There’s 1 Similarity Among the Best-Performing Cryptos During Brutal 14-Month Bear Market
This week, Ryan Selkis, the founder of Messari, a crypto markets data platform, released the rankings of 25 cryptocurrencies he personally believes have been the most active in making gains.
“I made a dashboard of 25 token teams that ship code relentlessly. A good alternative tracker to scrolling mindlessly through CMC,” he said.
Somewhat expectedly, most crypto assets in the developer activity-based rankings have performed relatively well against the USD in contrast to the rest of the market, likely because developer activity is a good indicator of the price trend of cryptocurrencies.
Developer Activity is a Fairly Accurate Indicator of Crypto Price Trend
JP Vergne, a professor at Ivey Business School, released a research paper in January 2017 entitled “Buzz Factor or Innovation Potential: What Explains Cryptocurrencies’ Returns?”
The study led by Vergne discovered that developer activity of blockchain projects affects the price trend of digital assets substantially more than other indicators such as public buzz or hype.
The reason for it is fairly simple. Cryptocurrencies and blockchain networks are protocols and are software created and maintained by an open-source community of developers.
Continuous updates, changes, and improvements are necessary to grow a blockchain network in many areas including scalability, privacy, fungibility, adoption, and accessibility. As such, investors consider developer activity to be one of the more important factors in the long-term trend of cryptocurrencies.
The report of Vergne read:
By using, for the first time, a unique measure of innovation potential, we find that the latter [developer activity] is in fact the most important factor associated with increases in cryptocurrency returns.
By contrast, we find that the buzz surrounding cryptocurrencies is negatively associated with returns after controlling for a variety of factors, such as supply growth and liquidity.
On the rankings of Messari founder Ryan Selkis, Binance Coin and Maker are listed as the 4th and 6th most active blockchain projects when it comes to development.
— Maker (@MakerDAO) February 7, 2019
Unsurprisingly, Binance Coin and Maker have been the best performing cryptocurrencies throughout the 14-month bear market, recording losses below 70 percent against the USD.
In contrast, Bitcoin, which has always displayed strength in long-lasting corrections, recorded an 83 percent drop from its all-time high.
While most tokens have fallen by 97 to 99 percent against the USD, projects on the rankings based on developer activity such as Decred, Augur, and Chainlink minimized losses from their all-time highs in the 70 to 89 percent range.
Specifically, Binance Coin (BNB), which reflects on the performance of Binance, the world’s largest cryptocurrency exchange due to a mechanism called coin burn, has actually increased by 47 percent in the past 30 days.
Every quarter, Binance burns a portion of the supply of BNB using the profits generated by the exchange. The decline in the supply of BNB has led the price of the asset to go up.
The coin burn synergized with the ongoing development of the Binance decentralized exchange (DEX), leading investors to become more confident in BNB.
Someone forwarded me this. 18 months ago, 3 weeks after launch, $BNB at ATH, price is 1/50th of what it is now, 4 coins traded on @Binance. The tweet has 2 comments (as of this writing). Keep #buidling! https://t.co/VMNzB3NyQC
— CZ Binance (@cz_binance) February 14, 2019
As long as the miner and developer communities of a blockchain project remain active, the price trend of cryptocurrency of the blockchain network maintains decent momentum.
Same Reason Why Bitcoin is King in Bear Market
Speaking to CNBC, Digital Currency Group (DCG) founder and CEO Barry Silbert said that he is as “bullish as he has ever been” on Bitcoin but is not optimistic on the survivability of many tokens.
“I’m not a believer in the vast majority of digital tokens and believe most will go to zero. Almost every ICO was just an attempt to raise money but there was no use for the underlying token. The vast majority of what’s out there will be eliminated,” Silbert said.
The decline in the valuation of the cryptocurrency market has created a challenging environment for blockchain projects to maintain large-scale development firms and operations, which eventually led to a decline in developer and commercial activity, affecting price.