Rehashed - #8 Crypto Markets: Sell in May and Go Away?
All things Airdrops
Recently, Centrality has announced an airdrop of SingularX tokens (SNGX) to CENNZ holders. I will refrain from commenting on CENNZ today, but such an event brings up the topical subject of airdrops, which are becoming a widely employed mechanism in the crypto space.
Airdrops are utilized for a variety of reasons; most notably serving as a distribution and marketing ploy to reach a wide audience of future network participants. In an airdrop, a project’s creators take a snapshot of a public blockchain on a specific date and send native tokens to all wallet addresses at a pre-specified ratio. For example, “as a gift to the community” the NEO council recently airdropped 20 million Ontology (ONT) tokens to NEO token holders. This creates upwards price pressure (at least in the short-term) for NEO and benefits Ontology by distributing ONT to a broad global audience.
More recently, as the regulatory environment matures, airdrops are becoming an alternative distribution method to an Initial Coin Offering. As regulatory scrutiny increases, many projects are doing everything they can to avoid the ICO model, where they risk selling tokens as unregistered securities.
A little bit of context- in the U.S. the determination of a security involves revisiting the Howey vs. SEC case in 1946, which has become the industry benchmark in determining whether a transaction is an investment contract or not. The Howey Test rules that an asset is a security if it is actively promoted by a third party and there is the expectation of future profits.
The crux of the matter is that because many crypto projects have raised through ICOs before even launching a product, they bear strong resemblances to securities. Unfortunately for many of these ICOs that have successfully deployed, they are currently under federal investigation for selling unregistered securities. All eyes are on the SEC; the regulatory response to cryptocurrencies in the U.S. is likely to set the precedent for international markets, NZ included.
But I digress- let’s get back to airdrops. Projects looking to raise in the current environment have the unfortunate conundrum of balancing private offerings (raising money from venture capitalists, which fits under current regulatory schema) with providing investment opportunity to the wider public- something crypto has prided itself on since its inception.
Airdrops have typically been employed as a creative way to initiate a broader base. Now they have morphed into a mechanism whereby projects “give away” tokens to distance themselves from the possibility of having conducted an unregistered securities offering. However, projects should be reminded that airdropping isn’t a clear-cut free pass and may still be in violation of U.S. securities law. Coincenter notes that airdrops have occurred in the past with stocks and the SEC did not respond favourably. Regardless of regulation, the increasing use of airdrops as a distribution mechanism may provide further investment opportunities in the cryptocurrency market; as the holder of a token receiving an airdrop, you are essentially getting free exposure to new projects.
Sell in May and Go Away
Sell in May and Go Away is an old Wall St. adage used to describe the seasonal decline in the equities market around this time every year. Equities generally experience a May sell-off, which apparently, isn’t at the hand of any one particular factor.
What’s interesting, is that cryptocurrencies (in their non-conformity!) have historically experienced the opposite trend. If we consider the historical market performance of the month of May, Bitcoin has notched positive returns five out of the past seven years. Tom Lee of research firm Fundstrat has cited Consensus, an annual flagship crypto conference held in New York each May, as being a positive market catalyst. This year, Lee expects “the Consensus rally to be even larger than past years,” largely due to the significant increase in conference attendees.
We certainly aren’t seeing the “Consensus rally” yet- in fact, market behaviour may indicate that the Mt Gox seller is back in action (as part of the Mt Gox bankruptcy proceedings, the trustee has been tasked with selling over 200,000 bitcoins and converting it to Japanese yen by local financial authorities). This week's market movement suggests that a May sell-off could be applicable to crypto this year and that the bear market may have resumed its path.
Time will tell, but let’s not end this week on a negative note! A recent Bloomberg deep dive has shown that the cryptocurrency markets have impressive liquidity. In fact, Bitcoin trading volume surpasses volumes of all U.S. equities, bar Amazon (AMZN) and Apple (AAPL).
In the News
China-based smartphone maker, Huawei, is releasing a bitcoin wallet in its application store. This is a big deal, as instead of new adopters having to go through the operational hurdles of installing their own wallet, they will have an easier means of access to owning bitcoin.
Facebook has announced that they are building a dedicated team to blockchain. The jury is out on whether we may see a $ZUCK token in the future.
Bloomberg and Galaxy announced the launch of an index designed to track the performance of the largest, most liquid portion of the cryptocurrency market.
With economic sanctions in Iran, citizens are turning to cryptocurrency to get money out of the country.
An inside look at Xapo, the secretive bitcoin custodian, who has built a network of underground vaults on five continents. (This is me purely speculating here but I suspect they may have a vault in the South Island).
Large Korean exchange Upbit was reportedly raided over fraud concerns.
May 14 - Understanding Blockchain Through Analogy at the Grid AKL
May 11-18 - Blockchain Week, NYC
May 22 - Stellar Meet Up in Christchurch
May 19-27 - Techweek NZ, events are up and down the country
Thanks for your company, stay tuned for next week’s edition of Rehashed.
View previous issue: Rehashed #7 Institutional Enthusiasm for Crypto Expands
View next issue: Rehashed - #9 Parties and Pitches: The Cryptocurrency New Norm
About the author:
Capital markets to crypto convert. From Christchurch → Boston → New York, Freddie became intrigued by the potential of the digital asset economy after plucking a book on Bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.
Disclaimer: The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.