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From ICOs to IEOs: A Paradigm Shift in the Crypto Industry
In the long battle to carve out a relevant position within the financial arena, Bitcoin is the general officer patiently looking for strategic deals with institutional partners and platforms, while the altcoin sphere represents the vanguard of the army, a sector in ferment where, every day, startups made up of young developers compete with each other to develop new blockchain solutions.
The ICO paradigm that characterized the 2015-2018 bull market is being replaced by a new crowdfunding model, the Initial Exchange Offering. In this new process, the crowdfunding takes place directly on the exchange platforms, which provide support for the startups and guarantee the listing of the tokens.
What will be the impact of IEOs on the price of the Utility tokens issued by exchanges? In order to access the IEO market, investors and speculative crypto funds interested in new cryptocurrency projects have to secure a remarkable amount of Exchange Utility Tokens. In our previous article, we explained how crypto startups with limited access to the traditional investment circuit are able to raise funds for their tokenized assets by accepting cryptocurrencies instead of fiat currencies. If Bitcoin and Ethereum prices have benefited from being the “reserve currencies” of the crypto universe during the 2015-2018 ICOs wave, the emergence of IEOs will probably create a steady demand for Exchange Utility Tokens like BNB, LEO, KCS, HB. Investors will need utility exchange tokens exactly like foreign banks need dollars to conduct business.
Let’s analyze the price action of BNB, the utility token of Binance, one of the most traded crypto exchange platforms in the world.
The first thing that catches our eye is the similarity to the price structure of Microsoft from 2000-2013. Structural analysis, however, should be only the last step when we analyze a financial instrument. What’s the real Wyckoff story behind this chart?
In both bear and bull markets, an increase of supply signature always reflects the presence of big institutions attracted by lower prices. In contrast, in low-liquidity environments like crypto markets, a shift of sentiment can easily cause a drastic exodus of market participants. Let’s look at the low-volume reaction marked in red on the chart. Such price action is challenging for the tape reader, since it is open to two opposite interpretations. On the bullish side, a low-volume reaction can be caused by the reluctance of CO types to sell during temporary nasty market conditions. On the bearish side, low-volume reactions can indicate capitulation of the public after distribution on the way up. Especially in immature markets, it is very common to see CO types selling most of their positions on the way up during the general excitement, anticipating a liquidity exodus.
Look how, in early December 2018, price stops in the same value area as that observed in early 2018 instead of making lower lows like the majority of cryptocurrencies. Does this stopping action indicate that the whole formation is a big reaccumulation area? In these cases, Wyckoff suggests adopting a conservative approach first. Let’s focus on the most recent segment.
The low volume on the left of the chart reflects the inactivity of institutions during the last climactic down move. Look how institutions rush to BNB as market conditions change in cryptos overall in December 2018. The increasing volume signatures on both down bars and up bars circled in green – as well as the upsloping structure – indicate that institutions are willing to buy at any price. The LPS in Phase C is easily recognizable by the volume spike. After the accumulation phase, a nice uptrend develops. Logarithmic scales are extremely helpful to track young speculative assets. What’s next for BNB? Is the current range another reaccumulation or we will see profit-taking after this 10-fold rise? We will return to this topic very soon. Stay tuned!