Pre-Launch Token Trading: High Volatility, High Risks Rewarding for Some Investors
Summary:
The trend of pre-launch token trading is growing among cryptocurrency investors, despite its high price volatility. Cryptocurrencies like Wormhole and Jupiter experienced extreme pre-launch volatility. According to a Keyrock report, understanding the impact of market liquidity on a token’s volatility is necessary for calculated risk-taking. The report also highlighted that most pre-launch markets are unprofitable due to increased volatility. Nonetheless, a large number of high-risk investors continue to participate in pre-launch trading with hopes of achieving higher returns.
An increasing number of investors in the realm of cryptocurrency are becoming attracted to pre-launch token trading, a trend that brings with it a level of price volatility that can be up to 20 times higher than post-launch trading. Prior to their token generation event (TGE), crypto coins such as Wormhole's (W) recorded a staggering 3,000% volatility, compared to a more modest 100% just one week after launch, as illustrated by historical volatility calculations, which are influenced by the seven-day standard deviation and return rates, using volume-weighted-average-price (VWAP) as a reference point. A similar story can be seen with Jupiter (JUP) token, with pre-launch volatility reaching upwards of 2,800%, only to fall to around a mere 150% one week following public availability, as reported by Keyrock and shared with Cointelegraph.
Keyrock argues that an understanding of how market liquidity impacts a token's volatility could prove useful for investors when considering risk. The noticeable change in market volatility before and after TGE provides a clear demonstration of the significant role that market liquidity plays in market stability. Moreover, it underscores the necessity for a sufficiently deep market for effective price discovery. Meanwhile, offering a valuable measure for both buyers and sellers.
The initial steps of price discovery in the pre-TGE phase have all but vanished due to the lack of liquidity in the pre-launch markets. In essence, price discovery is the effect of buyers and sellers naturally designating the price of an asset. Keyrock believes that there is no price discovery without liquidity.
Despite the obstacles faced by pre-TGE trading in terms of both liquidity and volatility, a rising number of risk-prone investors remains drawn to this form of trading. They aim to take a first-mover advantage to gain exposure to new crypto projects with the expectation of lucrative returns.
It has been observed that a surge in pre-launch purchases, particularly among substantial investors (also known as whales), correlates with the Fear Of Missing Out (FOMO) on potential investment opportunities. This often leads to whales buying at relatively high prices.
Keyrock states that the Whales Market presents a contrasting narrative, witnessing a significant surge only days before the TGE. Likely driven by an overpowering wave of FOMO, buyers account for a remarkable 80% of market activity.
However, the high volatility observed in these markets tends to render most pre-TGE markets unprofitable for buyers. Despite this initial upheaval, over 95% of pre-token investors in Ethena Labs’s (ENA) token and idle game Pixels’ (PIXEL) token have managed to turn profit, thus demonstrating the lucrative potential pre-TGE investing can yield.
The ENA coin has demonstrated an upward trajectory with an increase of 14% since launch, while the Pixel coin has recorded a fall of over 31% since its introduction to the market.
However, not all token launches display such positive results. For instance, more than 60% of the pre-token investors in Portal (PORTAL) have suffered losses, with the token's value falling by over 82% since its launch in late February.
Published At
5/14/2024 4:07:11 PM
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