delegates. This involves checking their financial health and reputation, allowing Maple to offer loans with less collateral than typical DeFi platforms.

Loans are usually fixed-rate, short-term, and backed by some collateral, which lowers the chance of sudden liquidations. Borrowers can benefit from flexible terms and access to on-chain financing, which tends to be more efficient than traditional banking services. The platform’s openness ensures everyone understands the loan terms upfront.

The role of Pool Delegates

Pool Delegates are the ones who keep things running smoothly. They evaluate borrowers, set loan conditions, and manage the pools, acting like credit managers. Their work is to ensure that loans are secure and aligned with lenders’ interests. They are responsible for managing risk (e.g., handling defaults, margin calls, and liquidations) and earn fees for their work.

Pool Delegates are selected for their expertise in credit underwriting, making them a key component of the platform’s operations. However, Maple’s official documentation mentions potential challenges in aligning third-party delegates with the platform’s goals, which suggests that there is still room for improvement.

Key Features of Maple Finance

Maple Finance has several features that set it apart in the DeFi space:

Less collateral needed: By leveraging borrowers’ reputations, Maple reduces collateral requirements, making financing more capital-efficient for institutions.

Professional standards: It combines blockchain efficiency with rigorous financial checks, appealing to institutional players.

Blockchain transparency: Running on Ethereum and other networks, Maple uses smart contracts for automation, transparency, and real-time monitoring.

Product offerings: Products like the Cash Management Pool, which invests in US Treasury bills, or Maple Direct for custom loans, can cater to different user needs.

Partnerships: Maple Finance made collaborations with entities like Circle (for USDC adoption) and Ethena Labs (for real-world asset scaling).

SYRUP Token

Maple’s operations are guided by its token, SYRUP, which replaced an earlier token called MPL in 2023 after a community vote. SYRUP holders can participate in share fee revenues, help make decisions about the platform governance, and stake tokens to help protect liquidity pools against losses.

SYRUP on Binance

On May 6, 2025, Binance announced the listing of Maple Finance (SYRUP) with the Seed Tag applied. The SYRUP token was made available for trading against USDT and USDC trading pairs on the same day.

SYRUP smart contracts

Ethereum: 0x643C4E15d7d62Ad0aBeC4a9BD4b001aA3Ef52d66

Base: 0x688AEe022AA544f150678B8E5720b6b96a9E9a2F

Maple Finance Security

Security is a big focus for Maple. Its smart contracts, which power the platform, are open-source on GitHub, with 76 repositories detailing their code. The platform passed multiple audits (three in December 2022 and two in June 2023), allowing developers to fix issues before going live.

Things to Keep in Mind

As with other DeFi projects, using the Maple Finance protocol and services carries risks, like losing assets due to market swings or smart contract vulnerabilities. In addition, relying on Pool Delegates can lead to coordination issues, as noted in the project’s official documentation. It’s important to do your own research and understand the products well before taking risks.

Closing Thoughts

Maple Finance is a decentralized platform that makes lending and borrowing more accessible for businesses and investors. By offering loans with lower collateral requirements, using the SYRUP token for community governance, and maintaining high compliance standards, the project experienced significant growth in the DeFi space. For those exploring institutional DeFi, Maple Finance can offer an interesting blockchain-driven approach to capital markets.

Further Reading

What Is USDC?

What Is Ethena (ENA)?

What Is Decentralized Finance (DeFi)?

Collateral

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Products mentioned in this article may not be available in your region. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

The Travel Rule is a regulatory standard that requires crypto platforms to collect and share certain details about crypto transactions. The goal is to comply with international anti-money laundering regulations.

Binance users may be required to verify the ownership of wallet addresses before sending crypto to (or receiving crypto from) certain platforms. 

The Satoshi Test is a verification method that simplifies Travel Rule compliance through a small cryptocurrency transfer. Once completed, it removes the need to repeatedly verify a wallet address for every deposit or withdrawal.

Introduction

The Travel Rule is an international regulatory requirement that affects how crypto is sent between platforms. It obligates crypto service providers to share specific transaction details to prevent money laundering and terrorism financing. While the rule promotes financial security, it can add complexity to everyday crypto transactions.

The Satoshi Test is a feature that simplifies how users comply with the Travel Rule when making cryptocurrency transactions. By allowing a small test transfer of BTC or other crypto to confirm recipient wallet ownership, the Satoshi Test makes the user experience more efficient and secure, especially when used in combination with Binance’s Address Management feature.

What Is the Travel Rule?

The Travel Rule, officially known as the Financial Action Task Force (FATF) Recommendation 16, is a global standard that applies to Virtual Asset Service Providers (VASPs). It mandates that when users transfer crypto assets above a certain threshold between VASPs, both the sender’s and recipient’s information must be collected and exchanged.

This includes:

Sender’s name and wallet address.

Recipient’s name and wallet address.

Account numbers or unique transaction identifiers.

As a result, when users attempt to send funds from Binance to another VASP that also complies with the Travel Rule, the platform must verify the recipient’s address — often requiring manual steps, delays, or address verifications.

What Is the Satoshi Test?

The Satoshi Test is a feature designed to simplify the address verification process when sending crypto assets to another platform that is compliant to the Travel Rule. It allows users to verify a recipient’s wallet by first sending a small amount of cryptocurrency to ensure the recipient controls the wallet.

How it works

Initiate a withdrawal: When a user attempts to withdraw crypto to an unverified address, the system may prompt them to complete a Satoshi Test.

Send a small test amount: The user sends a very small amount of crypto (e.g., 0.00001 BTC) to the recipient.

Recipient confirms receipt: The recipient confirms the amount and the transaction ID on their platform.

Address verified: Once confirmed, the full withdrawal can proceed, and the address is marked as verified for future use.

This verification method is especially useful for first-time transfers and avoids the need for manual document uploads or back-and-forth verifications.

Why the Satoshi Test Matters

The Satoshi Test significantly improves user experience by:

Reducing friction: Simplifies the process of verifying recipient wallets.

Enhancing security: Ensures users are sending crypto to the correct wallet address.

Faster transactions: Once an address is verified, it’s much faster and easier for users to make new transfers.

Improving compliance: Helps Binance and its users stay aligned with regulatory requirements and expectations.

The Address Management Feature on Binance

The Address Management is a tool that allows Binance users to store and label wallet addresses, making future withdrawals much easier. Whitelisting addresses can also provide more security, reducing the risks of sending to the wrong recipient or typing the wrong address.

Depending on the case, Binance users can use the Address Management feature to verify wallet addresses via the Satoshi Test.

How to add a new address to the Address Management list

Log in to your Binance account and go to the Address Management page. You can also find it by navigating to [Account] → [Security] → [Withdrawal Whitelist].

Click [Add Address] to add a new withdrawal wallet address.

Add a label name to the address and fill in the information.

Depending on the case, you might be required to verify the address.

 Follow the instructions and complete the Satoshi Test (if requested).

For more information, please refer to the Binance FAQ.

Use Case Example

Imagine a user wants to send BTC from Binance to another exchange for the first time. Under Travel Rule compliance, the platform needs to verify the recipient’s wallet. Instead of going through a lengthy process, the user opts for the Satoshi Test, sending a tiny amount of BTC. Once the recipient confirms, the user completes the full transfer and adds the address to their Address Management for future use. The process will be seamless the next time they send BTC to the same address.

Closing Thoughts

The Satoshi Test is a practical and efficient solution that allows Binance users to comply with the Travel Rule and other international AML regulations. By verifying wallet ownership through a small crypto transfer, the Satoshi Test can help reduce delays while providing more convenience and security.

Further Reading

What Is Satoshi Test and Travel Rule Address Book Feature?

What Is Anti-Money Laundering (AML)?

Who Is Satoshi Nakamoto?

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Products mentioned in this article may not be available in your region. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

The Sophon project is a blockchain initiative designed to facilitate consumer-focused applications within the ZKsync Elastic Chain ecosystem. 

As a Layer 2 (L2) built on ZK Stack, Sophon combines Ethereum’s security with high transaction throughput and low fees. 

Unlike many blockchains that focus on finance, Sophon is built for entertainment and lifestyle apps, like games and social platforms.

What Is Sophon?

Sophon is a ZK (zero-knowledge) chain within ZKsync’s Elastic Chain, a network of interoperable blockchains leveraging zk proofs for scalability and efficiency. Sophon prioritizes consumer-oriented applications, such as gaming, social platforms, and digital experiences. Its goal is to integrate cryptocurrency into everyday activities, making it accessible to non-crypto audiences through intuitive, user-centric platforms.

Sophon operates as a Validium, a type of L2 solution that stores data off-chain while maintaining Ethereum’s security for transaction validation. This allows Sophon to process transactions at a high throughput with minimal costs, addressing scalability challenges faced by Ethereum’s Layer 1 (L1).

How Sophon Works

ZK Stack and Elastic Chain integration

Sophon uses ZKsync’s technology, called ZK Stack, to build a fast and flexible blockchain. It’s part of the Elastic Chain, which is like a network of blockchains that share resources. This means users can move money or digital items between Sophon and other ZKsync chains easily. It also lets developers build apps that work across multiple chains, making everything more connected and scalable.

The Elastic Chain’s architecture allows Sophon to dynamically scale its capacity, accommodating growing demand for consumer applications. This is particularly relevant for resource-intensive use cases like gaming or real-time social interactions, where low latency and high throughput are critical.

Validium

Sophon’s Validium system is what makes it fast and affordable. Instead of storing every detail on Ethereum’s main network (which can be slow and expensive), Sophon handles most of the work off-chain. It only sends small proofs to Ethereum to confirm everything is correct. This keeps costs low and speeds things up, which is perfect for apps that need to process lots of actions quickly. 

Account abstraction

Sophon has a feature called account abstraction that makes using the blockchain simpler. Apps on Sophon can pay transaction fees for users, so you don’t need to worry about having crypto to cover costs. This “gasless” system makes it easier for people to try crypto apps without needing to understand how blockchain fees work.

Bridging assets

You can move crypto from Ethereum to Sophon using a bridge at portal.sophon.xyz. Some apps also let you buy SOPH tokens directly, making it easy to get started without needing to deal with other blockchains first.

Node operations

Sophon uses two kinds of nodes: Light Nodes, which are simpler and use a system called Avail to check data, and Full Nodes, which do heavier tasks like processing transactions. As of May 2025, only Sophon Labs runs the most important nodes, but the plan is to let more people join in to make the network more decentralized.

Sophon also has a Guardian Program that incentivizes participation through NFT-based memberships. These memberships, non-transferable until December 18, 2025, allow holders to run nodes or delegate to operators, contributing to network security.

Developer Support and Ecosystem

Building on Sophon

Sophon encourages developers to create high-throughput consumer applications, particularly in gaming, NFTs, and social platforms. The ZKsync CLI simplifies contract development, testing, and deployment, providing tools to streamline the process. The Sophon Foundation offers technical and financial support to developers.

Sophon Intelligence Agency (SIA)

Sophon has a $5 million program called the Sophon Intelligence Agency to support apps that use artificial intelligence (AI). It provides money and guidance to help developers build AI-powered projects, like games or tools that use smart technology to improve the user experience.

The SOPH Token

The SOPH token is the native cryptocurrency of the Sophon network, used for paying gas fees and staking to support network operations. The token has a fixed supply of 10 billion, with 57% allocated to the community through various mechanisms, including airdrops and liquidity mining programs. 

The remaining supply is distributed among node operators (20%), investors (with a three-year vesting period), the project team (four-year vesting), and ecosystem reserves for partnerships and liquidity provision.

SOPH on Binance HODLer Airdrops

On May 28, 2025, Binance announced Sophon as the 20th project on the Binance HODLer Airdrops. Users who subscribed their BNB to Simple Earn and/or On-Chain Yields products from May 14 to 17 are eligible to receive SOPH airdrops. A total of 150 million SOPH tokens were allocated to the program, accounting for 1.5% of the total token supply.

SOPH was listed with the Seed Tag applied, allowing for trading against the USDT, USDC, BNB, FDUSD, and TRY pairs.

Closing Thoughts

Sophon is a blockchain ecosystem focused on building fun and easy-to-use apps, like games and social platforms. It uses ZKsync’s technology to keep transactions fast, cheap, and secure. With the SOPH token, developer tools, and a focus on community, Sophon’s mission is to create a space where crypto feels simple and welcoming.

Further Reading

What Are Bitcoin Layer 2 Networks?

What Is ZKsync and How Does It Work?

What Is Chain Abstraction?

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Products mentioned in this article may not be available in your region. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

In bond trading, a credit spread is the difference in yield between a safer bond (like a Treasury) and a riskier bond (like a corporate bond). The bigger the spread, the higher the perceived risk.

Narrow spreads suggest investors feel confident in the economy, while wide spreads often signal uncertainty or potential downturns.

Factors like credit ratings, interest rates, market sentiment, and bond liquidity influence the size of the spread, with lower-rated or less liquid bonds typically having wider spreads.

In options, a credit spread means selling one option and buying another to receive a net credit, limiting both potential profit and loss. Common examples include bull put spreads and bear call spreads.

Introduction

Credit spreads are an important concept in both bond investing and options trading. In the bond market, they can show how risky different bonds are and provide insights into the economy's health. This article breaks down what credit spreads are, how they work, and why they matter. We'll first discuss credit spreads in the context of bonds and then briefly explore the concept in options trading.

What Are Credit Spreads?

A credit spread is the difference in returns between two loans or bonds that will be paid back at the same time but have different credit ratings (risk levels).

In bond trading, the concept relates to comparing two bonds that mature at the same time, one from a safer borrower and one from a riskier one (such as debt issued by emerging markets or lower-rated businesses). 

The credit spread shows how much more return the riskier bond offers to make up for the extra risk. Unsurprisingly, this difference can affect how much you earn on your investment.

How Credit Spreads Work

Typically, investors compare the yield of a corporate bond with that of a government bond, such as a US Treasury note, which is considered low-risk. For example, if a 10-year US Treasury bond yields 3% and a 10-year corporate bond yields 5%, the credit spread is 2% or 200 basis points.

Many investors use credit spreads to understand not only how risky a single company’s bond is but also how healthy the overall economy is. When credit spreads are wide, it often signals economic trouble. When they’re narrow, it suggests confidence in the economy.

What affects credit spreads?

Many things can cause credit spreads to go up or down:

Credit ratings: Lower-rated bonds (like junk bonds) usually have higher yields and bigger spreads.

Interest rates: When interest rates rise, riskier bonds often see their spreads increase.

Market sentiment: When market confidence is low, even solid companies can see their bond spreads widen.

Liquidity: Bonds that are harder to trade present higher trading risks and tend to have wider spreads.

Credit spread examples

Small spread: A top-rated corporate bond pays 3.5%, and a Treasury bond pays 3.2%. The spread is 0.3% or 30 basis points. This indicates strong trust in the company.

Large spread: A lower-rated bond pays 8%, while the Treasury still pays 3.2%. The spread is 4.8% or 480 basis points. This larger spread indicates a higher risk.

What Credit Spreads Say About the Economy

Credit spreads are not only investment tools but also serve as economic indicators. During periods of economic stability, the difference in yields between government and corporate bonds tends to be small. This is because investors are confident in the economy’s ability to support corporate profits and solvency. In other words, people feel confident that companies will pay their debts.

Conversely, in times of economic downturn or uncertainty, investors want to avoid risk. They jump into safer assets like the US Treasuries, driving their yields down, while demanding higher yields for riskier corporate debt, especially lower-rated ones. This causes credit spreads to widen, which in some cases precede bear markets or recessions.

Credit Spread vs. Yield Spread

People sometimes mix up these terms. A credit spread is the difference in yields because of different credit risks. A yield spread is more general and can refer to any yield difference, including due to time to maturity or interest rates.

Credit Spreads in Options Trading

In options trading, the term "credit spread" refers to a strategy where you sell one option contract and buy another with the same expiration date but a different strike price. You get more from the option you sell than you pay for the option you buy. That difference between the contract prices (premium) is what makes the credit spread.

Here are two common types of credit spread strategies in options trading:

Bull Put Spread: This is used when you think the asset price will go up or stay the same. You sell a put option with a higher strike price and buy a put option with a lower strike price.

Bear Call Spread: This is used when you think the stock price will go down or stay below a certain level. You sell a call option with a lower strike price and buy a call option with a higher strike price.

Bear call spread example

Alice believes asset XY won’t go above $60, so she:

Sell a $55 call for $4 (she receives $400, since 1 option contract = 100 shares)

Buy a $60 call for $1.50 (she pays $150)

Alice ends up with a net credit of $2.50 per share, or $250 total. What happens next depends on where asset XYZ ends up at expiration:

If the price stays at or below $55, both options expire worthless. Alice keeps the initial $250 received.

If the asset ends between $55 and $60, the $55 call is used by the buyer, and Alice has to sell shares at $55. But her $60 call isn’t used. She still keeps some of the initial credit, depending on the final price.

If the stock goes above $60, both options are used. Alice sells shares at $55 and has to buy them back at $60, losing $500 in total. But since she received $250 upfront, her maximum loss is $250.

These trades are called credit spreads because you start off with a credit to your account when you open the position.

Closing Thoughts

Credit spreads are a helpful tool, especially for bond investors. They show how much extra return investors want for taking more risk and can also reveal how people feel about the economy. By keeping an eye on credit spreads, you can better understand the market, choose smart investments, and manage risk.

Further Reading

What Are Bonds and How Do They Work?

What Is a Yield Curve and How to Use It? 

How Can Tariffs Impact the Crypto Markets?

Interest Rates Explained

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Products mentioned in this article may not be available in your region. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

Bitcoin is the first cryptocurrency to be ever created. It was created in 2008 and launched in 2009 by pseudonymous Satoshi Nakamoto.

Bitcoin runs on blockchain technology, which works like a public ledger. All Bitcoin transactions are verified by a network of nodes spread around the world.

Bitcoin is decentralized, transparent, and open source, making it a popular alternative to traditional financial systems.

What Is Bitcoin?

Bitcoin is essentially digital money. It is the first cryptocurrency ever created, announced in 2008 (and launched in 2009). Bitcoin allows users to send and receive digital money called bitcoins (with a lowercase b, or BTC for short).

Unlike traditional fiat currencies issued by governments (like dollars or euros), Bitcoin is decentralized, meaning no single institution, government, or entity controls it. Transactions are conducted peer-to-peer, removing the need for banks or financial institutions to act as intermediaries.

What makes Bitcoin highly appealing is its inherent resistance to censorship, the impossibility of double-spending funds, and the ability to conduct transactions anytime and anywhere.

How Does Bitcoin Work?

Bitcoin operates on blockchain technology, a public ledger that records all transactions. This means every Bitcoin transaction is transparent, verifiable, and secure.

Imagine blockchain as a chain of blocks, where each block holds information about transactions. Every time someone uses Bitcoin, their transaction is added to the blockchain, and this record is stored across a global network of computers (called nodes).

This distributed network ensures that no single party can manipulate the data. Anyone can participate in the ecosystem by downloading Bitcoin's open-source software.

Decentralization: Bitcoin's blockchain is maintained by a distributed network of computers, ensuring no central authority controls the ledger.

Immutability: Once a transaction is added to the blockchain, it cannot be altered or deleted.

Security: Transactions are encrypted using cryptography, and verifying each block requires solving complex mathematical puzzles, a process known as mining.

BTC transaction example

When Alice sends a BTC transaction to Bob, the blockchain database updates their balances (e.g., removing 1 BTC from Alice and adding 1 BTC to Bob’s balance). It's like Alice is writing on a piece of paper (that everyone can see) that she's giving Bob 1 BTC.

When Bob goes to send the same funds to Carol, the network can easily check if he has enough BTC balance. The blockchain acts like a digital ledger that tracks all Bitcoin transactions and keeps the users’ balances up-to-date.

Since the network is decentralized, all participants (nodes) have an identical copy of the database (blockchain ledger) stored on their devices. So, they have to communicate constantly to synchronize new information.

Bitcoin mining

Bitcoin mining is the process that secures the Bitcoin network and confirms transactions. When a user makes a BTC transaction, they broadcast it to the network, where it is verified by other nodes known as "miners".

In other words, mining refers to the process of verifying transactions and recording them into the blockchain database (ledger). To do so, miners compete to solve a complex math problem, which requires a lot of computing power.

The first miner to solve the puzzle gets to add a new block of transactions to the blockchain. In return, they are rewarded with new bitcoins. The high cost of mining is one of the things that keep the network secure, and the block rewards given to miners are the only source of “fresh” bitcoins. Each block mined adds a certain amount of coins to the total supply.

Proof of Work (PoW)

To maintain the security and integrity of the blockchain, Bitcoin uses a consensus mechanism known as Proof of Work (PoW). It’s an essential part of the mining process described above.

PoW is a mechanism created along with Bitcoin to prevent double-spending in digital payment systems. Besides Bitcoin, many cryptocurrencies use PoW as a method for securing their blockchain network.

When we talk about a “complex math problem” that miners have to solve, we are basically talking about PoW. It was designed to make it expensive to create a block, but cheap to verify that it's valid. Suppose someone tries to cheat with an invalid block. In that case, the network immediately rejects it and the miner is unable to recoup the cost of mining.

What Is Bitcoin Used For?

Bitcoin is primarily used as a digital currency and store of value. It can be used to make purchases online or in person, similar to traditional currencies. More and more businesses are accepting Bitcoin as a payment method. From online retailers to brick-and-mortar stores. 

You can also use Bitcoin to send money to anyone across the globe quickly and with relatively low transaction fees compared to traditional banks and remittance services.

As an investment, many people buy Bitcoin, hoping its value will continue to rise. While the price of BTC can be volatile, some investors see it as a way to diversify their portfolios and hedge against inflation in the long term.

Who Created Bitcoin?

Bitcoin was first introduced in 2008 when Satoshi Nakamoto published a whitepaper entitled "Bitcoin: A Peer-to-Peer Electronic Cash System". This paper introduced a new digital currency that would operate on a decentralized system without relying on governments or the banking system.

In January 2009, the Bitcoin protocol was released, and the first bitcoin transaction took place between Satoshi Nakamoto and a programmer named Hal Finney. The transaction involved sending ten bitcoins from Nakamoto to Finney.

After the first transaction, more people began to discover Bitcoin and join the network. The digital currency gained popularity among a small community of tech enthusiasts by demonstrating that Bitcoin could function without a central authority or intermediary.

Bitcoin Pizza is another important milestone in the history of Bitcoin, as it marked the first time bitcoins were used as a medium of exchange for a real-world transaction. On May 22, 2010, a programmer named Laszlo Hanyecz made history by using 10,000 bitcoins to buy two pizzas. The transaction became known as "Bitcoin Pizza Day" and is now commemorated every year on May 22.

Who Is Satoshi Nakamoto?

Satoshi Nakamoto's identity remains a mystery. Satoshi could be a person or a group of developers anywhere in the world. The name is of Japanese origin, but Satoshi's mastery of English has led many to believe that he or she is from an English-speaking country.

Did Satoshi invent blockchain technology?

Bitcoin combines a number of existing technologies that have been around for a long time, and this includes blockchain technology. The use of such immutable data structures can be traced back to the early 1990s when Stuart Haber and W. Scott Stornetta proposed a system for time-stamping documents. Much like today's blockchains, it relied on cryptographic techniques to secure data and prevent it from being tampered with. But Bitcoin was revolutionary in solving the double-spending issue that plagued other digital payment systems at the time.

How Many Bitcoins Are There?

The protocol sets the maximum supply of bitcoins at 21 million coins. As of September 2024, just over 94% of these have been mined, but it will take over a hundred years to produce the rest. This is due to periodic events known as Bitcoin halving, which reduce the mining rewards roughly every four years.

What Is Bitcoin Halving?

Bitcoin halving refers to the periodic halving events that reduce the block rewards offered to miners. The next Bitcoin halving is expected to happen in 2028, roughly four years after the last halving, which took place on April 19, 2024.

Bitcoin halving is at the core of its economic model as it ensures that coins are issued at a steady pace, getting increasingly difficult at a predictable rate. Such a controlled rate of monetary inflation is one of the key differences between Bitcoin and traditional fiat currencies, which have an essentially infinite supply.

Is Bitcoin Safe?

One of the main risks associated with Bitcoin is the potential for hacking and theft. For example, in phishing scams, hackers use social engineering techniques to trick users into revealing their login credentials or private keys. Once the hacker has access to the user's account or crypto wallet, they can transfer the victim's bitcoins to their own wallet.

Another way hackers can steal bitcoins is through malware or ransomware attacks. Hackers can infect a user's computer or mobile device with malware that allows them to access the user's Bitcoin wallet. In some cases, hackers can also use ransomware to encrypt a user's files and demand payment in bitcoins to unlock them.

Because bitcoin transactions are irreversible and not insured by any government agency, users must take precautions to protect their bitcoin holdings. This includes using strong passwords, two-factor authentication, and storing bitcoins in a secure crypto wallet that is inaccessible to hackers. It's also important to only download Bitcoin-related software from trusted sources.

Another risk associated with bitcoin is price volatility. The value of bitcoin can fluctuate highly over short periods of time, making it a risky investment for those who are not prepared for the price fluctuations and potential losses.

Closing Thoughts

Bitcoin has come a long way from its humble beginnings, growing into a globally recognized cryptocurrency with numerous use cases. Whether you’re considering using Bitcoin for everyday transactions, investing for the future, or simply interested in the technology behind it, understanding how Bitcoin works is essential.

The future of Bitcoin is still being written, but it’s clear that it’s here to stay. With more companies accepting it and more people using it for investment, Bitcoin continues to revolutionize the way people think about money.

Further Reading

What Is Blockchain and How Does It Work?

What Is Proof of Work (PoW)?

What Is Cryptocurrency Mining and How Does It Work?

Who Is Satoshi Nakamoto?


Disclaimer and Risk Warning: This content is presented to you for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

A strategic bitcoin reserve is a way for governments, businesses, and institutions to store bitcoin as part of their financial strategy. 

Some consider such a reserve a hedge against inflation. Bitcoin has a fixed supply, so it tends to hold purchasing power over time.

While there are risks, including price volatility and security concerns, bitcoin’s potential as a valuable long-term asset is more recognized.

Introduction

Just like central banks store gold or foreign currencies, bitcoin is also considered by many a valuable asset to hold for the future. With the increasing adoption of digital assets, strategic reserves of bitcoin and other cryptocurrencies are becoming a common topic in finance and policymaking.

What Is a Strategic Bitcoin Reserve?

A strategic bitcoin reserve is a stash of bitcoin that organizations keep as part of their financial strategy. Strategic bitcoin reserves may vary from place to place, but they are often done due to one or more of the following reasons:

Hedge against inflation – Bitcoin has a fixed supply, meaning it can’t be printed like fiat currency, so it tends to hold purchasing power over time.

Diversification – Holding bitcoin adds another type of asset to a financial portfolio, which makes it a common alternative for diversification.

Store of value – Many consider bitcoin a good store of value because of its scarcity and durability. It’s also referred to as “digital gold”.

With more people and institutions recognizing bitcoin’s value, some have started storing it as a reserve to strengthen their financial position.

Why Governments and Companies Hold Bitcoin Reserves

1. Hedge against inflation

Traditional currencies tend to lose value due to inflation. Bitcoin, however, has a predictable issuance rate and a limited supply (only 21 million coins will ever exist). This scarcity makes it an appealing hedge against inflation and a good store of value.

2. Diversifying assets

Governments and institutions usually hold a mix of assets, such as cash, gold, and bonds. Adding bitcoin to their reserves helps them spread risk and avoid reliance on any one asset.

3. Strengthening economic security

For countries with unstable economies or weak currencies, holding bitcoin can act as a safety net. Since bitcoin operates on a global, decentralized network, it’s not controlled by any single country or bank.

4. Corporate treasury strategy

Some businesses hold bitcoin as part of their financial planning. Companies like MicroStrategy and Tesla have invested billions in bitcoin, seeing it as a better alternative to cash.

Trump’s Executive Order for a Strategic Bitcoin Reserve

On March 6, 2025, President Donald J. Trump signed an Executive Order establishing a Strategic Bitcoin Reserve and a U.S. Digital Asset Stockpile. Their goal is to strengthen the country’s role in the crypto and digital asset space.

The reserve will be funded with bitcoin seized by the government through criminal or civil cases. Allegedly, they will treat bitcoin as a reserve asset and maintain it as a store of value (with no intention to sell).

Moreover, the U.S. Digital Asset Stockpile will likely consist of altcoins and other digital assets obtained through forfeiture, with the Treasury Secretary authorized to determine strategies for their management. This initiative seeks to centralize and effectively manage digital assets under U.S. control.

Criticism

While the establishment of a Strategic Bitcoin Reserve has been praised by some as a forward-thinking financial move, the Executive Order signed by President Trump on March 6, 2025, has also faced criticism. 

Opponents argue that holding bitcoin as a national reserve asset exposes the U.S. government to extreme price volatility, which could lead to instability if the market crashes. 

Others question whether it’s right for the government to keep Bitcoin taken from legal cases. Some believe these funds should be returned to their original owners or sold through proper legal channels instead of being added to the reserve.

Additionally, some policymakers worry that prioritizing bitcoin in national reserves could weaken confidence in the U.S. dollar and traditional financial systems. Critics also point out the lack of clear guidelines on how the reserve will be managed and whether it will have proper oversight from Congress, raising concerns about transparency and accountability.

Real-World Examples of Bitcoin Reserves

1. MicroStrategy

MicroStrategy, a business analytics company, has one of the largest corporate bitcoin holdings. Since 2020, it has continuously bought bitcoin as part of its treasury strategy, believing it’s a better store of value than cash.

As of March 2025, MicroStrategy holds 499,096 BTC worth around $42.9 billion.

2. El Salvador’s bitcoin reserve

El Salvador made history in 2021 by making bitcoin legal tender. The government has since accumulated bitcoin as part of its national reserves, using it to promote financial inclusion and economic growth.

As of March 2025, El Salvador holds 6,105 BTC valued at more than $525 million.

3. Tether’s bitcoin holdings

Tether, the company behind the USDT stablecoin, holds bitcoin as part of its reserve assets. The company sees bitcoin as a strong and reliable store of value.

As of March 2025, Tether holds 83,759 BTC worth roughly $7.2 billion.

The Future of Strategic Bitcoin Reserves

The idea of holding bitcoin as a strategic reserve is gaining traction. More central banks and governments are researching how bitcoin could fit into their financial systems. There is also a growing number of businesses investing in bitcoin as a long-term asset. As bitcoin adoption continues to grow, more institutions and governments may view it as a valuable part of their financial strategy.

Closing Thoughts

A strategic bitcoin reserve is a way for governments, businesses, and institutions to store bitcoin as part of their financial strategy. It helps protect against inflation, diversify assets, and strengthen economic security. While there are risks, including price volatility and security concerns, bitcoin’s potential as a valuable long-term asset is becoming more recognized.

Further Reading

Is Bitcoin a Store of Value?

What Is Bitcoin and How Does It Work?

What Is a Stablecoin?

Disclaimer: This article is for educational purposes only. This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Products mentioned in this article may not be available in your region. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Disclaimer: This article is for educational purposes only. The information provided through Binance does not constitute advice or recommendation of investment or trading. Binance does not take responsibility for any of your investment decisions. Please seek professional advice before taking financial risks. Products mentioned in this article may not be available in your region.

Key Takeaways

Optimism, greed, fear, and panic, rooted in neurological processes, shape market sentiment and are directly related to uptrends and downtrends. 

Psychological pitfalls like FOMO, loss aversion, and cognitive dissonance often lead traders and investors to make irrational decisions. 

Social platforms can further amplify emotional swings, while mirror neurons contribute to collective behaviors, herd instinct, and speculative trading.

Introduction

Warren Buffett once said, “The market is a device for transferring money from the impatient to the patient.” This simple statement highlights just how much emotions and psychology drive market behavior. At the core of this idea lies market psychology, an important concept in behavioral economics that explores how the collective emotions of market participants shape financial markets. But what about the neurobiology that shapes market psychology itself? 

Neuroscience tells us that our brains aren’t as rational as we’d like to believe, especially when money is involved. Emotions, cognitive biases, and psychological processes often steer our financial decisions in ways we might not even realize. 

For instance, the amygdala is the part of the brain that processes fear and triggers fight-or-flight responses. It can push us to make impulsive decisions during market downturns. On the other hand, the ventromedial prefrontal cortex, which evaluates rewards, can fuel overconfidence during bull markets. 

These brain mechanisms, while essential for survival, often lead us to act on instinct rather than reason when it comes to trading and investing.

How Psychology Drives Market Cycles

Uptrend

Optimism is widespread during a bull market. Rising prices generate excitement, and neurobiology tells us that this triggers the brain's reward system, releasing the neurotransmitter dopamine. 

Emotional phenomena like FOMO (fear of missing out) tend to amplify this trend. FOMO stems from the brain’s social reward pathways, as we’re physically wired to seek inclusion and avoid missing opportunities. Social media platforms like X and Reddit can exacerbate FOMO by showcasing stories of massive gains, encouraging others to buy assets without fully understanding the risks.

Dogecoin, Shiba Inu, and most recently, the TRUMP and MELANIA meme coins serve as prime examples. The value of meme coins, in most cases, is driven by speculative hype and viral trends rather than intrinsic value. Traders are often swept up in the euphoria, ignoring warning signs like overvaluation or unsustainable growth.

Several neurobiological processes coincide to create this unchecked optimism, which can lead to financial bubbles, where prices far exceed an asset’s true value. When the bubble bursts, the market enters a downtrend, often triggering a cascade of negative emotions.

Downtrend

When the market reverses, emotions shift from optimism to denial and fear. The brain’s amygdala, which processes fear, takes over, prompting instinctive responses like panic selling. Neurologically, this fear is magnified by the loss aversion bias, which causes losses to feel more painful than equivalent gains feel rewarding.

As prices continue to fall, fear turns into panic, leading to capitulation, a point where investors sell their holdings en masse, often at significant losses. This behavior is particularly evident during bear markets, as seen in Bitcoin’s sharp corrections during the 2022 market cycle.

The market eventually stabilizes as pessimism peaks, often leading to an accumulation phase where prices move sideways. At this point, some investors may cautiously reenter the market, driven by reemerging feelings of hope and optimism.

Neurobiology Behind Market Psychology

A series of complex neurological processes shape the psychology behind market trends. One such process is the reward pathway, which consists of various neurotransmitters and brain structures.

The main neurotransmitter associated with rewards and pleasure is dopamine. When you are exposed to a rewarding stimulus, your brain responds by releasing increased dopamine. This is typically seen during bull markets, where the brain’s dopaminergic pathways are activated by the anticipation of financial rewards, thus creating a feedback loop. 

Source: Simplypsychology.org

Dopamine is primarily synthesized in the substantia nigra and ventral tegmental area. As seen above, there are multiple dopamine pathways through which dopamine travels to different regions of the brain.

The pathway most associated with market psychology is the mesolimbic pathway. The mesolimbic pathway connects the ventral tegmental area to the limbic system, which includes the amygdala. This pathway is central to experiencing pleasure and reward. In anticipation of receiving a financial gain, dopamine is released into this pathway, creating a sense of motivation and satisfaction.

The primary structure involved in processing emotions like fear and anxiety is the amygdala. The amygdala is as significant during bear markets as dopaminergic pathways are during bull markets. Typically a survival mechanism, the fight-or-flight response in financial contexts can lead to impulsive decisions, often resulting in losses.

While fear and anxiety triggered in the amygdala can distort decision-making processes and result in impulsive decisions like panic selling, cognitive dissonance can also influence investors to hold onto assets in denial, hoping that the market may recover. 

Cognitive dissonance is experienced when the beliefs held by traders about the market conflict with reality. Cognitive dissonance is primarily associated with the prefrontal cortex, responsible for higher-level cognitive functions, and the limbic system, which again includes the amygdala and the hippocampus.

Another interesting aspect of neurobiology that may influence market psychology is mirror neurons. These neurons are found in several areas of the brain, including the premotor cortex, the supplementary motor area, the parietal lobe, and the inferior parietal lobe. Mirror neurons fire both when an individual performs an action and when they observe a similar action performed by someone else.

In essence, mirror neurons allow us to experience the emotions and actions of others vicariously. These neurons are involved in empathy and social influence. Watching other traders succeed can trigger these neurons, leading to imitation, which may play a major role in herd instinct.

TRUMP Meme Coin: A Case Study

1. Rapid growth and the dopaminergic pathways

There is a good chance the explosive growth of the Trump meme coin at launch was influenced by the brain’s reward system. Factors like the clear connection to Donald Trump, a widely recognized figure of wealth, and the significant media coverage surrounding the coin likely contributed to its initial surge.

FOMO and the general thought of missing out on potential rewards was also a possible driver. This initial surge likely triggered the dopaminergic pathways of traders, releasing dopamine in anticipation of financial rewards and thus creating a feedback loop of excitement and speculation. This phase is also commonly referred to as the euphoria stage, where optimism and excitement fuel a price increase.

2. Herd instinct and mirror neurons

As discussed earlier, mirror neurons often play a role in herd instinct, and, thus, market psychology. The coin’s rapid growth may serve as an example of these neurons in action as individuals, influenced by the emotions and perceived success of others, may make decisions driven by collective sentiment rather than rational, independent analysis. In the case of TRUMP:

Meme culture: Memes and social media activity created a viral buzz that encouraged others to join the trend. Mirror neurons may have amplified positive emotions among traders and investors. 

Political and fanbase engagement: Trump’s political supporters and fanbase further propelled the coin’s visibility and adoption. A positive market sentiment is rapidly spread through these social interactions. 

This highlights how mirror neuron-powered herd instinct, amplified by social influences like meme culture and fanbase engagement, can drive market behavior.

3. Volatility, panic selling, and the amygdala

Following its initial surge, like most meme coins, TRUMP also experienced a great deal of volatility and sharp price drops. At this stage, traders may experience denial, fear, and anxiety. 

Cognitive dissonance may lead many to hold onto their assets despite the market's downturn, hoping for a quick recovery or faith in a particular figure. This conflict between reality and personal belief can result in irrational decisions and financial losses.

Meanwhile, the amygdala, which is responsible for the fight-or-flight response, may amplify feelings of fear and anxiety and thus drive panic selling. The announcement of the competing MELANIA coin likely heightened these emotional reactions and underscores how external factors can strongly influence individual investor behaviors and, as a result, market trends.

Closing Thoughts

Understanding the psychology behind market cycles can be highly valuable, providing better context of market trends to traders and investors. For example, you can observe emotional trends to spot periods of intense pessimism or optimism and see how such emotions affect market prices.

Being familiar with the neurobiological processes that underscore emotional trends, including the role of dopaminergic pathways, structures like the amygdala, and the function of mirror neurons, can give you a more in-depth understanding of market psychology. This may increase your chances of avoiding common psychological pitfalls like cognitive biases, FOMO, panic selling, and cognitive dissonance.

Further Reading

What Is the Official Trump Meme Coin (TRUMP)?

What Are Behavioral Biases and How Can We Avoid Them?

Five Risk Management Strategies

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

The P/E ratio shows how much investors are willing to pay for each dollar a company earns, making it a quick way to evaluate whether an asset may be overvalued or undervalued.

There are different types of P/E ratios—like trailing, forward, absolute, and relative—which offer various perspectives, but all require context such as industry norms and company growth potential.

The P/E ratio doesn’t work well for cryptocurrencies because most don’t generate earnings and reports in the same way companies do. However, there are similar valuation methods being tested in some areas of decentralized finance (DeFi).

Introduction

If you’ve ever looked into buying stocks, chances are you’ve come across the term P/E ratio. It’s short for the Price-to-Earnings ratio and is one of the most common tools investors use to figure out if a stock might be worth buying. But what does it actually mean, and how do you use it?

What Is the P/E Ratio?

The P/E ratio compares a company’s stock price to how much money the company earns. It helps investors determine whether a stock is overvalued, undervalued, or fairly priced by comparing the company's current share price to its earnings per share (EPS). 

In other words, it shows how much investors are willing to pay for each dollar of a company’s earnings.

P/E formula

P/E Ratio = (Share Price / Earnings Per Share)

We can calculate the Earnings Per Share (EPS) by taking the company’s total profit (after taxes and preferred dividends) and dividing it by the weighted average number of common shares that people can buy during a specific period.

Types of P/E Ratios

There’s more than one way to look at the P/E ratio. Each version gives you a slightly different view:

Trailing P/E: Based on the company’s earnings over the past 12 months. This is the most commonly reported figure and reflects actual performance.

Forward P/E: Uses predicted earnings for the upcoming 12 months. It’s based on what analysts estimate and expectations.

Absolute P/E: This is just the basic P/E calculation—current price divided by the latest EPS—without comparing it to anything else.

Relative P/E: Compares a company's P/E ratio to a benchmark, such as its industry average or historical performance.

Interpreting the P/E Ratio

Understanding what a P/E ratio means requires context. A high P/E ratio might suggest that investors expect high earnings growth in the future and are willing to pay a premium for those expected profits. On the other hand, a low P/E ratio might indicate that the stock is undervalued or that the company is facing challenges.

However, a "high" or "low" P/E ratio can differ depending on the sector or industry. For example, tech companies often have higher P/E ratios compared to utility companies due to their growth potential.

Why the P/E Ratio Matters

The P/E ratio is a quick way for investors to gauge a stock's valuation. It's especially useful for comparing companies within the same industry. For instance, if two companies are in the same sector but one has a much higher P/E ratio, investors may investigate whether the premium is justified by stronger growth expectations or other factors.

The P/E ratio also plays a role in:

Screening: Investors may use the P/E ratio to filter stocks that are potentially undervalued.

Evaluating historical trends: Comparing a company’s current P/E ratio with its past can indicate how the market’s view has changed over time in relation to that company.

Benchmarking: Comparing the P/E ratio to industry averages or the broader market can help provide context for whether a stock is reasonably priced.

Limitations of the P/E Ratio

As useful as the P/E ratio is, it’s not perfect and should not be used in isolation. There are a few limitations to keep in mind:

It doesn’t work if earnings are negative. If a company is losing money, the P/E ratio doesn’t really apply.

It doesn’t show growth differences. A higher P/E might be acceptable for a high-growth company, whereas a lower one might be suitable for a mature company with steady earnings. Context matters.

It can be manipulated. Companies can sometimes change the way they report earnings to make things look better than they are.

It ignores other factors. The P/E ratio does not consider debt levels, cash flow, or other fundamental factors.

So, while it’s useful, you should always look at other numbers as well, like revenue, profit margins, and how much debt the company has.

Comparing P/E Ratios Across Industries

P/E ratios can vary a lot depending on what kind of company you’re looking at. That’s why it’s important to compare businesses within the same industry. For instance:

Technology sector: These often have higher P/E ratios because they’re expected to grow quickly.

Utilities sector: These usually have lower P/E ratios because they have steady, predictable earnings.

If you compare a tech company to a utility company just by looking at their P/E ratios, you might get the wrong idea.

P/E Ratios and Cryptocurrency

You might wonder if the P/E ratio works for things like Bitcoin or other cryptocurrencies. The short answer is: not really. P/E ratios are meant for companies that produce clear profit reports because you need earnings to calculate the ratio. Most cryptocurrencies don’t produce earnings reports in the way businesses do. 

However, in some areas of crypto—like decentralized finance (DeFi) platforms that earn fees—analysts sometimes use similar ideas. For instance, they could evaluate the cryptocurrency price in relation to how much the platform earns from fees. These are still experimental and not widely used yet, but they show how people are trying to bring familiar finance concepts into the crypto world.

Closing Thoughts

The Price-to-Earnings (P/E) ratio is a widely used metric that offers insight into a stock’s valuation by comparing its current price to its earnings. It helps investors understand whether a stock is priced fairly based on its earnings potential. While the P/E ratio is not perfect—and shouldn’t be used alone—it’s a great starting point for those who want to evaluate stocks.

Further Reading

What Is a Yield Curve and How to Use It? 

What Is Basis Trading and How Does It Work?

What Is Technical Analysis?

How to Read the Most Popular Candlestick Patterns

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Products mentioned in this article may not be available in your region. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.