Know why investors are considering exchanges’ native tokens over Bitcoin, Ethereum
Investors saw the crypto market factoring in the geopolitical tensions involving Ukraine and Russia into its cumulative capitalization.
After falling close to $34,000 post-Russia’s invasion announcement on 24 February, Bitcoin’s price has recovered. But, it remains under the crucial level of $40,000. Interestingly, research by Bloomberg suggested that investors are now leaning towards exchange native tokens amid the market weakness. And, not rely on the king coin and other popular altcoins. This has effectively turned Bitcoin into a defensive asset or an asset that can provide a steady income stream.
Jeff Dorman, chief investment officer at digital asset fund manager Arca told Bloomberg,
“For some reason, people still think Bitcoin is a defensive asset, even though it has absolutely no characteristics of a defensive asset. The things that should be defensive are exchange tokens because there’s real revenues, cash flows, and amortizations.”
Gold and bonds are often counted under the defensive asset category. What Dorman is explaining with regard to native tokens of exchanges, is their risk-return profile. Notably, Bitfinex’s $1 utility token Leo was later sold for $5.50 by Arca, cited the media outlet. FTX’s FTT token is another similar example, where Arca indicates the importance of fundamental analysis. Clara Medalie, research director at crypto trading data firm Kaiko told Bloomberg,
“FTX’s token is strongly correlated to any positive news coverage. FTX has had a better year than most other exchanges that have their own exchange tokens, so it isn’t surprising that FTT is positive.”
Binance Coin BNB also clocked a 118.3% uptick in active addresses recently. Thus, painting a strong recovery picture. Meanwhile, Nansen also notes a spike in the number of unique addresses holding LEO and FTT. With regard to which, Dorman explained,
“Fundamentally, who benefits from the volatility? The exchanges. Exchange [tokens] should outperform because their volume and revenues go up.”
Taking the example of Bitfinex, the controversy revolves around the 2016 hack. Recently, concerning which, an American couple was arrested as they allegedly tried to launder Bitcoin worth billions stolen in the Bitfinex hack. Back in the day, the exchange token’s value grew in the optimism of the amount recovered. Dorman added,
“You have this kicker that’s basically a call option on whether or not [Bitfinex] will ever get the money back.”
Some time back, the decision of crypto exchanges FTX US and Bitstamp USA to step into the traditional finance world to beat competitors like Robinhood also made headlines. What’s also noteworthy is research showing that the stock market and crypto space have become more correlated than ever after the pandemic. Therefore, the onus is now on native tokens and the increasing number of unique users. Dorman further explained,
“Smart investors are investing in exchange tokens. Certainly anybody who does any real fundamental analysis and cares about the growth of real business.”