Pre-launch token trading is a growing trend among cryptocurrency investors, despite the price volatility being up to 20 times higher than post-launch token trading.
Prior to the token creation event (TGE), cryptocurrencies such as the Wormhole (W) token had a volatility of over 3,000% compared to approximately 100% a week after the coin’s launch, as measured by historical volatility based on 7-day standard deviation returns. Based on Volume Weighted Average Price (VWAP).
Likewise, according to a Keyrock report shared with Cointelegraph, the volatility of the Jupiter (JUP) token increased by around 2,800% before launch and fell to around 150% a week after launch.
According to a Keyrock report, understanding how market liquidity affects the volatility of a token can help traders take more calculated risks.
“The difference in volatility before and after TGE highlights the important role of liquidity in market stabilization. “This phenomenon not only highlights the importance of sufficient market depth for effective price discovery, but also serves as an important indicator for both buyers and sellers.”
The price discovery phase of pre-TGE tokens was eliminated due to lack of liquidity in the pre-launch market. In finance, price discovery refers to the period in which the price of an asset is determined organically through buyers and sellers.
“No price discovery without liquidity” — Keyrock
Despite the lack of liquidity and volatility, TGE transfer trading continues to grow as more risk-taking investors aim to be among the first to gain exposure to new cryptocurrency projects in hopes of higher returns.
In particular, large pre-launch purchases by large investors (whales) appear to be correlated with FOMO (fear of fear) about certain investments. This often results in whales being purchased at relatively high prices. According to Keyrock:
“The whale market tells a different story, experiencing a dramatic surge just before the TGE. This surge? This is likely fueled by a pronounced wave of FOMO, with buyers accounting for a whopping 80% of market activity.”
Increased volatility makes most TGE transfer markets unprofitable for buyers.
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More than 95% of ENA and PIXEL pre-token investors are eco-friendly.
Despite increased initial volatility, more than 95% of pre-token investors in the Ethena Labs (ENA) token and the idle game Pixels (PIXEL) token are currently making a profit, demonstrating the potential of pre-TGE investments.
According to CoinMarketCap data, the ENA token is currently up 14% since launch, while the Pixel coin is down over 31% since its token creation event.
However, other token launches have not attracted much attention. More than 60% of pre-token investors who purchased Portal (PORTAL) suffered losses, with the token falling more than 82% since its launch in late February.
Related: Coinbase recovers after system-wide outage, but user withdrawals remain offline.