The information provided in this article is for informational purposes only and should not be considered as investment or financial advice.
This article was adapted with permission from a Twitter thread by @AndrewADavidson. See the original thread for further discussions.
I want to address the Chia elephants in the room: short term price & CNI pre-farm sales.
Most people (apart from short sellers & those wanting to accumulate XCH) would like the price of XCH to be higher right now. There are lots of Chians hurting now because of it.
If that is you, then I want to acknowledge that, thank you for all you’ve done for the Chia community & let you know that its the OK for you to do whatever makes the most sense to you in your unique circumstances.
Only you know what that is. You have my thanks, hugs and support!
However there has been too much doom & gloom recently so I wanted to address the current outlook for Chia. Is the sky is falling? Is Chia dead as some have proclaimed? (remember Bitcoin obituaries?) No! Its just getting started!
Measuring Success
First up, lets correct some mis-thinking: “Price is the measure of success”
Well its one measure, but a very volatile one and easily manipulated one at that. (See stock splits & merges)
What is better? How about overall value? In crypto the easiest measure is Market Cap (ie: the total value of all coins added together). Why is this better than price? Because (at least for some digital assets) you can easily create more, or burn existing ones to make the price go up and down.
Market cap is like a whole cake. Price is like how big each slice is. You can cut a cake into any number of pieces. Fewer pieces, each slice is worth more More pieces, each slice is worth less But the overall amount and value of cake is the same no matter how you slice it
So market cap is harder to directly manipulate than price and therefore a better measure of short term value and success. So what has Chia’s market cap done over time? It’s remained remarkably steady over a very volatile time in crypto:
Of course market cap reflects price also, crypto in general is volatile and we are in an overall correction period, likely driven by short term selling of Mt. Gox returned proceeds and German government seized BTC. The point is that the market cap graph since launch has been mostly steady.
In crypto, price & market cap can also be easily be manipulated. Particularly in “Pump & Dumps” where firms hype up, buy and sell low quality coins which they have large holdings of, to push up the price, wait for others to buy high and dump all their coins and walk away.
Pre-farm Sales
Which brings us to the recent monthly sales of Chia Network Inc’s (CNI) pre-farm. Is CNI just doing a Pump and Dump? Are they just dumping on retail? No!
First up, the pre-farm was created to be a strategic long term asset of CNI. CNI has been completely open about it. Particularly it was discussed in their public business white paper.
It is critical to their continuing strategy of doing an IPO, where the pre-farm will be one of the key assets of the public company. This will create a relationship between the value of Chia XCH tokens and CNI shares, which will help both find fair value.
So why would they do anything deliberately to dump their long term strategic assets? It’s not in CNI’s interests to do that as it will undermine their entire business plan, which they have been working towards since they were founded in 2017. Yes 2017.
CNI has never taken short term shortcuts. They were “born” into the height of ICO mania & could have hyped out a huge “pump and dump” ICO or worthless token, like so many others.
But that is not who they are. They have always looked to create long term value. They walk the talk.
So why have they sold ~50K of XCH every month for the last little while? The business white paper never mentioned doing that?
First for an in depth analysis I would recommend you go and read @SlowestTimelord ‘s great article around this topic – and specifically on whether CNI’s pre-farm sales have significantly impacted XCH price.
Go on – really – I will wait!
Great so now you can see its not such a big issue anyway. But again why sell in the first place? Why deviate from the business white paper? The “why sell” is relatively easy.
It’s the most cost effective way to help fund their operations and expenses in the lead up to their IPO!
The IPO has been delayed, for reasons mostly out of CNI’s control including:
- The collapse of Credit Suisse, the 168 year old investment bank helping with the IPO process.
- The collapse of FTX, Terra/Luna, and Three Arrows Capital.
The latter, which undermined investment in crypto firms & the IPO market.
So, life throws curve balls at you, and you deal with them, using whatever resources you have at your disposal. Due to foresight, good management, and a little regulatory and compliance luck (more later) the CNI team has the pre-farm as one resource available to them.
The alternatives to selling some of the pre-farm, in a controlled manner, which as per the article above has little market impact on price, would be:
- Cutting CNI staff and slowing development
- Raising money at expensive terms
- Doing the IPO in a bad market
- Shutting down
I think you will agree, none are good options?
Regulatory Changes
What about the white paper? Didn’t CNI say they wouldn’t sell any pre-farm before the IPO? Well yes they did. However that was partly because as above “shit happens!” & partly because regulatory changes based on law suit outcomes.
Specifically the outcome of the Ripple case. I am not a lawyer so won’t comment on details but CNI has obtained strong legal advice that sales of the pre-farm, in the specific way they are doing it is compliant.
In summary
- Yes short term price sucks (hugs to those affected)
- No Chia is not dead & CNI are still following their plan to IPO when the market conditions are right
- In the mean time they are carefully funding themselves and implementing their roadmap.
Onwards!
