A Twitter user named Karl_0x recently shared a spreadsheet detailing an estimate of token inflation for the year 2023. In this spreadsheet, the user lists the calculated inflation rates on a year-to-year basis for various cryptocurrency tokens. In this analysis, we will examine the user’s findings and determine whether they can be useful in making informed decisions about cryptocurrency investing in 2023.
What is a strategy based on this spreadsheet?
The main idea behind this strategy is to short a basket of cryptocurrency tokens that are prone to inflation against either ETH or BTC, weighing the basket by market capitalization and inflation rate. Alternatively, this strategy involves reducing exposure to these inflationary tokens. In the coming year, 2023, it is believed that this strategy will be successful.
It’s important to keep in mind that while inflation is a useful metric to consider, it is not the only factor to consider when evaluating cryptocurrency tokens. Other factors such as emission rewards and vesting schedules for founders and teams should also be taken into account.
Additionally, it’s worth noting that this information is publicly available and there is evidence that venture capital firms in the cryptocurrency industry tend to hold onto their tokens for too long. Therefore, short sellers should exercise caution, especially given the current bear market and limited downside potential.
The inflation rate for this token is 251.52%. While it may not be wise to trade a token that accrues no fees, the high inflation rate of this particular token makes it a good candidate for shorting. However, it is worth noting that this strategy may change once DYDX activates its fee switch.
The inflation rate for STEPN is 128.50%. This app rewards users for physical activity through in-game currency and NFTs. It was a top performer at the Solana Ignition Hackathon 2021, finishing in 4th place. But recent price decline in Solana, coupled with the departure of multiple developers, could lead to a negative outlook for the project. This could result in further price declines and a potentially unfavorable investment situation.
IMX is an Ethereum token that enables fast, low-cost NFT transactions through its scaling solution, Immutable X. It has a 72.58% inflation rate and can be used for staking, voting on the protocol’s future, and paying fees. Some strategists predict that NFT players who are facing losses will try to sell their assets, in order to minimize their losses.
How to interpret Market Cap and Inflation rate?
When a cryptocurrency has a large market capitalization (mcap) and a high inflation rate, it means there is more potential for its value to decrease. The market capitalization of a cryptocurrency is a measure of its value, and a high inflation rate means there is an increase in the supply of the cryptocurrency, which can lead to a decrease in demand and therefore a decrease in value. Therefore, a combination of a large market capitalization and a high inflation rate creates more room for the value to fall.
What are potential Risks?
This type of trade could be potentially profitable, but also carries a high level of risk, which is why effective risk management is crucial.
There is a chance that one of the altcoins being considered for this trade could experience a significant increase in value, potentially undermining the entire trade. You could wait until these coins experience price increases or “pumps” before considering shorting them, as the individuals holding these coins may be more likely to sell them at that point. That being said, it is possible that these coins could see new lows in 2023, but many of them have already experienced significant declines.