Exclusive investigation: what do the top 100 losing coins all have in common?

The 100 coins that have undergone the largest value drops in the last six months, even before the last ten days, tend to have some key factors in common…

In the wake of a market correction in the cryptocurrency sector, it’s tempting to blame outside influences on prices.

But when you take a longer view, the fundamentals that cause a coin’s downfall start to become clearer.

We’ve looked back six months to find the coins with the largest value drop and those that have fallen the furthest. What exactly did they do wrong and is there any realistic way back?

How pricing changes

When it comes to price analysis it would be tempting to look only at the fundamentals of a project. To determine a price, we set a reasonable value based how well we like the team, what they’re doing with their technology, and how well we think it will take over the world.

Even with November’s market crash, at the time of writing there is green creeping back across the board and Bitcoin is retesting support levels around the psychologically-important $4000 mark, giving deflated investors some hope for the future.

But with anything quite as complex as market pricing there are likely number of factors outside our immediate view. We know there are known knowns. We just don’t know what the unknown knowns or the unknown unknowns might be.

This would also not sit well with the rampant speculation that has seen the market for the top 10 coins by market cap deflate as much as 80-95% from their all time highs.

We can however take shelter in certain things which cut across all coins, threads common to the biggest losers.

We’re looking only in the last six months, from May to November 2018. The market crash of the post-Bitcoin Cash fork era around November 15 to present does figure in our analysis but it is only one small part of a much larger drop in valuation generally.

What, then, have the 100 coins that have undergone the largest value drop over the past six months got in common?

1…Team Failures, or What Happens When You Don’t Take Care Of The Devs

RChain (RHOC) is a good case in point to get us started. Worth a total of $686m in June 2018 and selling at $1.35, the token now commands a market cap of just $20m at a price of $0.05.

At its peak this blockchain ecosystem had nothing but good press. It was the first cryptocurrency to be used for buying stock in a public company, when Seattle venture capital firm Pithia took a stake in smart city developer DigitalTown. Pithia were the lead investor offering post-IPO equity and handed over $1.2m worth of RHOC in June.

Now, the same investment would be worth just $100,000. In the last six months, RHOC’s price has been a long, slow bleed back towards zero.

For anyone looking closely enough, the signs of stress and duress were there at RChain. In terms of mission statement, this is a co-operative built on the idea of a strong ecosystem where all developers and participants had strong voices and had a stake in the future of the project. If anything the mission is failing due precisely to a lack of co-operation in the co-operative.

And because these projects trade on their transparency, that crypto-idealist dream, the whole bloody mess is played out in public. A lack of communication hasn’t helped matters. Medium posts for official updates stopped around October 19th.

The main reasons that co-operatives fail outside crypto are that shareholders are not incentivised enough to participate, power becomes heavily centralised, the wrong people end up managing the wrong projects, nobody plans for succession when prominent members move on, and there’s a general lack of community or market support for the product.

From the beginning RChain required members to pay a one-off $20 fee, and to spend at least $10 when the platform launched. Members of the co-op would then get a rebate each year depending on how much they used.

According to posts on the official subreddit, lead developers had been fleeing the project in recent weeks.

There’s more in a frank blog post by Joshy Orndoff, former lead of developer education whose role was “terminated along with the rest of the coop’s former marketing organisation. He explains how the situation with RChain became such a “shit show” in such a short space of time.

Most of the community ended up not trusting the management style of the man in charge. That’s Lucius ‘Greg’ Meredith, a longhaired mathematician and doubtless a brilliant technician who, according to his own team, does not have the chops to lead RChain to the bright future it clearly envisages.

“Several prominent people in the ecosystem have split off to form Casper Labs with the goal of making sure the platform is delivered,” writes Orndoff.

“Casper Labs, and most of the community, doesn’t trust Greg’s management and I don’t blame them. “Meanwhile, many in the coop believe Casper Labs is a quick cash grab by its team.”

“Rather than fighting and bickering, what if we have multiple independent teams, each working under their preferred governance style, funded independently from one another. That sounds like a very healthy thing for the ecosystem.

“What if developers were not ostracized for trading sides and held under non-compete agreements, but rather encouraged to work where they were best fit?”

Are there elements here of a potentially good product? Sure. Was it drastically overvalued? Yes, probably. With resources in freefall, the price now down below $20m and investors burned, is there really anything of RChain left to save?

2…Failure To Communicate Success

With great valuations come great responsibilities. Coins and their teams are expected to professionalise and be damn quick about it. Caught up in the hype bubble of speculative trading into nine-figure prices, investors want to see products rolling out to market, and fast.

Which other coins had this failure in common with RChain?

When we look at our list of the top 100 losing coins, there are some projects which look to have the means and the underlying technology to bounce back.

Airswap (AST) appears to be one of the more legitimate coins out there. It took took a hard fall from its May ATH, posting a price of $0.03 on 23 November.

Of course, a rising tide lifts all boats, and any interest in the actual tech was just lost amid price speculation, But the devs are sound, the technical documentation makes a solid case and in mid-October it was rated the best decentralised exchange for security by the usually reliable ICORating.com.

It’s open and appears transparent. All the relevant code is on Github. There are Airswap community projects being maintained ‘out in the wild’, as they put it. Trading volume is reasonable, with  six figures being bought and sold in the last 24 hours and the coin is listed on Binance, Huobi and OKEx.

Where did it go so wrong for Airswap? Developers were accused of lacking transparency for future plans. Perhaps they didn’t come to market fast enough or display how they were going to prop up such a high valuation.

But, and this is a big but, it was not always totally clear how Airswap was going to make its money.

There can be partnership incentives, if there’s no obvious way for the market maker to make money – at least enough money to support a thriving ecosystem.

In truth, convincing an investor market which is suffering from 80% losses six months prior is not a simple matter. If this were a company that had lost 80% of its value on the stock market, it would be in crisis mode by now.

The number one rule in marketing is that communicating success is as important as having success to begin with. Airswap failed to proclaim itself loudly enough to the market, and the market responded in kind.

2.1….Failure To Integrate With Successful, Mainstream Products

While Airswap could take some credit for integrating with content sharing blockchain project Civil, there were certainly not enough deals being done in the background compared to the likes of Ripple, who have given the cryptocurrency world a masterclass by hiring traditional political and PR strategists to give their institutional investors the kind of surety that props up a share or token price. Civil notably failed in its ICO even with the kind of industry heavyweight signups like Associated Press and Forbes, and had to hand back some $20 million to early investors.

3…Falling Silent

While AirSwap may well have a fundamentally decent technology with an active developer community, there are other projects which have slid further but will never return anywhere near their former glory.

We’ll look at Paypex (PAYX) next. This coin has seen the largest fall from grace of all our top 200 losers. From a staggering £156m valuation at its ATH, now Paypex is languishing around $2m.

When a project grinds to a halt, either when developers lose interest and move on to other projects, or they hit roadblocks with the technology that they are not sufficiently motivated to iron out on their own time, then the messaging falls silent. Its Reddit group, where you would expect to see ongoing discussions of the technology, has scores of posts with only one or zero comments, which itself indicates a lack of interest.

While a project should not be valued by the size of its Telegram group – as social media numbers are one of the easier things to fake – these boards do give us a reasonable indication of the amount of general public interest and even excitement in the technology and in the teams themselves.

It’s not a lack of transparency or failure to market themselves properly that afflicts the likes of Paypex. There are simply red flags all over the place.

Trying to access the PayPex website gives you a red flag domain warning, so basic cybersecurity practices are not being followed and a security certificate has lapsed somewhere along the way.

The company has not tweeted since August 2018 and a pinned tweet going back to April 2018  contains a President Trump-esque CAPS LOCK warning about FAKE SCAMS, which in itself is not great messaging.

*NOT GIVING-AWAY ETH or CRYPTOCURRENCY*#PAYPEX never offer any giveaway on any social media or channel. BEWARY of FALSE or FAKE Schemes.

— Paypex (@paypex) April 12, 2018

The market at large has simply lost interest too. In the last 24 hours, just under $19,000 of PAYX was traded, according to CoinMarketCap. It would be a fair and honest assessment that there is simply no way back.

If we look at which exhanges Paypex is listed on, this too gives us some insight into why it has fallen so far, and which leads us into our next point.

100% of the trading volume for Paypex comes from Mercatox, a relatively unknown exchange and certainly not one that is well-known outside of hardcore crypto circles. We would consider well-known to be the likes of Kraken, Bitthumb, Binance, Coinbase, Huobi or OKEx, for example.

4…Failure To Get Listed On Mainstream Exchanges

Exchange listing fees vary wildly across the market. But research by Autonomous Next LLP gives some insight in the likely figures.

“It sounds like the market price to list a crypto token on an exchange is $1 million for a reasonably regarded token, to $3 million for an opportunity to get quick liquidity. We don’t know these numbers with certainty, but suspect the order of magnitude to be roughly in line with today’s reality. In comparison, listing fees on traditional equity exchanges are about $125-300k, with annual fees of $100-500k to remain listed.”

Other estimates sit within a similar range. The November price crash will have brought the dollar figures down a little, but the overall charging amounts remain within the boundaries. According to Alex Lielacher at Bitcoin Market Journal, the costs are:

• Small volume: between 1 and 10BTC (up to $40,000 at current prices)
• Medium volume: from 10 to 50BTC
• Large volume: anywhere from 100 to 1000 BTC

Interest breeds interest. It’s really as simple as that. If you can’t afford to get listed on the bigger exchanges, and your team has not made this a priority, it is more likely that investor interest will run out before your product goes mainstream.

The same is true of stocks and shares out there in the traditional finance world. If a once highly sought stock that debuted on the well-regarded, large volume New York Stock Exchange is now in trouble, it may be delisted and taken off the NYSE, becoming an OTC security without a central marketplace to trade shares.

Looking back to our lists for a moment, let’s consider other former top 100 coins which have fallen a long way and yet might have what it takes to survive the bloodbath.

Game (GTC) is on Huobi, it has mainstream recognition (and is generally a great domain and should be making money for the owner outside of whether there’s a cryptocurrency attached to it).

With mainstream recognition comes a wider pool of liquidity to draw from and more stability for the long term.

Bitcore (BTX) scores well on communicating success. Its subreddit is well populated with heavily commented posts; the business and marketing team seem to be filling their social media channels with news about developers attending conferences and even carrying out educational seminar in Venezuela. Bitcore has a listing on HitBTC, a medium volume exchange and according to CoinGecko has a liquidity rating of 21% on mainstream exchanges.

Return To The Tech

With such huge losses across the board, users are returning to the safe haven of the tech, focusing on the simple fundamentals that make up the market as a whole.

We can take the cryptocurrency section of Reddit as a reasonable snapshot of retail traders; it’s not representative of all traders of course, but as a market that attracts a demographic that tend to skew towards younger, millennial, male, maths and computer nerds, there is a reasonable amount of overlap.

Traders are beginning to ask ever more whether the coins they’re investing in are products that a) do what they say they can do, b) do so in a way that is better than what is already out there and c) do so in a cost-effective manner and with a development team which is likely to be able to bring this product to market.

Outside of Crypto; A Conclusion

If we pop our heads outside the cryptocurrency echo-chamber for a moment, we’ll find that the rest of the world, both retail and institutional investors, are veering away from high-risk investments and into safe havens.

Stocks in Asia are in the grip of a fearful bear market, what with China’s devalued yuan, a strong dollar, and fears rising over the global growth impact of the US-China trade war.

There’s also the worrying reappearance of death crosses in US oil and high-performing tech stocks like Netflix and Amazon recently. These chart patterns are a particular way of tracking negative sentiment and hence potential big stock selloffs in traditional markets. This is spooking traders already preparing for long-term downtrend in stock prices.

There are two prevailing, mutually exclusive theories on how the cryptocurrency trade market interacts with the wider world of stocks, bonds and traditional finance. First, that it is entirely divorced from sentiment in the wider market. Second, that it is intrinsically entwined with the traditional marketplace as a new asset class which attracts high-risk-high-reward investors.

It is unrealistic to suggest that the only people invested in cryptocurrency are those without traditional stocks and bonds. It is certainly a fallacy to say that only millennials and those under 25 have cryptocurrency investments, however popular that theory is.

Cryptocurrencies are already high-risk investments, even the best and most stable ones. So cryptocurrencies viewed as risky in their own backyard? More likely to fail. The riskier-sounding a cryptocurrency investment is, the more the effect will be amplified.

Our overall assessment is that there are crypto projects that can bounce back from huge market cap and valuation losses. They are likely to be those with active developer communities, valued teams, transparency of roadmap and future product development, integration with successful businesses outside of crypto, and that are listed on the best-known mainstream exchanges. High risk, high reward won’t work any more. Only the best will survive.

Images: BigStock