In digital assets, wild rides across the canyon of crazy are not unheard of. But the penultimate week of June has shown us some of the more mentally challenging this year. From a price of about $350 or so, Ethereum flash-crashed to just $13 before major exchanges and wallets such as Coinbase began freezing withdraws. A day later ETH was trading back in the mid-$340s.
It’s likely little coincidence that in the same 24-hour period, 80% of the top 10 digital asset climbers fall within a range of just 3.3% of the entire market. Further, prior to leaping out of the gate, 9 out of the top 10 digital asset performers fell between positions 60-70 on the digital asset leaderboard (comprising around 900 in total); that is less than 1.5% of the whole market.
Needless to say, when 2-3% of a specific range in the market harbours 80%-90% of the Top 10 leaderboard performers within the same 24-hour period that the second largest asset falls 96% in value, there is clearly a case of Coeval Value at stake. So what is going on?
In the past one month period, there’s been a tremendous amount of money raised in ICOs, with decentralised “banks”, “financial firms” and the like grabbing well in excess of $50 million to $100 million in funds each. Most of the funding has been in the form of ETH.
Clearly, such firms find themselves in somewhat of a binary position: either they sell some of their ETH over time and reduce the comparative demand-side liquidity progressively over a period of a few weeks, thereby decreasing their own balance sheet wealth, or they sell directly into the market all at once in chunks and, instead of cashing out entirely into USD or some other FIAT, the newly-minted decentralists reinvest into the Crypto market at a more diversified, opportune point.
The latter appears to have at least been part of the strategy of firms such as Bancor and digital exchange Poloniex.
If you compare the correlations between the various headline factors of the Top 10 risers at the end of the past week, you see there is virtually no correlation at all between them insofar as market capitalisation, price, units or even percentage rate of change is concerned. Where there is huge correlation however is in the positioning of such assets on the leaderboard. Specifically, 75% of them are less than 20 places away from 67th place.
Clearly, the ICO beneficiaries are stashing money into a very specific pocket of the market – somewhere under 100th place but over 50th place on the leaderboard. It is here that many coins such as Peercoin are lurking about (which I have written about in the context of ICOs before, pointing out how it was an ideal post-ICO beneficiary asset). Peercoin, Namecoin, Reddcoin (which has a big jump only recently), replete with thriving user communities and vintage Blockchain networks dating back to 2013-14 are to be found in this exact bracket in fact.
For an investor trying to offset the “network risk” of ETH, such bets make perfect sense – they provide diversification away from events like those caused by the rampant selling, and focus capital instead on assets with wider rims of price stability that still have a lot of room left to improve.
Daniel Mark Harrison is a Chairman & Chief Executive Officer of global investment company Daniel Mark Harrison & Co. (DMH&CO), a Family Office with offices and active operations in Singapore, Bangkok and Hong Kong. He is also Managing Partner of FinTech and blockchain venture capital firm Monkey Capital as well as the author of The Millennial Reincarnations, a novel published in 2015.