Investors in the crypto market have become used to the market being heavily biased to the upside. Practically nobody is thinking about anything other than jumping on board for another price increase in this or that cryptocurrency.
After an early period of crypto scepticism on the side of the majority of the investment audience a lot of investors have now adopted a very different, more complacent mind-set. Speculative arguments and general discussions about blockchain potential are enough to persuade many into buying crypto.
But, if you are from crypto, you already know this. And also that the blockchain community is used to large and quick price oscillations. It is interesting that this can be easily explained. Because the upside in cryptocurrencies can be so potent and can develop very rapidly an additional level of risk is tolerated by investors.
In an earlier X8 article a comparison has been drawn even with gold, portraying gold as relatively less stable than Bitcoin, because gold doesn’t have that much upside potential in the near-term than revolutionary cryptocurrencies have.
It appears to make ultimate sense to hold Bitcoins even if cryptocurrency is more volatile than gold. Or does it? Regardless of the answer, it shows the principle of subjective value and how something is perceived or can be perceived as valuable. We value things in relative terms.
VALUE OF A FREE TICKET
Imagine an entry ticket that enables you to move to cash without having a bank account – or leaving crypto. This ticket enables you to move into a safe haven and out of it as many times as you wish at zero fees. This safe haven works as a service and you only need your ticket.
The benefit of a safe haven is that you stay in fully liquid cash. Crashes in crypto market prices don’t affect you. If you can enter that at any point you want, then you have got the ticket. In the tokenized business model of the X8currency, the X8X utility token represents this very entry ticket.
So how much the market can crash puts a frame on the value of the ticket.
The value of the X8X entry ticket can multiply together with growing fear in the market. When the market keeps rising, market participants perhaps might want to pay only 0,01% for standby availability for crypto/fiat transitioning, but when the market drops by 5%, the perspective changes. Such changes can appear quickly and the same ticket could be valued at 0,1%, 0,5%, 1% or more for example.
It shows how vast the potential spectrum of the value of the ticket for the ultimate safe haven can be. But it is not necessary to use the case of larger than 10%, 25% or 50% price drops in crypto prices to demonstrate that the value of a free ticket can increase beyond 1%, 2% or 5% respectively.
PRICE FREQUENCY EFFECT
The key characteristic of this safe haven entry ticket is that the ticket does not have an expiry date. It can be used for the same purpose again and again by the same user. If the previous example showed that the value of the ticket can be influenced by how much the market could fall next time, this argument shows that all future price drops have the potential to multiply this effect further.
When during a period of time the market frequently moves up and down by 10% many times, a market participant has more opportunities to repeat the process and add to his or her savings during each cycle. It is the frequency of the price drops – not just their size – that influences how markets value such an entry ticket. Simply put, if the market moves up and down by 10% and does that 10 times, the ticket can easily be valued at much more than 1% or 2% for example.
After the TGE no additional X8X utility tokens will be created or issued. It means that the volume of entry tickets in existence will stay fixed. Over time, more and more of these tokens will be used for access to X8currency. As a result, a larger portion of them will remain utilized and stay out of circulation.
They will start becoming scarcer. At a certain level of X8currency market capitalization all the entry tickets will be taken. When this will happen, new plazers on the market will need to buy their zero fee safe haven entry tickets from existing X8currency users.
Because X8currency gives contributors the chance to fight inflation with 1-3% p.a. appreciation, existing contributors will understand that by selling their entry ticket, they shall be giving up on that as well. In order to sacrifice this benefit, they will want to start charging a premium and calculate it into the price of the entry ticket, if they should decide to sell it to new players.
MARKET CAPITALIZATION EFFECT
So scarcity and a resulting premium to sacrifice a safe yield will be the third factor to influence entry ticket evaluation and it will work independently of, and in addition to, other described factors. All of this creates the potential for price increases of the X8X utility token, especially during times of uncertainty in the market.
The concluding question in this topic however must deal with the valuation of such an entry ticket in an environment of strong crypto market capitalization growth. Can the price of the X8X utility token react more quickly to the upside because of increased market cap in cryptocurrencies?
The answer is a positive one! It moves the focus back to the token formula X8X = √X8C. If crypto market capitalization will increase 10-fold, contributors will want to lock in larger amounts of profits and will have larger amounts of assets that they could potentially move into the safe, liquid and secure X8currency.
When the purchase amount of X8currency increases, fewer X8X utility tokens are required relative to the X8currency purchase amount. This automatically permits larger buyers to pay more for the ticket. When all factors are combined, increased average trade size of X8C leads to higher prices of the X8X utility token. This effect will be further explained in a separate post.
THE NEW VIX FOR BLOCKCHAIN
The X8X utility token introduces a new type of volatility measurement. The link between the X8X utility token and crypto market volatility remains pure since this token sits in the middle between the two asset classes and connects them in a frictionless manner. It will become the new volatility index of the crypto market, a bit like the VIX index of the S&P500.
This instrument however is different from the various put option instruments or market short instruments which we can find in traditional markets. It does not have an expiry date; it has real utility value and increases its potency when market prices move up and when crypto market capitalization increases.
The structure of our system creates not one but two new, unique and highly interesting instruments in the crypto market. While the X8currency is a safe and stable currency, the X8X utility token introduces further new characteristics not to be found anywhere else in crypto.
Its nature and its sensitivity to the changes in market psychology make it the kind of token, which reacts positively when prices in the crypto market move negatively. It can therefore be used as a proxy for shorting crypto markets.
The X8 project is the first project in the cryptocurrency space to offer such an instrument. The X8X utility token systematically opens up a new space for active crypto contributors, and creates opportunities for them, which have never previously existed in the crypto market.