Pre-launch token trading is a growing trend among cryptocurrency investors, despite introducing up to 20 times the price volatility of post-token launch trading.
Before their token generation event (TGE), cryptocurrencies like Wormhole’s (W) token saw over 3,000% volatility compared to around 100% one week after the coin was launched, as measured by the historical volatility based on the seven-day standard deviation returns, based on the volume-weighted-average-price (VWAP).
Similarly, the Jupiter (JUP) token's volatility rose to around 2,800% pre-launch, falling to around 150% one week after launch, according to a Keyrock report shared with Cointelegraph.
Understanding how market liquidity is affecting a token’s volatility could help traders take more calculated risks, according to the Keyrock report.
“The disparity in volatility before and after the TGE underscores the critical role of liquidity in stabilizing markets. This phenomenon highlights not only the importance of sufficient market depth for effective price discovery but also serves as a crucial indicator for buyers and sellers alike.”
Due to the lack of liquidity in pre-launch markets, the price discovery phase of pre-TGE tokens has disappeared. In finance, price discovery refers to the period when an asset’s price is organically determined through the buyers and sellers.
“Without liquidity, there is no price discovery” — Keyrock
Despite the lack of liquidity and volatility, pre-TGE trading remains a growing trend amid more risk-taking investors aiming to be the first to gain exposure to new crypto projects in the hope of higher returns.
A large number of pre-launch buys, especially from large investors (whales), is seemingly correlated with the fear of missing out (FOMO) on a particular investment. This often results in whales buying in at relatively high prices. According to Keyrock:
“The Whales Market tells a different story, experiencing a dramatic spike just days before TGE. This surge? It's likely fuelled by a palpable wave of FOMO, with buyers making up a whopping 80% of the market action.”
Due to the increased volatility, most pre-TGE markets are unprofitable for buyers.
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Over 95% of ENA and PIXEL pre-token investors are in the green
Despite the heightened initial volatility, over 95% of the pre-token investors in Ethena Labs’s (ENA) token and idle game Pixels’ (PIXEL) token are currently profitable, showcasing the potential of pre-TGE investing.
The ENA token is currently up 14% since launch, while the Pixel coin is down over 31% since its token generation event, according to CoinMarketCap data.
However, other token launches didn’t gain as much traction. Over 60% of pre-token investors who bought Portal (PORTAL) have incurred a loss, with the token down over 82% since it launched at the end of February.
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