Zombie Unicorns

How the Unicorn Indicator Shows That We Are in a Crypto Bubble

cc by Michael Pollak

One of the most interesting metrics of the crypto market is the Unicorn Indicator. It counts how many cryptocurrencies or tokens have a market cap of more than a billion dollars. Today there are 69 of them, according to Coinmarketcap.com.

What does the Unicorn Indicator reveal? First, it is a reliable indicator of bubbles. If the number of unicorns has risen exceptionally fast, it means that investors are spreading capital evenly across the market, regardless of news and facts. They will buy anything with the label “crypto”.

Second, the Unicorn Indicator reveals a lot about the market. It shows which coins, tokens and apps are gaining attention and capital from investors. This makes the Unicorn Indicator a reliable way to spot trends. We have had two main relevant events over the course of the last months:

  1. Microstrategy, Tesla and Square’s Investments
    They flowed exclusively into Bitcoin, making the “digital gold” a cash substitute in times of a fiat money glut.
  2. The Rise of DeFi Apps
    in 2020 this happened exclusively on the Ethereum Blockchain, and is now expanding to the Binance Smart Chain.

Both of these important developments took place on Bitcoin and Ethereum, to a lesser degree on Binance. Other blockchains and cryptocurrencies are not really affected. The fact that they increase at a similar rate, or even more, without any particualr reason, is a clear indication that we are in a bubble.

Who Will Kill Ethereum?

In this article we will have a closer look at the Ethereum Killers: blockchains that explicitly set out to compete with Ethereum. They promise to be as good as Ethereum at smart contracts and tokens, especially DeFi, but to scale higher or otherwise be better. The typical Ethereum killers right now are Binance Smart Chain (BSB), Cardano (ADA), and Polkadot (DOT). These are among the top 10 coins and do not appear in our list. We also ignore Rootstock (RSK) and other Bitcoin-based solutions. Instead, we have a look at the also-rans on the ranks 20 to 69, coins like Avalanche, Cosmos, EOS, Icon, Near, Tron, Waves or Ziliqua. These alleged Ethereum killers have one thing in common: a complete lack of users, as well as no prospect of ever assembling a critical mass.

The fact that in addition to the top three Ethereum killers, another 14 blockchains are valued at more than $1 billion shows how highly the market values the potential of smart contracts, but also how little faith there is that Ethereum will retain its dominant status.

The typical chart progression of a Zombie Unicorn that only returns to make investors poorer looks like this: The coin emerged in 2017 at the earliest and mid-2020 at the latest, ideally as a child of the ICO hype; if it existed before, the price rose significantly in late 2017, often by a factor of 100 within a few months, then kept falling until it reached a low point in March 2020, often less than 10 percent of the peak value.

After that, it slowly rose, pulled along by Bitcoin and Ethereum; in January, the rise accelerated, and in February, the price exploded to surreal heights. Price increases by a factor of 10 to 50 are not uncommon; in some cases, there are even cryptocurrencies that had a market capitalization of $10 million a year ago and are now worth more than a billion dollars. Almost all unicorns march in lockstep through this development, regardless of whether they have users or there is relevant news.

Algorand
A proof-of-stake blockchain that claims to be secure, decentralized, and scales excellently. So it solves the old familiar “blockchain trilemma.” Also touts DeFi and dApps. Has some transactions after all and also some Dapps and tokens. Start June 2019 at $3, rapid and constant drop to 16 cents in March 2020. Apart from a short peak at 60 cents in August, the coin stays in a channel between 20 and 40 cents until January 2021. By February rise to 60 cents, then it goes vertical to $1.50, and back to $1.09. The market capitalization is a considerable 2.26 billion dollars.

Avalanche
Launched in late September 2020, $5.70, slowly dropping to $2.80-3.60 by the end of the year, then rising, ending January at around $12. Then parabolic in February to as high as $55, from there down to $26. Market cap was temporarily 4 billion, now just over 2 billion.

Cosmos
An “interoperable ecosystem of interconnected blockchains”: scalable, usable, interoperable, with a secure, new consensus algorithm. However, no more than a handful of transactions per minute. The price has fluctuated between $3 and $7 since entering the market in March 2019, with a downward trend that bottomed out at $1.68 in March 2020. Over the course of the summer of 2020, Cosmos’ coin ATOM crawled out of the ground, then settled at just over $4 for a few months, before breaking out in January, rising to as high as $9, and participating in the general explosion in February that catapulted ATOM to as high as $24. Today, the coin stands at $18.50 and a market cap of $3.9 billion.

EOS
Another veteran Ethereum killer that doesn’t seem to have caught on. Its current price of around $3.70 is far from former highs, but has still benefitted from the rally, at least a bit. Seems despondent, though; Measured in Bitcoin, its price is at an all-time low.

Ethereum Classic
A long-known fork of Ethereum, which was created at the time as a reaction to the censorship of the DAO hack. But has since slipped into irrelevance without any particular ambitions. ETC emerged in 2016, with the price initially at $1.5, rising to 45 in the wake of the bubble in late 2017, but then slowly and steadily plummeting. The low was $4 in early 2020. From there, it has since shot back up, with a high at $17, but now back at 12.

Fantom
A blockchain platform, with its own supposedly super scalable consensus protocol. Advertises to be compatible with Ethereum, so you can easily transfer ETH dapps to Fantom. However, most blocks so far have no transaction or at most one transaction. Trading since October 2019, starting at 1.5 cents, rapidly rising to 24 cents, then long descent, less than 1 cent as of February 2020. In July 2020 again more than 1 cent, in autumn a short bubble to 4 cents, then again descent to below 2 cents, from January explosion to almost 60 cents and a market capitalization of 1.5 billion dollars.

Icon
A blockchain with proof of stake and fast block sequence. There are some applications, also with DeFi and such, but most blocks contain only the miner transaction. ICO late 2017, marketcap jumped to $4 billion during hype early 2018, but dropped below a billion by spring 2018. Then it lived on as zombiecoin, in spring 2020 a market cap below $100 million, price 12 cents, now 1.76.

Kusama
The wild, risky test network for Polkadot, the fast-forwarding ‘canary in the tunnel’ for its cousin. The network is built on the same code base as Polkadot and “is an experimental development environment for teams looking to move quickly or prepare for launch on Polkadot.” Launched January 2020, priced between $1.10 and $2 by March 2020, under $10 by July, then between $10 and $20 by September, then climbing to $30-50, more than $50 from January 2021, finally climbing almost vertically to as high as $250 in February. Now at $221 and a market cap of nearly 1.9 billion.

Neo
A “developer-friendly, community-driven open network for a smart contract economy.” It is considered one of the oldest China-based Ethereum killers. Started trading in September 2016 at just under 20 cents. Rise to as high as $176 over the course of 2017, then the usual slow descent, reaching a low of just over $5 in March 2020. From there, slow climb, but barely above $16 by the end of 2020. Only during January above 20 dollars, in February briefly to almost 50, now back at 37. The is rally nevertheless lead to a market capitalization of 2.65 billion dollars.

Terra
“Programmable money for the Internet” that enables Terra Stablecoins. It enables smart contracts on CosmWasm technology and gives access to lending platforms. It seems to be a token through which you can launch stablecoins on multiple blockchains. First traded at $1.31 in July 2019. Ongoing decline in price with a low of 12.5 cents in March 2020. Slow recovery from there, 30 cents in November, 89 cents end of January. Then a plummet to $7, slight correction to $6. Market capitalization $2.4 billion.

Tron
Launched in September 2017. Absolute peak in early 2018 at 20 cents, then long fall, bottoming out at 1 cent in March 2020. Then mild rise, reaching just over 3 cents in late January, then accelerating and culminating at 6 cents. Rather powerless, purely dutiful rally of a coin that has already shot its powder. Market cap, however, remains above $3 billion.

Waves
A platform for tokens and smart contracts. It has block intervals of about a minute and currently 2-50 transactions per block. Waves has been around since mid-2016. It started trading with a price of 20 cents. During the bubble, WAVES rose to $17, but then crashed bit by bit, lower and lower, until the price was back around 50 cents in early 2020. From there, it went up to now be back at around $10. The market cap peaked at 1.7 billion during the last bubble, was still under $100 million in January 2020, and is now back at around 1.1 billion.

Zilliqua
A PoS blockchain for decentralized apps. E.g. Revain and Unstoppable Domains. Collaborates with ChainLink. Trading starts at 10 cents in spring 2018. Drops to 4 cents, then races to 18 in May, but keeps dropping from there, bottoming out at 0.4 cents in May 2020. From here, it’s back up again, back above 10 cents. Huge increase in value: market cap was under 50 million a year ago, is now over 1.3 billion.

By Christoph Bergmann, the editor of Bitcoinblog.de, Germany’s leading cryptocurrency blog.