Mainnet Launch Announcements Correlated with Trading Disasters
When it comes to mainnet launches, the events usually trigger sell-offs with a significant price correction.
Cryptocurrency projects tend to make a lot of launching their mainnet as a significant milestone. For some types of blockchains, the launch of a genesis block is easier, while others require a more detailed approach to securing block producers. But when it comes to trading, the days and weeks preceding the launch usually boost the price. Later, the price tanks.
A recent blog showed a statistically significant relationship between the news of a mainnet launch and a change in trading direction.
“Returns after a mainnet launch were largely negative. Out of the 14 projects we tracked, 10 had negative seven-day returns with a median return of -7.5%, -8.9% vs. the BTC benchmark. Folks are (maybe) buying the rumor, but (probably) selling the news,” noted the researchers.
The discovery supports the intuition that the hype created by the launch event dissipates quickly. Added to the general higher risk and volatility for altcoins and tokens, this may exacerbate losses. Liquidity also tends to drop for altcoins upon the mainnet launch.
A testnet launch had a similar effect on trading behavior, by selling the news. But testnet news also produced more varied and unpredictable results, with some resulting in more bullish trading. The researchers note this may be due to a positive perception of the project’s development.
Projects also vary wildly in their mainnet launches, with some waiting for more favorable markets to announce the milestone. Older ICO projects lagged in building their networks, finally launching in the summer of 2019.
The researchers also noted that a mainnet launch may change the perception of the asset. For most projects, the preliminary tokens are based on Ethereum (ETH) or another network, and only later the native mainnet starts its activity. For some projects, mainnet usage is extremely slow in the beginning, as adopters need to learn the new tools to communicate with different types of networks.
Perhaps the most notable case of a slide following the official launch was EOS, which went from trading closer to $14, to lower, stagnant levels of $5-6. This was despite the extremely hih mainnet activity.