Why the value of OMG Crypto tokens fell 40% today

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What happened

One of the top performing cryptocurrencies in the past week, OmiseGo (CRYPTO: OMG) has garnered huge attention. However, that token also saw a significant drop today, down more than 10% from Friday’s close.

It appears that investors in this Layer 2 network have taken a “buy the rumor, sell the news” approach for this cryptocurrency. Following the announcement of a large-scale airdrop (where free tokens are distributed to holders of a particular cryptocurrency), OMG tokens soared last week to around $ 20 per token. At the start of the week, OMG tokens were trading at around $ 15 per token.

However, the sale – which started on Friday and continued until Monday morning – reduced the value of the token by more than 40%. Given its extremely high trading volume in recent days, traders seem to have moved on to the next dynamic move.

Image source: Getty Images.

So what

It is important for crypto investors to recognize the difference between tokens that are considered stable, currency-like stores of value and those that are primarily trading vehicles. Right now, it looks like OMG can be categorized into the latter group.

On Friday, it was reported that the exchanges saw record inflows of OMG tokens after the airdrop. These influxes into the exchanges suggest that those who received free tokens were keen to liquidate their holdings. As a result, investors seem to view this one-time spike as a one-time event.

Now what

In the stock market, dilution is the term used to describe the increase in the number of shares of a company as a result of a stock offering. In the crypto world, airdrops and other events that inflate the number of tokens on a given protocol can be viewed in the same way.

Dilution for existing token holders is now viewed negatively after data showed OMG holders were not necessarily keen to keep their “free money.” Airdrops tend to work well when investors see the value of holding tokens for the long term. However, the implications resulting from the influx data into the exchanges suggest that the OMG is a token that could be under pressure in the future.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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