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Token Trading Prior to Launch Found to Be 20 Times More Volatile Than After Launch — Keyrock Report

May 14, 2024 at 03:19

Trading tokens before their official launch introduces significantly higher volatility, up to 20 times greater than that seen after the tokens are launched, according to a report by Keyrock.

Cryptocurrencies such as Wormhole’s (W) token exhibited volatility exceeding 3,000% prior to their token generation event (TGE), in stark contrast to about 100% volatility observed a week post-launch. This data was derived from the historical volatility calculations based on seven-day standard deviation returns using the volume-weighted-average-price (VWAP).

A similar pattern was noted with the Jupiter (JUP) token, where volatility soared to approximately 2,800% before launch and then tapered to about 150% after the token was introduced to the market, as detailed in the Keyrock report provided to Cointelegraph.

The report suggests that understanding the impact of market liquidity on token volatility can assist traders in making more informed decisions, highlighting the essential role of liquidity in stabilizing market conditions. The stark contrast in volatility rates before and after the TGE points to the necessity of adequate market depth for accurate price discovery, serving as a vital consideration for both buyers and sellers.

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Keyrock emphasizes that the absence of liquidity in markets before a TGE leads to the vanishing of the price discovery phase, a critical period during which the price of an asset is naturally set by the interplay of buyer and seller activity.

“Without liquidity, there is no price discovery,” states Keyrock.

Despite these challenges, trading tokens before their official launch remains popular among more speculative investors. These early trades are driven by the desire to capitalize on new crypto projects, anticipating substantial returns.

According to Keyrock, significant buying activity before a TGE, especially by large-scale investors or “whales,” is often driven by the fear of missing out (FOMO). This FOMO can lead to whales purchasing at higher prices, as they account for 80% of the market activity just before a token launch.

The report notes that despite the heightened risk and volatility, the majority of pre-launch traders in specific tokens like Ethena Labs’s (ENA) and the gaming token PIXEL remain profitable, with over 95% of investors seeing gains.

As of now, the ENA token has risen by 14% since its launch, while the PIXEL token has declined by over 31% since its launch, according to CoinMarketCap.

However, not all token launches see positive outcomes; over 60% of investors who bought into Portal (PORTAL) have experienced losses, with the token plummeting over 82% since its end-of-February launch.

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