The Ultimate EOS Token Distribution Buying Strategy and Price Outlook

DISCLOSURE: I do not own any EOS and I do not plan to take out a position in EOS in the next 72 hours.

INTRODUCTION

If you are not familiar with the EOS project or their crowdsale token distribution plan please visit the EOS website.

This is a good time to talk about EOS because we are just past the first quarter of EOS’s distribution plan #92 (out of 350 distro periods). More importantly I have a growing sense that a lot of people are confused why EOS hasn’t mooned yet (hyperbole). Or at the very least, wondered why EOS has sustained a downward price death spiral. I think I can answer that.

While I can’t help those that are in the red, I can assist investors/traders with some considerations to be aware of to help decide whether EOS is at a good entry point.

CONSIDERATIONS/FACTORS TO BE AWARE OF

The EOS Token Distribution plan is an interesting case study for investors/traders (hereby called "players") due to the unique token distribution plan that will span approximately a year. In addition, EOS tokens are available for trading at the same time as the distribution. Why did EOS choose to distribute over a year? Well EOS tells you in their FAQ :

“A lot of token distributions only allow a small amount of people to participate. The EOS Token distribution structure was created to provide a sufficient period of time for people to participate if they so choose, as well as give people the opportunity to see the development of the EOS.IO Software prior to making a decision to purchase EOS Tokens.”

I’m ok with that. So far, so good!

On the surface a player has a simple decision tree to follow at any given time during the distribution plan (assuming the player did their due diligence and has decided the EOS has value in the first place):

1. Is the current open market price acceptable? If YES, then
2. Are EOS Tokens cheaper through the current distribution round than on the open market?

A player will never know the answer for #2 until the round closes which makes it a little more challenging to decide which path to take because EOS tokens are awarded in relation to how much individuals contribute during a round. No one rationally wants to pay more than open market price right?

Nothing is simple so (naturally) there are other factors to consider before a player is able to answer the above questions. Such as:

• Is the current price acceptable to the player's short-term and/or long-term strategy?
• Are other players rational?
• What is the current EOS market cap trend and estimate after all the rounds are finished?
• What is the upside/downside?
• What are the risks?
• Are there any upcoming catalysts events that will affect demand prior to the end of the distribution? In other words, what is the probability that there will be good enough news that will encourage players to overpay now?
• What is the best outcome for each player during a distribution round?

Most of the above are self-explanatory and/or can only be answered by individual players. However, I don’t think everyone is a rational player. I doubt everyone is thinking about all the factors and I doubt that each player is playing with the same level of information. In classic game theory, each player knows the rules and is expected to play rationally. I doubt that is the case here, but rational players in any given round might make up for irrational plays due to sheer numbers.

I generally think players look at the current price and compare it with what they think EOS will be worth at time X and they are good to go.

The best outcome for a rational player that participates in a distribution period is that he/she is the only contributor and he/she gets the entire 2million EOS tokens for that round (wake up, stop dreaming!). The next best outcome is that a player gets lucky and there are not a lot of players in the round. This will result in more tokens distributed per amount of ETH contributed by each of the players.

The point here is that each player wants to maximize the number of tokens they will receive by hoping other players do not participate. One example for not participating is that the contribution total is close enough to where it would be cheaper just to buy on the open market. However most (smart) players know that other players are acting rationally (hopefully) and are also waiting. Of course the risk is that you never know how many players will send in contributions in the last hour. It is quite possible that the result is that a player makes the best decision at the time with the information at hand only to find that they just paid for a token that could have been had for less on the open market.

The takeaway here is a player has a lot to consider before he/she decides which path to take to procure some EOS.

WILL THE PRICE CONTINUE TO DROP?

Now to answer the big question: does this distribution model put downward price pressure as time goes on? I think the answer is YES!.

Players know there can be a cost to misjudging the participation interest in a round. This probably leads to less players willing to take a risk (rational play). This also means that no one feels there is a need to overpay. Conversely if the open market price is more than the current price per token (given the current ETH contribution total), rational players will be more inclined to participate as long as they don’t go over the open market price.

Let’s go through some examples:

EXAMPLE #1

Open Market Price: $1
Current Distro Round Price: $0.90

A rational player will have to decide if by contributing through the EOS site, will it send the price above the open market price as well as consider other players are thinking the same thing. The distro price will usually come close to the market price but not quite.

Conversely does a person on the open market have an incentive to buy at $1 if he/she knows that the going rate was/is $0.90? Probably not. Then where would the demand to overpay most likely come from?

I think demand will usually come from the open market side as each round starts (approx.) zero. Thus, players are contributing and looking MORE at the open market price. Players can gauge contributions by looking at the open market and not worry if he/she will end up with a price that may or may not be fair.

EXAMPLE #2

Open market price: $1
Current Distro Round Price: $0
HODLers price: $0.90

In this example let’s pretend the last example just happened and this is the new round.

You just bought EOS from the last round and look at the market price. How to make a quick 10%? Sell.

This drives down the open market price. So now things may look like this:

Open market price: $0.95
Current Distro Round Price: $0.90
HODLers price: $0.90

HODLers will naturally stop selling as the open market price moves closer to the players cost per token. But now in the new round the game is to come close to 0.95 but don’t go over. Maybe it will reach 0.90 this time.

You can see why there might always be downward price pressure on the open market.

I use extreme prices in the above example to show my points, but even if I used less extreme gaps, and if you are a whale, then even 1-5% guaranteed profit can be a huge gain if it can be repeated with a certain level of certainty.

Most investors sell winners and keep losers so I don’t think there is a massive wave of people that are long-term and in the red that are selling. However everyone has their breaking point and as price drops the mind can justify anything if the mind is weak.

BREAKING THE DOWNWARD DEATH SPIRAL

What can break the downward cycle:

• Major Announcements along the way. Unlikely. I don’t think demand will come from announcements. The roadmap is pretty clear that they timed the end of the distribution around the time that EOS will be usable (as long as they stay on schedule).

• The price drops a point where players feel that the price won’t end up lower towards the end of the distribution. If you think EOS will be worth $1 at the end of the distribution then it makes sense to accumulate until that target. Volume will increase and open market price will rise to a resistance point. Then the cycle happens all over again until something changes (such as news) that make players reevaluate resistance levels.

EOS CURRENT PRICE vs OUTLOOK

I might be missing a key piece but after simple examination, I think the way the EOS distribution is set up naturally contributes more to downward price pressure. A year is a long time for a trader to have money tied up in something that likely won’t go up during the first 3 quarters of the distribution phase. It’s even a long time for long-term HODLs.

If you agree with my assessment then there is more of risk that large contributors will sell and others will panic and sell as well. Like I said, if the open market price drops below a resistance level then everyone will pile back in and drive up the price to resistance ceiling and the cycle begins again.

Is the current price of EOS “cheap”? I probably would evaluate cheapness by how close the last resistance floor price ($0.55). At $0.61 the downside is only $0.55? Hey, that is tempting.

If you think $0.55 will be broken (it only was tested once) then we all know that $0.61 to $0.305 is the same as $1.00 to $0.50 =50% loss. OUCH.

IN SUM

The point of this post was to point out that it’s my opinion that EOS prices will naturally drop because there is more reason to do so at this point than there are reasons for prices to rise. The big factor: there is still a long ass way until the finish line.

If I took the long view and if EOS lives up, or exceeds, the hype then within five years people will be begging for $0.61!

FINAL ASSESSMENT

FOR LONGS AT CURRENT OPEN MARKET PRICE: ACCUMULATE AND FORGET.
FOR SHORT-TERM ACTION: BUY ON EOS SITE AND SELL FOR PROFIT AND REPEAT.