ApeCoin (APE), a new cryptocurrency recently launched by Yuga Labs that aims to be the cornerstone of the Otherside Metaverse, has recently experienced significant volatility around the sale of its digital land. The price of APE fell from a peak of $26 on April 28 to $14 in May. 2 — Over 45% drop within days of minting. The price has now fallen into the $6 range.
Given the current volatility, investors will wonder if the price of ApeCoin will return to its previous trading range. Let’s first look at historical price trends, especially what happened on Otherdeed minting day; then take a deeper look at the amount of APE that will be locked and released over the next three years. This will help to better understand supply and demand dynamics that could affect future prices.
ApeCoin surges after Otherdeed announcement
In the first few days since APE went public on March 17, 2022, the price has soared from around $7 at its peak to $17; a 143% increase! Since then, the price has fluctuated between $10 and $15, until rumours of a virtual land sale on Otherside began to circulate.
The chart above shows that APE surged nearly 24% from $13.16 to $16.30 in one day. When rumors of Otherdeed surfaced on Twitter on April 20, APE surged to $26 on April 28 after OthersideMeta officially confirmed the sale two days earlier.
Prices for Yuga Lab’s Bored Ape Yacht Club (BAYC) and Mutant Ape Yacht Club (MAYC) non-fungible tokens (NFTs) followed a similar pattern on April 20. MAYC hits an all-time high of 43 Ether (ETH) in April On January 26, the day the transaction was confirmed, BAYC began a rally from a low of 105 ETH to an all-time high of 168 ETH on May 1.
Confusion ensues as Yuga confuses users during Otherdeed sale
For new investors excluded from BAYC, MAYC and BAKC, Otherdeed is seen as an opportunity to become part of the Ape community.
The bullish belief in APE is due to it being the only currency in the Otherside virtual world and secondary market land sales will also be traded in APE and ETH.
Investors believing in the idea behind Yuga Labs and Otherside Metaverse scrambled to acquire APE to prepare the mint for 305 APE per lot. Increased demand for APE is widely expected as the minting date approaches, and pre-minting price increases are also expected.
It was later shocking how chaotic the whole process of casting Otherdeeds was. On May 2, the price of APE plummeted from $24 to $14, a drop of more than 40% in two days! The price immediately dropped to $20 on the day of minting, which can be explained by the sudden drop in demand for APE after minting began.
A further 30% drop over the next two days clearly reflects the loss of investor confidence in the project following the mint collapse. The prices of BAYC and MAYC reflected the same sentiment, falling more than the market cap of the airdropped Otherdeed.
While the Otherside team works hard to verify new investors through a know-your-customer (KYC) process prior to minting and selling at a fixed price, these measures are not enough to prevent a gas war. Before the Mint, the information was unclear and sometimes outright wrong, and a lot of money was misused and burned on gas due to miscommunication by Yuga Labs.
Here are some of the main issues investors faced on minting day.
What happened to the Dutch auction?
On April 26, OthersideMeta tweeted that the Mint was going to have a Dutch auction, but three days later they changed their mind and said “the Dutch auction is actually nonsense,” a complete turnaround for investors and Cruel slap.
A Dutch auction would be an effective way to ease the gas wars because of its unique design of very high starting prices and lower prices over time. Investors could have chosen to mint at different times at a price they could afford, avoiding everyone minting at the same price at the same time, and creating a gas war.
Mint will use a Dutch auction, so the price of ApeCoin will drop over time. Opening bids for the Dutch auction will be announced later this week.
—OthersideMeta (@OthersideMeta) April 25, 2022
Delayed mint creates additional problems
APE prices experienced some of the biggest hourly downside repricing after the team pushed back the minting date.
The hourly chart below shows a slight increase in APE in the first three hours after the initial planned minting time, before falling all the way from $22 to $22 when the actual mint was at 9pm EST (1:00am UTC). $18.
It’s hard to say whether the delay has exacerbated the downward pressure, but APE’s price volatility significantly increases the risk investors take, especially when the mint doesn’t even guarantee KYC wallet holders.
The Guarantee Mint of KYC Wallets Gone
This is the biggest problem and misunderstanding in the entire minting process. According to the Otherside article, at the start of the sale (wave 1), only 2 blocks are allowed to be minted per KYC wallet. Once gas fees drop, the limit will go up to an additional 4 NFTs (wave 2). Since the number of KYC wallets is not disclosed to the public and there is only a fixed number of blocks available for minting, it is uncertain if all KYC wallets can mint at least one.
Assuming a maximum of 6 blocks per wallet for a total of 55,000 blocks, to guarantee that at least one block can be minted per wallet, the maximum number of KYC wallets allowed should be 9,166.
It turns out that KYC wallets are much more than that number, and many investors don’t mint anything after paying very high prices for APE and experiencing stratospheric gas fees during minting.
Gas fees soar during actual minting
Waves 1 and Waves 2 are designed to ease the gas wars by limiting the number of blocks that can be minted per wallet. The problem is that the total number of KYC wallets is too large. At the same time, the number of people rushing to mint coins has not decreased, and the gas fee has not decreased. While early minted NFTs sold for two to three times the cost of the mint on the secondary market, the need for more mints and a fierce gas war continued until all 55,000 plots disappeared.Many users paid gas fees ranging from 2.6 ETH to 5 ETH in the process, and many users lost the entire fee due to failed transactions on the Ethereum network
Related: ETH gas prices soar as Yuga Labs makes $300 million from sale of Otherside NFTs
Sustained increase in supply increases downward pressure on APE prices
According to OthersideMeta, all APEs earned during the minting period will be locked for one year. This is over 16 million APEs (55,000 * 305) taken from the circulating supply. Will this supply reduction save APE prices? Unfortunately not. Compared with the number of APEs unlocked and put on the market every month, 16 million is just a drop in the ocean.
Judging by the number of APEs that will be unlocked each month over the next three years, most of the supply comes from the DAO Treasury and Yuga Labs. Contributors also supply three large pumps in September 2022, March 2023 and September 2023.
Cumulatively, the initial number of APEs unlocked on launch day dominate the supply until replaced by the DAO Treasury in May 2025. With 7.3 million APEs unlocked per month in the 48 months to 2026, the allocation of the DAO treasury is the main source of inflation for additional APEs.
Given that the estimated circulating supply of APE in April 2022 was around 284 million, the 16 million APE locked in the Otherdeed land sale is only 5.9%. Such a small one-off supply reduction is unlikely to have a long-term impact on APE prices, especially with increasing supply.
Volume is the only potential savior for APE prices
In addition to the circulation of APE, transaction volume is also a key factor in determining future prices. Using the ratio of volume to circulation (utilization), the relationship to price can often be found.
The graph below uses a simple linear regression to show the correlation between APE utilization and price. When the circulation is relatively low in March 2022, the higher the utilization rate, the lower the price. Conversely, when the circulation becomes larger in April 2022, the higher the usage, the higher the price.
If the positive correlation between usage and price holds, and the circulating supply keeps increasing, the only savior for APE prices seems to be an increase in transaction volume.
However, APE will struggle to attract more volume following the chaotic Otherdeed land sale. Yuga Lab’s tweet about turning off the Ethereum lights and building its own chain appears to have added to the loss of investor confidence.
We apologize for temporarily turning off the lights on Ethereum. Clearly, ApeCoin needs to migrate to its own chain in order to scale properly. We want to encourage DAOs to start thinking in this direction.
— Yuga Labs (@yugalabs) May 1, 2022
The impact of the tweet was far-reaching. Ethereum has a long and stable track record for security and stability, and was arguably designed and built by some of the brightest and most sophisticated crypto minds in the world. It would be even more worrying if Yuga Labs left Ethereum and people rightly laughed at it on Twitter.
Yuga’s collection of NFTs has achieved such a high valuation primarily because they are on Ethereum and users trust the network to hold their high-value NFTs. How will the migration away from Ethereum happen? Will users trust the local chain from Yuga Labs? No other chain trades tokens in the price tier as blue chips traded on Ethereum.
If Yuga Labs sticks to the idea of managing their own chain to house their collectibles, it would be reasonable to assume that APEs and Ape-related NFTs can reprice significantly from their skyrocketing valuations. We have already seen what happened to Axie Infinity on the Ronin chain. APE may face a bumpy road.
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