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Learn to Ace Crypto Trading😉 #2
Nisha Ramesh
October 25, 2022
Good Morning Switchers,
👋 Welcome to Switch Daily.
Catch the match on Sunday? Kohli delivered the best diwali gifts for Indians! Speaking of gifts, Chainalysis dropped a crypto usage report over the weekend—India records the highest crypto activity in the South East Asia region receiving $172 billion in cryptocurrency value from July 2021 through June of this year.
And BTW, Happy Diwali folks! 🪔
Here’s what we’ve got for you:
Market pulse
Day 2 - Tokenomics 101
Not so boring news
Meme of the day
Market pulse 📈
The market is feeling bearish 🐻
Bringing its three-day winning streak to an end, the crypto market saw a bearish start this week. The total crypto market cap was at $888.3 billion at the end of yesterday’s session a, growing October’s deficit to $16.7 billion. The bearish sentiment in the crypto market during yesterday’s session can be a reaction to the weighing of political updates from China and EU and US economic indicators.
Coin of the day: Bitcoin
Bitcoin (BTC) avoided the first resistance level of $19,000 for the third time consecutively despite falling short of $20,000 for the 17th day in a row. Bitcoin mining difficulty rose by 3.44% higher, reaching an all-time high.
Let’s become a kick-ass trader! #2 👨💼
Ever had a moment where you felt like you could be the Rakesh Jhunjhunwala of crypto trading, but when you started your portfolio drove from Jhunjhunwala to dandanaka levels? 😬
Atleast we have, but that’s before we got to know the secret sauce to sniff out the best crypto projects from the dump—Tokenomics. We spilled half the secrets i.e, the supply side of how to tokenomics in Friday’s issue. Check it out if you haven't already.
Today we will talk about:
Demand
Value accrual
How to Tokenomics
🪙Demand
Why does anyone want to buy a crypto token? Four reasons:
Benefits for holding → Demand increases when a coin offers incentives for holding such as interest on staking, yield farming rewards, etc.
Store of value → If people believe that the value of a coin will increase in the future, the demand for that coin will also increase. For example, most folks hold BTC as a store of value.
Utility → What value does the crypto project add? If the project is able to provide utility beyond the token itself, the demand for such coins can rise. For example, Ethereum’s blockchain provides a platform for Dapps to build on, this utility has driven ETH’s demand and has made it the second-largest crypto in the world.
Community → Dogecoin is proof that when there is a strong community behind a crypto token, the demand for that token rises even if it does not provide any utility or store of value.
When you are trying to assess a crypto token, you may want to check which factor is driving its demand. The best tokens atleast have two or three of these factors driving their demand.
For example, Bitcoin = store of value + community; Ethereum = Utility + Community + Benefits for holding (after moving from POW to POS).
One more thing you want to check is, who is holding the existing tokens and why? Coz, if the majority of the tokens are distributed among a few big money bags, even one sell-off can impact the coin’s value greatly.
🪙Value accrual
It explains how a token will gain value over a period of time. We can say that a token has a good value accrual if it has
Low inflation or deflation → Meaning the supply of tokens decreases, but the demand increases.
Lock-in period → A lock-in period ensures that investors hold their assets for a while. Locking in is a great value accrual tool coz it practically guarantees that there are holders for the project. It also makes sure that the supply is temporarily locked away, i.e the number of coins in circulation will be lower making its value go higher.
Utility expansion → If a project that was meant to do X things expands its utility to 5X, its value will automatically rise.
Make sure that the value of a project is rising over time due to one of these factors before making a trading decision.
🪙How to Tokenomics?
Well, it's quite simple really. Here are some thumb rules.
✔️ Over 75% of the coins must be in circulation, if not make sure that the emission rate is high.
✔️The tokens should be ideally allocated among various parties like VCs, early investors, the team, the public, etc.
✔️Study what drives the token’s demand - utility, community, store of value, or benefits to hold. Atleast two or three of these factors must drive demand.
✔️A good token must be capable of gaining value through low inflation, a lock-in period, or utility expansion.
Follow them and you should be able to differentiate between good crypto projects and crappy ones.
But, there is no one-size-fits-all in investing/trading. There may be some exceptions where a coin does not fit our thumb rules but could still be a good project. In such times, you may just need some extra DYOR!
What making the headlines? 🤔
The first Indian-origin UK president is also a firm crypto believer. He also oversaw the drafting of the Financial Services and Markets Bill, which is now making its way through Parliament and promises to provide a regulatory framework for stablecoins and crypto assets.
ARK Investment Management CEO Cathie Wood said she purchased $100,000 worth of bitcoin (BTC) when it was trading around $250 hasn't sold any of that initial investment. Meaning her current profit on that $100,000 bet would be around $7.6 million.
American car manufacturing company Tesla has announced that it plans to hold on to its $218 million in Bitcoin (BTC). The vehicle manufacturer company is one of the largest institutional adopters of BTC.
German virtual bank N26 will be launching a crypto trading service. Making its entry into the crypto space, N26 will be kick-starting its service in Austria before rolling it out to other countries over the next six months.
Meme of the day
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See you tomorrow, folks. 👋
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