For those viewing ERC-20 tokens as potential investment opportunities, now may be the time to pay a little more attention. In the period of 20 days from September 7 to 27, 2018, a sample of 574 ERC-20 tokens was extracted from the Ethereum A data set was observed. The average price of these tokens in US dollars, weighted by their market capitalization, was calculated for each day. Below is a visualization of this data. The labels in the table show the percentage change since September 7th.
We see that a weighted average portfolio would have risen 28% since September 7th and had a maximum drawdown of just under 38% since then. Since September 17, the ERC-20 market for bulls has done well. Additionally, 198 of the 574 tokens observed here – or roughly 34.5% – are above their 20-day moving average, suggesting a solid cohort of tokens that are showing some momentum.
Now for the obvious question: why are these tokens increasing?
First, it doesn’t appear to be a dynamic or trend per token, as there is essentially no correlation between the percentage change of a given token and its market cap, suggesting that both small and large tokens are increasing. In other words, the collective increase in the sample of 574 ERC-20 tokens is not the case that a few large tokens are raising the entire portfolio. Returns do not correlate with market capitalization. The following table shows.
Second, there doesn’t seem to be any discernible correlation between the growth in transfers logged on the Ethereum blockchain and the price change. The following table shows.
For those who believe in the utility hypothesis – namely that tokens that are used more frequently increase in value – it may be worth investigating tokens that are in the form of transactions logged on the Ethereum blockchain, see a greater benefit. Perhaps the hypothesis is correct, and the lack of a correlation between supply growth and growth in returns indicates a mispricing of the market and hence an investment opportunity. For crypto investors with such persuasiveness, the following graph may be of interest: It shows the 198 tokens that have momentum in the sense that their price is above the moving average, and their percentile of the transfer growth rate (after adjusting for market capitalization ) that higher market capitalizations were penalized; mathematically we took the transfer growth rate and divided it by the natural logarithm of market capitalization).
From this perspective, tokens in the lower-right corner of the chart – those that saw high growth in market cap-adjusted transfers compared to other tokens but not seen a reasonable increase in price – may be an opportunity that is in line with the prospects of those who do this embrace the utility hypothesis.
Featured image: DepositPhotos / Limbi007
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