Nicholas Merten from DataDash recently spoke on a topic that has been under the radar in the crypto community. The CoinSpeech team has gathered the most important takeaways from his latest appearance. Readers can find Nicholas Merten’s new video below.
The “Slow Rug”: A Silent Threat in Crypto Markets
Merten introduces a concept he terms the “slow rug,” which he believes is one of the primary reasons why the crypto market has been unable to surpass the prior all-time highs, especially for Bitcoin and most altcoins. He stresses the need for awareness to avoid stagnation in portfolio returns.
Absence of Fundamental Revenue Generation
The cornerstone of Merten’s argument lies in the fact that most crypto projects, unlike traditional publicly-traded companies, do not generate actual revenue. “Crypto tokens don’t generate revenue. The vast majority of these tokens do not generate revenue; protocol fees are not revenue,” he states. This leaves insiders and early-stage investors with a strong incentive to sell at inflated prices, creating a classic “slow rug” scenario.
Chainlink: A Case Study
Among the projects Merten profiles is Chainlink, a well-known player in the crypto space. He points out that Chainlink’s circulating supply has been steadily increasing, diluting its value over time. “Chainlink is a prime example of a project that is slowly but steadily increasing its circulating supply of tokens,” he explains.
Merten illustrates this with data, mentioning that the market cap might appear stable, but the token’s price has significantly dwindled from its previous highs. “Nowadays we’re at $14 per token, but the market cap is clearly not that much further down from back here in the past at this range so what gives?”
Cardano and XRP: More Examples
Turning his attention to Cardano, Merten highlights its 90% drop against its prior highs as another illustration of the slow rug effect. “If you consider on an annualized basis that this is continuing to tick up here and you consider that each month here we’re seeing generally speaking around 60 million ADA tokens hitting the market…you are talking about millions upon millions of dollars hitting the order book.”
Similar disparities are observed in XRP, which has not revisited its prior all-time highs since January 2018. “XRP’s market cap has nearly tripled since that window of time…If you consider really how much this is 2.75% of a coin whose market cap is $26.3 billion, it’s not chump change,” he says.
Strategies for Navigating the Slow Rug
Merten emphasizes the importance of trading over hodling in such an environment. “This is the key point here guys. It doesn’t matter at the end of the day… you need to ask that question as a trader,” he advises. He encourages the use of momentum indicators and moving averages to identify entry and exit points, hinting that these tools are preferable to simply guessing which project will outperform.
“Altcoins are all about momentum of that speculation right…when there are signs of the momentum starting to fade, you can win big,” he suggests.
A Grim Reality for Altcoin Investors
The crux of Merten’s argument remains that as new projects and tokens flood the market, the probability of these projects outperforming Bitcoin diminishes sharply. “As the crypto space gets inundated with more and more projects… it is very likely that your token is going to underperform Bitcoin if you are holding it long-term when the narrative fades out,” he warns.
Ultimately, Merten concludes, “The unfortunate thing with a slow rug is that you just don’t realize it,” highlighting the gradual nature of value erosion in many altcoin projects. He signs off urging viewers to think critically about where they place their investments.