Don’t buy EOS tokens just yet

Unless you’ve been hibernating for the past few months and your cave doesn’t get wifi, you likely know EOS is the new hot stuff on the horizon. Smart contracts without costs for computation. Provably scalable with the same technology as BitShares and STEEM. Made by Daniel Larimer, a printing money machine faster than the fed.

 

One of these reasons motivate people more than the others

 

The EOS crowdsale takes place over a year, or 341 days to be exact. 200,000,000 tokens were distributed proportionally in the initial contribution period of 5 days running from June 26 to July 1. We are now in the second phase, where 700,000,000 tokens will be distributed through 350 contribution periods.

350 contribution periods, 341 days?” you ask with befuddlement. That’s right: to make things extra fun, block.one decided to make each contribution period 23 hours long rather than a full day. This should ensure everyone is perpetually confused about the beginning and the end of each contribution period.

The tokens sold during this crowdsale are ERC20 tokens, meant to be replaced by tokens on the EOS blockchain once available. Nonetheless, these EOS tokens are already trading on various exchange places, the most notable of which would be Kraken.

 

What does this all mean for you as an investor? Should you buy EOS tokens right now?

 

   The answer is still no.

 

There’s a total supply of 1,000,000,000 EOS tokens. The first contribution period, selling 20% of that, raised 651,902 ether, or approximately $185 million USD.

Multiply that by 5 to get an approximate market cap, and you’re looking at 925 million US dollars.

Not too shabby, for an unreleased project with nothing to show.

 

In a normal crowdsale, you would choose to buy based on your expected value of the token down the line. Perhaps 1 billion doesn’t seem so outrageous if you believe EOS is going to replace Ethereum and its 30 billion market cap.

But this isn’t a normal crowdsale.

You have 11 more months to wait for development, and buy in at any moment. While the amount of tokens distributed during each new contribution period is smaller, so will the amount of ETH contributed.

If the price of ether continues to rise, a strong possibility given Ethereum’s first-mover advantage and their current momentum, you might even get more bang for your buck.

Meanwhile, consider the public sentiment for EOS. Investing is first and foremost psychology. Despite this year-long contribution model, many speculators jumped on the first chance to grab their tokens. Hype is at an all-time high, following the EOS talk at Consensus 2017. It’s news. It’s fresh.

This hype will not be sustained for a full 335 days.

Human attention comes and goes. There will be other promises and other ICOs. People will move on during lulls.

 

What is (probably) going to happen

 

EOS will go up forever and everything will be alright because nothing bad ever happens.

 

As tokens hit the exchange places, people unaware or uninterested by the EOS project become more exposed to it. Participants in the crowdsale will sell above ICO price. When the spread between ICO price and exchange price becomes too high, people will look at the ongoing contribution period to judge if they can get EOS tokens cheaper through the smart contract.

Throw in inefficiencies, misinformation, fear of missing out… Speculators will likely overbid on both exchanges and contribution periods, overspending in one area fueling overspending in the other.

 

At the time of this post, the July 1 to July 2 contribution period is about to end with almost 12,000 ether raised. Proportionally, that’s close to twice the previous ICO price.

EOS tokens are trading on Kraken for US$1.50, +62% over their initial crowdsale price.

This trend should continue for a while, as the crowdsale/exchange dichotomy slowly inflates value… Until it levels off.

 

Here’s a graph you’ve seen a thousand times.

 

 

As to when that is going to happen, your guess is as good as mine.

 

In conclusion, remember cryptocurrencies are asymmetric investment opportunities.

Starting from a ~1 billion theoretical valuation, any sustained rise in price of the token is likely to be gradual rather than meteoric. Anyone who wants to jump in will have the opportunity to do so through the ongoing crowdsale.

On the other hand, crypto moves fast. There is a non-zero risk for the project to fail, whether it’s rendered obsolete, abandoned, or suffers from low adoption.

Long-term investors who believe in the project have every incentive to wait out this initial wave of speculation, and pick up their EOS tokens in a few months.

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