Last updated on June 9th, 2018 at 12:43 pm
At the end of a wilder year than even the most confident holders would’ve predicted 12 months ago, the unpredictable cryptocurrency market threw up a final surprise with the rapid rise of DAG coins. DAG stands for Direct Acyclic Graph, the technical term for a form of ledger-settlement that occurs instantaneously and peer-to-peer, without the need for blockchain-wide confirmation. Essentially, the rapid rise of blockchain-enabled cryptocurrency in 2017 climaxed with the emergence of a technology that did away with the need for blockchain.
The two coins in question are IOTA and RaiBlocks
At the start of December, a single MIOTA was trading at $1.30, with one unit of XRB trading at $0.20. IOTA was the first to explode in value, beginning a headline-generating surge on December 3 that took it to from $1.49 to a high of $5.48 on December 6 – an almost 368% increase in just three days.
RaiBlocks was already rapidly gaining value before IOTA took off, doubling in value to $0.40 by December 3. But following the rapid rise of IOTA, RaiBlocks went stratospheric, growing exponentially to reach $3.51 on December 14 – an incredible 1755% rise in just two weeks.
Both coins tapered off immediately following their all-time high. IOTA dropped to $3.11 within 24 hours of hitting $5.48, and RaiBlocks dipped as low as $2.77 within a day of hitting $3.51 – a drop-off of 44% for IOTA and 21% for RaiBlocks.
The story behind the rapid ascent and volatility of these two breakout coins provides a fascinating insight into the forces, motives, and circumstances that shape the cryptocurrency market.
1. Hype is the best marketing
While many initial coin offerings (ICOs) are launched with massive marketing budgets, the teams behind both IOTA and RaiBlocks have a marketing investment of pretty much nothing. Instead, they’ve been content to let their reputations grow quietly through word-of-mouth on internet forums.
The sudden surge in IOTA’s value was sparked by an announcement that they would be partnering with major firms including Microsoft and Samsung.
RaiBlocks benefitted a lot from spillover buzz about the game-changing potential of DAG coins that followed IOTA’s rapid rise.
2. Speculation breeds speculation
The lightening-fast ascendancy of IOTA and RaiBlocks shows the incredible snowball effect that buzz surrounding a coin can have.
Early adopters started buying up these coins because of the massive potential of the underlying technology. Once their growth moved into double digit percentages, interest in each coin soared, with other investors hoping to get on board before the surge reached its pinnacle.
This phenomenon was particularly acute in the hyper-speculative South Korean cryptocurrency market. South Korean investors often complain of the Kimchi Premium levied on cryptocurrencies sold through South Korean exchanges. IOTA’s sudden raise attracted a particularly hefty premium: while CoinMarketCap lists IOTA’s recent all-time global high at $5.48, the price on South Korean exchanges exceeded $9 at its peak.
3. Sudden success can have unintended consequences
While IOTA’s surge to the top of the coin market capitalization rankings has been fueled through trade on large South Korean exchanges and the massive international exchange Bitfinex, RaiBlocks has only been available through a handful of much smaller exchanges.
If you look at RaiBlocks price chart over the past week, you see a steady rise that suddenly completely flatlines for around twenty-four hours on December 12, before an massive increase between December 13 and 14.
The reason for this sudden interruption to RaiBlocks’ surge was that both of the main exchanges carrying it went down at the same time.
The jubilation that many RaiBlocks holders felt at the sudden rise in the coin’s value quickly turned to panic as Mercatox and BitGrail stopped working. Experienced cryptocurrency traders and the teams behind RaiBlocks and both exchanges offered assurances that the coins stored on these exchanges were safe. However, the RaiBlocks subreddit was flooded with worried comments as people feared the worst.
But both Mercatox and Bitgrail were back up within a day or two of going offline. The price of RaiBlocks spiked immediately, going from $1.59 on December 13 to a high of $3.96 on December 14. But once these exchanges were back online, an influx of people looking to withdraw RaiBlocks led to delays in processing transactions. While RaiBlocks’ team and technology aren’t responsible for these delays, it is an unfortunate black mark against RaiBlocks when one of its main selling points is completely instant transfers.
IOTA has similarly been a victim of its own success, as the massive surge in demand has led to lengthy delays in processing transfers on its network.
4. FUD follows success
While Mercatox was offline, a holding page appeared in its place saying that the exchange had been the subject of a DDOS attack. Cryptocurrency is still the wild west of finance and while no culprits have been identified for knocking Mercatox offline, there are many who would benefit from stopping RaiBlocks sudden ascent.
There are two schools of thought regarding the growth of the cryptocurrency market. The first believe that a rising tide raises all ships, and that the growth of one coin provides a net benefit to almost all other coins. To people in this camp, the overall cryptocurrency market has a lot of room for growth. The teams behind different coins and projects should see each other as collaborators in a larger project that is carving out a whole new industry.
Others see cryptocurrency as a zero-sum game. One coin only prospers by directly eating into the support of another coin. If you’re of this mindset, then fast-rising coins like IOTA and RaiBlocks represent a grave threat to any coin they move past in the market capitalization rankings.
FUD is a huge problem in the world of cryptocurrency. FUD stands for the unholy trinity of fear, uncertainty, and doubt – the ultimate weapon to derail the ascent of projects in a marketplace where value is almost entirely determined by confidence in a project’s future prospects.
FUD can spread completely organically, as was the case in the fear of coin theft that followed Mercatox and Bitgrail being knocked offline.
It can also be targeted and deliberate. There are countless examples of this. If Mercatox really was taken down by a DDOS attack rather than simple server overload due to an unexpected influx of users, then this would be an example of FUD at its most malicious.
FUD can also be brought about inadvertently by the team behind the projects themselves.
5. Success means increased scrutiny
In a final sign of just how quickly things change in the world of cryptocurrency, the reputation of the team behind IOTA has spent the past few days fluctuating even more wildly than the value of MIOTA.
As new investors climbed on board and learned about the blockchain-busting genius of the Tangle, the words and actions of IOTA’s team were suddenly subject to a lot more scrutiny.
The biggest blow to IOTA’s emerging reputation was the revelation that headlines about the Microsoft announcement may have been overblown. While Microsoft and IOTA’s relationship had been characterized as a partnership, IOTA co-founder Dominik Schiener was forced to clarify that they were actually ‘participants.’
IOTA’s original announcement listed Microsoft alongside other major companies such as Cisco, Fuji, Samsung, and Volkswagen as deploying sensors that would sell data using the IOTA marketplace. IOTA never actually used the word ‘partnership’ in any of its press releases. But that didn’t stop talk of a partnership spreading like wildfire as IOTA’s price surged.
Litecoin founder Charlie Lee took the opportunity to fire shots at IOTA as it emerged that its possible to pay Microsoft to create a partnership, sardonically suggesting that Litecoin should maybe do the same.
Other criticisms levied at the team behind IOTA followed a series of comments left on Reddit by co-founder David Sønstebø. Sønstebø railed against criticism that was thrown at him on the IOTA subreddit in a manner that many other users saw as unprofessional for a high-ranking individual representing a project with a current valuation of more than $11 billion.
6. Profit-taking always follows an explosion in price
One of the golden rules of cryptocurrency is that what goes up usually dips soon after. Once any project has seen an enormous rise in its valuation, many early adopters will look to cash out at least part of their initial investment and lock in their profits. This inevitably lends to a dip.
Timing these rises and dips is an artform that can be extremely difficult to master. Those that consistently sell high and buy low can use cryptocurrency’s volatility to make an absolute killing. But for everyone who pulls its off successfully, there are plenty more who get the timing wrong and eat into their gains.
But this golden rule means that the peak is never sustained. This can causes panic among inexperienced buyers who pile in at the top and see their sure-thing investment take an immediate loss. However, it also means that even if other problems like those experienced by IOTA and RaiBlocks are avoided, the price is still going to end up dipping.
Both projects have experienced an incredible couple of weeks and they still represent a massive return on investment for those who got in early. Whether their sudden rise in popularity can lead to long-term success if anyone’s guess, but it seems foolish to take too negative a stance on two projects that have enjoyed such an incredible ascent.