When the Music Stops: Price Support and Liquidity After the Token Sale Ends
Despite the expanding interest in cryptocurrencies, the truth is that most altcoins are failing. While some fall victim to poorly designed business plans and/or faulty adoption strategies, many altcoins are the product of outright scams. One thing they all have in common, however, is their attempt to emulate the success of Bitcoin. Very few altcoins have managed to ignite the kind of interest that propels a cryptocurrency from a mere novelty to something that captures the attention of industry giants and world leaders.
What’s so Great About Bitcoin Anyway?
2017 has been a banner year for Bitcoin. In December alone, the digital currency posted gains of more than 65%, starting the month trading at just under $10,000 and – after a brief spike into the $18,000 range – settling into the $16,000 – $16,500 range at press time. Overall YTD gains for Bitcoin, which started out the year at around $960.00, are even more impressive at over 1600%.
What makes the recent price hikes in Bitcoin not only feasible, but sustainable as well, is the tidal wave of buying demand being realized with a limited and finite supply of bitcoins, as cryptocurrencies, a digital asset, entering the mainstream. This tidal wave has investors looking to diversify into other currencies in the hopes of getting in early on the “next” Bitcoin. Unfortunately, with the crypto-space glutted as it is with so many altcoins, it isn’t always easy to separate the coins with real potential from those with a slick marketing campaign but which tend to fizzle once they get listed on exchanges.
Why So Many Altcoins Fail
Where cryptocurrencies as a whole currently fall short is in institutional support. Consider the mainstream financial sector for a moment. With conventional offerings like IPOs (Initial Public Offerings), once a company’s shares are listed on a stock exchange, they are usually supported by “market makers”.
In fact, many exchanges – including the New York Stock Exchange and Nasdaq – require that each IPO have at least 3 or 4 market makers. The purpose of a market maker is to buy and sell shares of a company’s stock throughout the day to stimulate trading of that stock. Goldman Sachs, Morgan Stanley, and JP Morgan Chase are all examples of market makers.
In a peer to peer decentralized system, there is no equivalent support mechanism. As a result, most ICOs wither upon listing because nobody is actually focused on price support or stability.
How One ICO is Doing it Right
So how can a company offer price support and stability to a coin post-ICO without a conventional market maker in a peer to peer decentralized system?
They can take a page from 4NEW‘s playbook. 4NEW is a blockchain-based Waste to Energy platform whose entire business model is reverse engineered for aftermarket price stability and liquidity in its coin, without the need for market makers. They have already successfully raised more than $30 Million in institutional funding through conventional means to build a Waste to Energy plant and have recently launched their crowdsale where they are seeking to raise $9.5 million. There are currently just 2 days remaining until the end of their ICO.
The Waste to Energy plant that 4NEW will be building not only solves two important social and environmental concerns, those of waste surplus and energy shortfall, it also ensures widespread adoption of FRNCoin (4NEW’s cryptocurrency).
Once completed, all sales generated from the Waste to Energy plant will take place on the 4NEW blockchain with the ability to make and accept timed payments between businesses. Additionally, because adoption of FRNCoin is already being established well in advance of the launch of the first plant, a strong foundation of demand is being “baked” into the coin, offering pricing stability and consistent liquidity.
Beginning in 2018, FRNCoin is set to be accepted by a growing network of businesses in the Healthcare, Pharmaceuticals, Health Insurance, Telecommunications, Credit Card processing, and Money Transfer Services industries. New businesses and industries are expected to be added continuously throughout the year. When consumers purchase the FRNCoin to avail the goods and services offered by these businesses, an organic demand will be generated in the coin that is focused on utility and not on speculative trading. This organic demand will bring new liquidity into the marketplace for the coin, offering price support.
As a result, there will always be consumers making a market for the coin, replacing the market making function offered by institutions. Since conventional institutional support is not suited for a peer to peer decentralized system, there needs to be the kind of peer to peer market making – like that of 4NEW – that supports the coin’s price without engaging in speculative trading.
As 4NEW continues to add more business consumers to its coin, a Top-Down approach to widespread adoption and utilization will begin. This will permeate through to the masses over time, leading to another successful cryptocurrency very similar to Bitcoin. In fact, the only real difference between Bitcoin and 4NEW is their adoption approach.
Bitcoin experienced a Bottom-UP path to adoption where, by virtue of the people (the crypto community) adopting the coin, businesses found themselves having to adopt it as well in order to stay competitive. This methodology takes longer, however, it has also given the community an awareness and wider acceptance of cryptocurrency today.
Like Bitcoin, 4NEW will act like a store of value over time, however, it utilizes the Top-Down approach to adoption. A market for the adoption of its FRNCoin is already being established across several industries so that, at the conclusion of the ICO, token holders will be able to use the coin as a means of payment. The credibility of this offering is further cemented by the company’s recent affiliation with the Imperial College of London, a 110-year old academic institution with a pedigree track record.
Nobody can guarantee the future performance of any token or ICO project, of course, but 4NEW appears to show all the signs of becoming a lasting example for future success stories within the cryptocurrency community.
What do you think of 4NEW’s market making strategy? Would a similar system help shore up and stabilize other cryptocurrencies? Let us know in the comments below.
Images and media courtesy of 4NEW, AdobeStock