Curse of shield coins

If you use Telegram, then you know that it is full of crypto gurus who can’t wait to share with you advice on buying the newest and most promising coin that is rocketing to the skies. In this article, we explore why this advice is hardly (ahem) worth heeding.

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A typical story of Krystian success sounds something like this: he invested the money he saved at school lunches in time in the most promising new coin, that rocket fired “to the moon”, the investor “made X” – and now he rides through the streets of his native Severodvinsk on a sparkling Lambda.

Crypto investors cherishing this kind of dreams lovingly call each other “Degen’s” (yes, you correctly understood from which word this abbreviation is formed). In practice, however, most often they have a slightly different story.

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In May 2022, Sam Callahan posted an article Coin base and the Insider Exchange Dump, which is designed to slightly lift the veil of secrecy and explain the systematically unfortunate turns in the fate of crypto-Degen’s. Let’s try to understand this topic.

Stictions – the engine of progress

What does any crypto exchange want? Obviously not that you bought Bitcoins on it, quickly withdrew it to your cold wallet, and quietly walked them until the final victory of the ideals of cypherpunk cryptoanarchy. On the contrary, the crypto exchange, of course, dreams of you constantly and selflessly indulging in crypto trading, thereby providing for it an uninterrupted stream of tasty commissions.

Therefore, crypto-exchanges in every possible way welcome the emergence of new popular cryptocurrencies, which have many times more volatility than boring (by the standards of the crypto world, of course) Bitcoin. More shield coins  higher Degen trading enthusiasm => more greedy commissions end up in the pockets of the exchange itself.

But even if you are not a Degen, but just a thoughtful long-term crypto investor, then such a violent variety of different coins should still instill some anxiety in you. What if you have collected the worst coins with a dubious future in your portfolio – while the holders of newfangled HYIP projects receive the most insane profits?

In the end, the “hit parade” of the largest and most successful cryptocurrencies looks quite colorful: every year some new coins break into it – it is obvious that investors in them enjoy the most pleasant “x” in their portfolio!

If you really suffer from the FOMO syndrome from the lost benefits of investing in every new emerging crypto prodigy, then in the next section we will try to get rid of it.

Who can overtake Bitcoin?

Let’s use the example of Coin base (one of the largest crypto exchanges in the world) to see how profitable the pursuit of the “best” coins is on the long term. Of course, we will compare with the gold standard of the crypto world – with Bitcoin.

First, let’s look at the results of the oldest altcoins that started trading on Coin base before other coins.

As you can see, only Ethereum turned out to be “well done” and was able to overtake Bitcoin – the other three coins almost completely depreciated compared to BTC (by 85–97%).

If you look at the cryptocurrencies born during high-profile ICOs (Initial Coin Offering – the initial issue of coins, the real boom of which occurred in 2017), their results are also not amazing: the average ICO token since listing on the crypto exchange lags behind Bitcoin by 58% .

So, well, if it didn’t work out with ICO rockets, then maybe Defib projects (Decentralized Finance – projects designed to provide traditional financial services, but in a decentralized form right on the blockchain), which experienced a rapid heyday in 2020-2021, did got hot? Alas, and here the average lag behind Bitcoin since listing is approaching 62%.

Who and why shoes cryptands

Agree, this is very strange: how is it that new (stylish, fashionable and youthful) cryptocurrencies are so massively losing to the old and dull Bitcoin all the time? If your intuition tells you that it was not without the intrigues of insidious reptilians, then you are absolutely right!

The following chart can shed some light on what is happening, which shows what share of the entire pool of issued coins is kept by insiders of crypto projects.

As they say: the farther into the forest (by date) – the fatter piece of the pie the insiders leave in their pockets. But they leave, of course, not just “as a keepsake” – but exclusively for subsequent enrichment.

Here the author of the article hints to us that the listing of new coins on large exchanges like Coin base is nothing more than the beginning of the process of cashing insiders about ordinary exchange hamsters. Well, the more volume insiders are ready to put into the stock market glass on the wave of hype, the worse it is for the dynamics of quotations of these coins.

Interestingly, not only the largest reptiloids, but also all sorts of smaller animal lizards, strive to stick to this process of shoeing hamsters. So, that week, the American SEC regulator charged a former Coin base employee with insider trading: he, without further ado, bought cryptocurrencies together with his buddies in advance, which were about to get listed on a crypto exchange – thus earning an extra million and a half dollars on the jumps in their quotes, which usually occur immediately after the listing.

What about index investing?

Here it is necessary to make a reservation that the author of the original article is a notorious Bitcoin maximalist with burning (literally) eyes, who clearly wants to rig all the facts for the sake of his beloved BTC. Well, you understand – so that Bitcoin alone stands in the center in a white coat, and all the other altcoins shyly squeeze around the corners.

Therefore, it would be nice to check a couple more independent sources. The author himself refers to one of them – this is a large study from Jump Crypto, in which they analyzed a database of more than 3,700 cryptocurrencies. .