# The Power of Compounding Crypto

This investment pays me 1% in interest per month! How much will I earn in a year and how can I earn more interest? If you have been looking for the answers to those questions, you have come to the right place!

Today, we are going to discuss the 8th wonder of the world – the power of compounding your interest and crypto. As Albert Einstein once said: ”Compound interest is the 8th wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

Disclaimer: Our content is intended to be used and must be used for informational purposes only. It is very important to do your own research and analysis before making any investment based on your personal circumstances.

## What is compound interest?

For this article, I will voluntarily popularize it as much as possible because not all of us have studied finance or accounting. So to make it simple, compounding interest consists in using your increased capital for the next interest period. In short, compound interest is the interest you earn on interest.

## Sounds complex? Here’s a simple example:

We have an investment opportunity that pays us 1% per month, in a simple interest context, that would give you an annual return of 12% which is simply the sum of the twelve months. For a capital of \$100000, it will bring you \$1000 per month and \$12000 annually.

On the other hand, in the context of compound interest, the interest starting from the second month will no longer be calculated only on the basis of your principal, in this case \$100,000, but on the basis of this \$100,000 plus the first month’s interest, \$101,000. As of the second month, you will thus receive an interest of 1% on a principal of 101000\$ and not 100000\$ and so on as the months go by.

## How to calculate the gain?

By following a simple mathematical formula: K*(1+i)^n where “K” represents your starting capital, “i” the interest rate and “n” the number of periods, here 12 (months).

Feeling overwhelmed? Relax. We will attempt to simplify this. Let’s take the same example: \$100,000 multiplied by (1 + the interest rate) exposing 12. In figures this gives: \$100,000*(1+0.01)^12.

In a compound interest context, your investment will therefore bring you \$112,682.5 at the end of the year.

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## The importance of the time horizon

The longer you put your capital in a compound interest context, the more miracles this mechanism works because its effect is exponential.

Let’s take our example again, \$100,000 at a simple interest rate of 1% for 36 months will give you a total capital of \$136,000 while with compound interest, your total capital would then be \$14,307.87. The difference becomes striking, doesn’t it?

A last example this time for 72 months or 6 years, this will give you a final capital of \$172,000 with simple interest rates while with compound interest, your final capital would be \$204,709.93.

To fully benefit from compounding interest, it is essential that you play the long-term game. Patience is key. The longer you allow your interest to accumulate, the sweeter you gain.

## Compounding interest with the 4C SMART Bots

Our SmartBots at 4C-Trading work a little bit the same way, using all of your available capital for each trade that they execute on your behalf. Of course, the monthly return is not constant and there may be some negative months.

The average return, on the other hand, is well above 1% per month, but to take advantage of these tools, you need to adopt a long-term strategy.

## Should I go all in and forget about it?

Would the best solution be to put all your capital into the SMART Bots? Certainly not our dear community. Although the 4C-Trading SMART Bots are a profitable tool, they do have a certain level of risk, as with any investments.

It is important to assess your level of risk and capital allocation. This is the very reason why we suggest that you diversify your portfolio and not go all in on one SMART Bot. When you spread your trading capital across the SMART BTC, ETH and LINK Bots, you are managing risk with sensibility. In this way, if one bot underperforms due to unforeseen market trends and conditions, there is a chance that the other bots may perform better.

## Conclusion

Fear and greed are high in the world of crypto and it is indeed a very volatile market. Given these combinations, it is no wonder that the market is an emotional one.