Fundstrat analyzes coin fork market impact

Fundstrat analyzes coin fork market impact

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The latest (Feb 22) newsletter from cryptocurrency strategist Tom Lee and his Fundstrat team takes a close look at the impact and history of tokens with upcoming forks or airdrops.


It’s a challenge for investors because forks and airdrops can dramatically impact coin prices both short-term and medium-term.


What’s a “fork”?

There are two types of forks: accidental and hard forks. Accidental forks happen when developers discovered bugs or incompatible versions of their distributed ledgers. Fixes are needed and developers need to quickly resolve the problems.


A “hard fork” most often occurs when a cryptocurrency developer realizes programming changes to a coin are necessary to improve security, speed or other token features. This creates a big challenge as we know, because older versions are not compatible with the new and improved or forked version.


As notes:

“Forks cause a tremendous amount of work through a coin’s community as all the associated software must be updated to the coin’s latest version. Users, exchanges, miners, and many others must update to prevent the loss of coin.”


What’s an “airdrop”?

An “airdrop” is a coin/token distribution to a coin community or other targets for free or for small tasks. It’s usually done by developers to ensure early distribution and to have as many people as possible in engaged in a new or forked coin.


Fork investment Impact

Fundstrat research shows that in the past, forks impact coin value:

“Tokens with upcoming Forks and Airdrops have outperformed bitcoin by 480bp since the peak of alt-coins. At first glance, a fork/airdrop should not aid a token (“ex-div”), Bitcoin’s two forks added 15% and Litecoin’s recent Litecoin Cash added 28% to LTC. This could be a function of the “network effect” spreading to related protocols—or it could be simply a function of buyer “greed.”


Fundstrat highlights six upcoming forks that could impact investors:

“We identify 6 major forks/airdrops in next 90 days, which could support interest in these tokens:(i)+(ii) ZClassic/ Bitcoin fork of Bitcoin Private (1:1); (iii) Monero fork of MoneroV (10:1); (iv) Ethereum Classic airdrop of Callisto (1:1); (v) Neo airdrop of Ontology (0.2:1) and (v) EOS airdrop of Everipedia (TBA). There is also a minor airdrop of UBTC on Ethereum/ Litecoin/ Qtum and Hshare—but the impact is minor (few may claim) and terms are quite peculiar.”


The newsletter suggests a short-term selloff of altcoins of 20%-30% during the next 60 days. “In other words, the alt-coin sell-off is more than half-way done and is shaping up for strong rally in late-Summer 2018.”


Fundstrat continues to recommend the larger cap quality cryptocurrencies, such as Bitcoin, Ethereum, Ethereum Classic and NEO as they are generally outperforming the altcoins.


Lee advises cryptocurrency investors to take caution with forks and airdrops. Most exchanges do not “automatically credit your account for the fork and/or airdrop. A token holder needs to move these tokens to a wallet that will support the fork and/or airdrop.  You need to go to the crypto-asset website to find a compatible wallet.”


He adds, “there is some diligence needed as the process involves sharing your private key with the new blockchain–you do not want to accidentally lose your legacy coins via a mistake.”


The latest report is available for clients of Fundstrat exclusively.


Editor’s note: research mentioned in this post should not be taken as investment advice and we recommend you consult your own financial advisors for specific investment guidance.