I was intrigued by the spiral problem and decided to do some analysis that I would like to share. These are just some charts comparing some blockchains that I believe are at a market level of comparison with IC.
In some analysis, such as social dominance and trading volume, BTC and ETH were not included for obvious reasons.
The Circulating Supply:
- The interval comprises the period after the ICP circulating supply definition has been updated (April 19th).
According to the new definition, noise aside, there appears to be no excess ICP being minted over time compared to other blockchains.
The Price:
- This chart shows that when we look at the history, even though ICP’s price performance has been terrible, it’s not alone. Since the day the market topped (Nov 8th, 2021), the price behavior has been very similar between these projects.
- Above, the rate (ICP price)/(other crypto price) shows the relative valuation of ICP to others.
To chart this, a significant reference was sought in the market as the price of ICP is only falling. The timeline starts on the day of the - possible - bottom of the BTC bear market (Nov 21th, 2022).
Since then, ICP has performed better than many.
- Still, another way to look at price behavior is by dividing “price/(market cap of non-stable altcoins except ETH)”. It’s kind of a herd effect measure, showing performance relative to the altcoin market as a whole.
The Direct Price Impact of NP Rewards:
- On the chart we see the price of ICP (candles), the market cap of non-stable altcoins with the exception of ETH (line) and payout days for NP rewards (vertical lines).
More than illustrating the apparent lack of correlation between the rewards received by NP and the price of ICP, what is even more striking is that the behavior of the ICP price is much more dictated by the movement of the altcoin market as a whole.
The Social Dominance:
- When we analyze social dominance (the proportion of mentions on social media about some cryptocurrency in relation to the total number of mentions of all top100 cryptos) over the last 2y (Aug. 2021 to Aug. 2023), it is clear that ICP is well below most of these projects.
The top lines are SOL, ADA, MATIC. BNB and ETH were excluded from the comparison.
The Trading Volume:
- The lack of engagement on social media, the bad reputation acquired by FTX’s manipulation of the launch of the ICP token in conjunction with the terrible timing of the launch (2 days before BTC lost support in the May 2021 correction) and the current market moment ended up not encouraging trading and price speculation on exchanges, leading to low trading volume.
The Staking Volume:
- Finally, just one more interesting fact, since when staking the volume available in the market is reduced, generating a kind of pseudo deflation. The table shows the proportion of the circulating supply that is in the form of a stake (out of market). More details here.
Further Considerations:
- Even though the data displayed here does not offer a solution to the “death spiral” problem, I hope the information provided helps in the process.
- On Sep 17, CoinMarketCap recorded total 24h trading volume of 4509737.48 ICP. The NP rewards for the month, according to the IC dashboard, were 729965 ICP. Using @Kyle_Langham’s reference that ±65% of NP rewards are sent to exchanges, and assuming they are all sold, the NP Rewards selloff for one month would represent 10.5% of the 1-day ICP trading volume.
- When the value of the ICP, and consequently the ICP/XDR rate, falls, the number of tokens minted for NP rewards increases, however, the cost of the cycles (in ICP) increases in the same proportion. In a healthy condition, these forces counterbalance each other when the price changes.
- The operational cost in IC is extremely low, burning little ICP to use, unlike what happens in Ethereum.
- ICP has suffered a lot since the launch of the token and to this day it still doesn’t know what a bull market (altseason) is. This lack of a positive reference in the past kills the enthusiasm of new people who get to know the project. Seems like a scam.
- Restricting or preventing the entry of new NPs is a defensive way of dealing with the problem that seems like a shot in the foot. Decentralization is a valuable currency in this world.
Conclusion:
- As we can see from the charts, the supply-based model is only part of the equation and does not impact asset prices that directly. The effect of the increase in supply with the fall in price is very obvious, but I believe that the weight of this is much less compared to other actors.
- The ICP problem appears not to be the excess of selling pressure, but rather the lack of buying pressure.
- I find the idea of a hard cap interesting as an emergency measure, considering that the bear market does not seem close to ending.
- More force and energy must be put into expanding the ICP name with A LOT of marketing, as already suggested here.
Reinforcing that we need influencers speaking to the masses; volume on social media, on those lists of “moon bags” and “greatest potentials for the next bull run” that people love to speculate about; more buyers of the ICP token, either because they speculate on the price increase, or because they believe in the project.
Sorry if I went on too long.