The Tie Research

Web3 Weekly 1/7: Small-Price Fallacies, Regulation, and Semi-Hidden Alpha

By Jack Melnick
April 18, 2023

We're all apes after all...

Intuition, as investors, tells us that the nominal price of an asset shouldn’t matter. What should matter are market cap, team, and strategy. In reality, it turns out that our moniker as apes isn’t too far off. Jackson, a data scientist here at the TIE, did an in depth look at the effect of token price on returns. 

His finding was that “when market participants (usually retail) act on the fallacies around small price bias, it can result in outsized valuations for low price tokens or projects around which misconceptions are common for the uninitiated.” Now, this isn’t too surprising for anyone that’s been around crypto a long time - see DOGE & SHIB as prime examples. But at the same time, I don’t think that the magnitude of the effect has been properly appreciated. 

During bull markets, this effect is magnified by the effects of exuberance and easy ROI. Above shows returns since April 2020 for projects with different starting prices. Low price tokens massively outperform higher price tokens, with the separation in performance accruing almost exclusively during bull markets. The relationship holds statistically even after controlling for market capitalization and other potentially important factors. 

So, next bull market, make sure you’re slurping $ELONDOGEINU at $0.000017 for maximal returns. 

Regulation & DeFi Worth Noting:

This week, Bloomberg sat down with Sam Bankman, CEO of FTX, to chat about the future of crypto. Sam discussed his expectations for 2022- which centered around a first batch of regulation around digital assets. While investor fears around the contents of such regulation are warranted, official regulator clarity will allow businesses and investors to enter the space with significantly greater confidence. 

Despite what I saw as a bullish headline, Bitcoin has been emblematic of a broader pain being felt in cryptocurrency over the last few months. Macro fears around new variants, inflation, and tapering, combined with rising fear have not created the ideal environment for a new blow-off top.

That said, a number of altcoins have fared astonishingly well, earning widespread love in the DeFi community. In particularly- $BTRFLY (+27.1% wtd), $FXS (+27.8% wtd), $JEWEL (+57.6% wtd), $MAGIC (+73.6% wtd) and $rDPX (+95.5% wtd) stand out. Each of the tokens has rightfully earned their recent moves- 

$BTRFLY: Tactical yield operation built on & in conjunction with Olympus. They own a significant share of $CVX, $CRV, and $gOHM. By leveraging these assets, they offer investors a chance to own a stake in the battle for liquidity. 

$rDPX: The Dopex rebate token saw a huge boom in popularity this week, in part driven by its sibling $DPX (+26.1% wtd), but also as investors noticed the huge value accrual it will offer down the line on the platform. $rDPX is distributed based on a set percentage of losses of pool participants each epoch. It can be used as collateral to mint synthetic assets, collateral for margin, and as an almost (dare I say?) Curve-like boost to rewards earned in the pool. 

$FXS: Like $LUNA, Frax Share is built upon a battle-tested stablecoin. Frax made the excellent decision of aligning themselves early with Convex, which will provide a large boost to $FRAX mints over time. As this occurs, $FXS will be burned in equal measure, serving as a significant upward price pressure. 

$JEWEL: One of the current most popular ‘metaverse’ and ‘GameFi’ tokens, DeFiKingdoms is an almost pokemon-esque interface through which one can conduct their daily transactional activity. The Harmony network keeps fees low, and a compelling questing & NFT-based system gives dedicated users real opportunity to play-to-earn.

$MAGIC: Similar to $JEWEL, is a metaverse site where everything is built upon the $MAGIC token. The token can be converted into different items and NFTs, which can also be staked to earn more $MAGIC. The tokenomic emissions structure is interesting & naturally designed to taper over time, and the SmolBrain NFT has seen great traction .

Lots of good opportunities still to be found in this market- just have to dig. Hope everyone is managing the volatility & had a good New Year!

This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The TIE Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; the TIE Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.

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Jack Melnick

Jack Melnick

Jack Melnick, Author at The Tie

VP of Research
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