Read Part 1 of BTCManager’s series on Airdrops here.
Airdrops and coin forks have become the hottest new craze within the crypto community. Many airdrops and coin forks have recently taken place with even more lined up for the next few months. Many questions arise when airdrops are analyzed. What is their purpose? Are they a benefit or detriment in the short- and long-term? What is the impact on the underlying cryptocurrency and reaction from the entire markets?
Airdrops, Bombs Away!
Airdrops have become a hot new topic of 2018 with one occurring at least every month. The most recent one was the airdrop of ONT (Ontology) to NEO (NEO) holders occurring March 1, 2018. There are many more coming up in the next few months including one of SHL for PRL (Oyster) holders and an ICO kicking off with an airdrop to members of their community; Solve.Care. It seems cryptocurrencies are using airdrops more and more for a multitude of reasons.
When the impact of an airdrop is analyzed, it becomes fairly clear they generally increase the value of the underlying tokens in the period prior to the airdrop. However, is there a purpose besides giving a dividend to prior crypto holders while increasing the underlying crypto’s short-term value? Of course, airdrops are everything from a nice dividend to a fantastic advertising strategy. Very few times can individuals get “free” money in any market. Airdrops provide just that, free money. Yes, this money is cryptocurrency, but they all have tangible, actual value. There are multiple types of airdrops impacting the underlying cryptocurrency dramatically. They range from a nice dividend providing a short-term price increase for the underlying cryptocurrency to a fantastic and unique way to spread the world about a new crypto.
To partake in an airdrop is exceptionally easy. The majority of the time the recipient of an airdrop has one sole requirement. Possess the specific underlying crypto stored in your wallet. For the NEO example, NEO had to be held in a wallet to receive the airdrop. With participation exceptionally easy and holders enjoying the free dividends; what could go wrong?
It is exceptionally important to understand the positives and negatives associated with airdrops. Different types of airdrops have different results and impacts on the airdropped coin, the underlying currency, and the general market’s perception of them.
NEO/ONT Case Study
To understand how an airdrop impacts both the underlying crypto (NEO) and the airdropped coin (ONT) it is essential to analyze at least one case study of the different types and purposes for an airdrop. The timeline is very important to understand the benefits and risks of the associated airdrop. Timelines have the ability to demonstrate price fluctuations over an extended period of time providing an understanding of market reactions to airdrop announcements and as the date approaches.
The ONT airdrop to NEO holders was announced on February 12, 2018. February 6, 2018 NEO was trading as low as $66. The day before the announcement of the ONT airdrop, February 11 NEO was trading at $97. February 12, following the announcement NEO was trading above $114. That is an 18 percent increase in under 24 hours. Within the week NEO had spiked to over $140 on February 20, 2018. On February 28, the day before the expected airdrop NEO peaked at over $143. By March 2, 2018, NEO had already touched $123. NEO had a rough week with articles painting the SEC regulations in a negative light dramatically impacting ICO related cryptos. NEO took a battering and is currently traded at $72 per crypto with a market cap of $4.6 billion.
The day before the airdrop NEO was trading at $97 the day after the airdrop NEO was trading at $123. However, these numbers are misleading because two major things occurred during this period. The overall market corrected substantially from a low on February 6, and the airdrop caused both a pump and dump in the price of NEO. The day of airdrop announcement the price of NEO pumped up over 18 percent in 24 hours and 70 percent in 16 days. However, from the day before the airdrop to 24 hours later NEO fell 19 percent and since has fallen a total of almost 50 percent.
It is exceptionally evident airdrops have the ability to dramatically increase and decrease the price of the underlying cryptocurrency as was witnessed with NEO during the airdrop. The key is to learn from past events to understand how to trade them efficiently. NEO’s airdrop was clearly intended to provide a dividend of ONT to NEO holders while providing ONT the exposure of every NEO holder now both owning and understanding what ONT is. This airdrop was able to shift NEO substantially both positively and negatively while providing great exposure for ONT.
As an Advertising Method
The NEO airdrop was equally important as an advertising event for ONT as it was as a dividend for NEO holders. However, when new ICOs begin an airdrop has become one of the go-to methods for an advertising campaign. This is a fairly inexpensive way of providing a token which hopefully will appreciate in value to the new members of the ICO’s community. Usually, there is no cost associated with the airdrop solely the participation in the underlying ICOs community.
An ICO that is just starting April 1, 2018, Solve Care. Is using an airdrop of their tokens to build their community. Their CAN tokens are selling for $0.10 when the ICO begins, and their airdrop provides 100 tokens to all community members who follow their listed process (join their Telegram and create a profile on their website). Is the process worth $10 per person? It depends. This pricing is pre-ICO pricing. What if following the ICO CAN is trading at $1? There are only 350 million total tokens providing a $350 million market cap if CAN reaches $1.00 per crypto. At $10.00 in value for the airdrop, there is not ‘huge’ value in the airdrop, but if the coin appreciates this can be a very easy few hundred dollars. With no risk to joining a Telegram channel and free money waiting to be sent to a wallet, the crypto communities react to airdrops with exuberance. Solve Care is not the first to consider airdrops to spread recognition regarding their project.
POLY (Polymath) is another crypto that has a market cap over $150 million. Following their ICO they also provided an airdrop to crypto holders based on those who joined their community, referred friends, etc. This helped build POLY’s community to thousands of individuals from what had previously been an unknown crypto. Airdrops build major awareness for the underlying tokens while also providing a nice “freebie” to those partaking in the airdrop.
Clearly, an airdrop of tokens for joining a community is an advertising campaign wonderfully disguised. Airdrops seem to benefit the underlying crypto and the community as the crypto is able to build a strong community while spreading the word regarding their new project.
Airdrops Are Great for the Crypto, Great for the Community and Horrible for Volatility!
The title is literally the perfect conclusion when analyzing airdrops. They are provided at no cost to the underlying token holder or for completing a set of tasks. Most traders love “free coins” so the communities are generally very happy to receive free tokens. The cryptocurrency being distributed via airdrop is also receiving huge amounts of publicity and exposure allowing market saturation and penetration to take place. Both the overall crypto community and airdropped crypto benefit significantly from an airdrop.
However, there is a loser, if you can call it that. For those that are opposed to volatility the underlying crypto that is receiving the airdrop will undergo extreme volatility during the period following the airdrop announcement and once again following the airdrop’s occurrence. There is an straightforward solution to this. If you own a crypto prior to an airdrop announcement enjoy the run-up in price that takes place following the airdrop announcement and sell before the airdrop.
Volatility is a major aspect of the crypto atmosphere. Airdrops increase volatility in the short term but also provide a wide range of benefits to the community and airdropped crypto in most cases.
To read the King’s prior articles, to find out which ICOs he currently recommends, or to get in contact directly with the King, you can on Twitter (@JbtheCryptoKing) or Reddit (ICO updates and Daily Reports).
Take a look at BTCManager’s series on Airdrops here.