As the bullish trend in the cryptocurrency market continues forward, even as pullbacks and consolidations have caused a pause in the bullish price movements of Bitcoin and Ether, the cryptocurrency market continues to innovate and deploy new products and services. One such product that has recently attracted investor interest are cryptocurrency projects that have posted more than 115 billion pips to date. Any product experiencing such rapid growth deserves additional analysis and critical examination; This is especially true for the cryptocurrency sector. Bulls like the one that has occurred since the launch of spot bitcoin ETFs can be reminiscent of previous bull markets that helped create many new innovative products, services, and entire organizations.
However, new products and services are not universally sustainable and are not good indicators of the health of any asset class. The recent bull market, in which Bitcoin and other cryptocurrencies traded at all-time highs, coincided with the rise of the non-fungible token market, a slew of decentralized finance initiatives, the explosive growth in staking services, and the rise of FTX. Bull markets in any asset class can mask faulty business models, allow bad actors to take advantage of overall positive sentiment, and ultimately hurt investors.
This does not mean that the crypto point phenomenon is guaranteed to harm investors, but it is certainly worth taking a closer look at these new products. Let's take a look at a few of them.
What are encryption points?
The definition and description of Crypto Points will vary from project to project, but the working definition is that Crypto Points are off-chain tokens given to users of a platform or project as a reward for certain activities. These point rewards are commonly posted before an airdrop occurs so that users are aware of the specific actions that will be rewarded, even if airdrops are not guaranteed. In other words, these points can be compared to rewards points, miles or other existing offers that sellers offer to customers based on usage or other actions.
Several follow-up points to raise include 1) is issuing these points off-chain a taxable event, 2) is there a way to verify the total amount of points issued, 3) is there a central repository of point recipients to track individual status as well as total holdings as is the case On a permissionless blockchain, and 4) Is there a worksheet or reviewable map of how to connect the dots to actions, which in turn connect to future airdrops? Every project and points issuance system is different, but ambiguity seems to be the trend when trying to address these elements.
Do pips create volatility in cryptocurrencies?
Like every other bull market and the rapid rise in cryptocurrency valuations, the rapid rise in the cryptocurrency pips market has led to trading, secondary markets and other volatility-driven activities by investors seeking to make profits in the fast-growing space. Although not considered in and of itself a sign of any unethical activity, traders and the volatility associated with these still new assets can lead to losses and further questions about the stability and trading uses of these pips.
This pattern is based on previous trends in the market. Specifically, CoinDesk had to shut down its DESK token because traders created secondary markets for trading, even though this behavior represented a direct violation of its terms of service. Point trading has developed in a similar vein, with the bulk of trading taking place on Whales Market and Pendle Finance. Adding to the complexity of these markets is the fact that 1) traders are not always trading for the rights to the points themselves, but are often trading tokens that will be issued in relation to the points, and 2) leverage is what drives these trading patterns, in some cases. of traders achieve 74x leverage in certain situations.
The combination of creating derivatives in a new asset class and high leverage multiples can create a situation that can leave investors in times of market uncertainty or recessions.
Points may repeat past mistakes
Another important concern that cryptocurrency investors interested in pips should be aware of is the risk that the pips market is already showing signs that were present in previous ventures during bull markets. The lack of information available to investors regarding issues such as total point issuance, airdrop redemption percentages, or even data associated with the specific actions that will trigger a token issuance, creates an opaque market. Additionally, the leverage that already exists, combined with the constant search for yield that has long been a feature of cryptocurrency projects ranging from stablecoins to DeFi, has a track record of encouraging increasingly risky behavior.
This does not mean that point markets are doomed to failure, on the contrary. Instead, investors should take an objective look at market trends, what these instruments actually represent, and how to avoid the mistakes of previous bull markets.
Cryptocurrency pips are a fast-growing past in the crypto asset market, but investors should be careful not to repeat the mistakes of the past in previous bull markets.
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