Ampleforth is a hot topic in cryptocurrency space, and many people are complaining that they are losing their tokens, or losing money, some people are comparing it to ponzi schemes, and many people actually got REKT on AMPL. And at the same time, many people even gained a huge number of tokens because of the so called thing called "Rebasement". So what's the fuss all about? Let's have a deeper dive to see what is really happening!
Disclaimer: I'm not a certified financial advisor, and even though I've been trading for quite a few years, I urge people reading this, and my other posts to #DYOR (Do your own research) before taking any decisions!
Of course I'm going to help you out if you have some queries/doubts, so feel free to let me know in the comments, or on twitter :)
So let's dive in to see what's really happening with Ampleforth!
Before that, let's have a look at the charts first, and then I'm going to tell something where most of the people went wrong, or are confused about the price of this token.
Chart: $AMPL/BTC, 1D
link: https://www.tradingview.com/x/jzSAqBsK/
Looking at this chart, the first thing that comes to out mind is, WTF has happened in the last few weeks?
If you are reading this, I'd like you to read till the end before forming any opinion.
Another Disclaimer: I'm currently not holding any AMPL tokens, and I'm also not affiliated with Ampleforth in any way.
Here are a few screenshots I acquired from various groups on telegram/twitter:
I dont belong to these groups, but they are being forwarded on social media :)
So what's really happening?
People have been talking about "Rebase" on Ampleforth quite often.
Let's have a look at their official website once:
First thing which we should notice as per their claim: "An adaptive money built on sound economics"
So? Every coin claims the same. How is this one different, and why do the number of AMPL tokens keep changing every day?
Have a look:
source: Ampleforth website.
The supply is not fixed, it is "elastic".
This means, the supply will change every day, with respect to demand, and the ownership is never diluted.
They are trying to solve the "Inelasticity Problem."
In simple terms, think of the following scenarios:
(These are in no way a complete theory on the economics, as there are far more things to consider, and I'd say, the below points about cash and Bitcoin are just the tip of the iceberg, and also, I don't intend to compare Bitcoin, or cash with anything else.
Bitcoin is Bitcoin, was Bitcoin, and will remain Bitcoin forever!) 🤣
BTC:
Supply is fixed, you buy 1 BTC out of the 21 million BTC to be ever mined;
so, if demand goes up, price goes up as number of coins is limited, and you end up getting the valuation of your Bitcoin increased.So if you bought Bitcoin at $1000, and because of demand, if price goes up, you can gain the profits, on selling that same Bitcoin for, let's say $9000.
BTC has the following traits:
- Increasing acceptance rate (merchants accepting it)
- Divisible (Think of Satoshi as a unit)
- Transportable (No barriers in transferring coins from one person to another)
- Cant be counterfeit (Have you seen someone selling counterfeit Bitcoin? [Hey! I'm not talking about hardforks :P])
- Durable (Can't be hacked)
Cash:
Supply is technically infinite, and depending on demand, new money can be printed (Brrrr :P) or removed from the supply. That's a different concept, beyond the scope of this post as of now.
So, you basically end up losing your net worth over time, if you hold cash, and the supply increases because of adjustments to the central bank policy. Think of inflation rate, interest rate, and all.
It has the following traits:
- Elastic
- Portable
- Divisible
- Accepted by (almost) everyone.
AMPL:
Supply is not fixed, there's sketchy demand,
But, you don't get your share of the whole network diluted, which, in simple terms, mean:
1) If demand goes up, the number of tokens go up,and your share of tokens also go up
2) If demand goes down, number of tokens go down, and your share of tokens also go down
So what does that mean?
Let's consider a hypothetical, and fictional scenario in layman terms:
-> For the sake of understanding this, assume that you see Ampl is trading at $1, has a supply of 10000 coins, at current time, and you buy 1000 Ampl.
You basically now own 10% of the market share of Ampl.
The Positive case: (Increasing Demand)
People start speculating and buy Ampl tokens.
Price will go up.
Let's say, current price goes to $2. Now, to balance the price, the protocol will basically print new tokens, and bring the price down. So let's assume theoretically, the price is now back to $1, but the supply of the tokens have become 2x, or 20000.
So, what happens to the your holdings if you can't sell 1000 coins at $2?
Now comes the fun part.
You will notice that the number of coins in your wallet will increase by 2x.
The Supply adjustments, unlike fiat currency, is adjusted proportionally within the network participants, or in other words, who are holding the tokens.
This is the so called "Rebasement" which everyone is talking about, and yet confused.
So you can basically sell 2000 coins at $1, and still make a 2x profit, even though you don't actually see the price sustaining $2 levels.
Now the reverse is also true, which is the same reason you see why people are calling it as a scam.
If you buy 1000 AMPL tokens at $1, when the total supply is 10000,
People start selling because of less demand,so, let's assume, if demand falls by half, the total supply is going to get reduced by half as well! And new supply will be 5000 tokens.
So isn't is good for me?
No because your network share will remain constant, (as mentioned in the above point) so you will basically lose 500 tokens.
So now, you can sell 500 tokens, at $1, and end up losing $500 from your holdings.
Here's a small snippet from their website:
Gains and losses in the Ampleforth network are attributed to supply in addition to price. As a result—it will not be effective—to trade Amples like a typical floating price token. More specifically, common technical analysis methods like Simple Moving Average will not paint the full picture.
Here is a diagram (which may be complex to some people) on their website:
And here's what they have explained the same thing, in technical terms:
if the exchange rate between Amples and its target is > Pt + δ, the protocol responds by expanding to coin holders proportionally.
if the exchange rate between Amples and its target is < Pt − δ, the protocol responds by contracting from coin holders proportionally.
So, how can we see the valuation?
Ans: We should look at the Marketcap instead of the price, based on how they work.
We have all been checking the wrong charts for this token OMG...
Chart: $AMPL: Marketcap, 1D
If you see the Marketcap, you will see that the Marketcap went parabolic, which didn't really reflect on the prices. So you will hear many people who got 2x, 3x, or 10x extra supply on their holdings, as part of the rebasement.
In the last few days, the Marketcap has been falling drastically; (Like the price of many altcoins from their peak do); and on looking at this chart, I can tell that there has been massive demand shocks, as well as the opposite, which led to the massive price volatility in the last few weeks.
Right now we are seeing demand and supply shocks, basically to many people speculating on that or too many people panic selling that, so the mechanism isnt able to cope up well...
That's why we are seeing extreme volatility.
As of now, to get the rebasements, you can stake Ampleforth on the Geyser Dapp, (https://www.ampleforth.org/geyser/)
But you need to keep them in your own private wallet, or some Dex, because all centralized exchanges aren't audited.
As of now Kucoin and Bitfinex are audited by Ampleforth team. But I'm really not sure whether you will get rebasements there.
So, My final thoughts on Ampleforth:
- It's definitely not a "Scam" as people are calling it.
- The use case is unique, though I don't really like that people have been calling it as a "Better version of Bitcoin".
- The Price action of Ampleforth isn't understood by a large number of people
- I personally feel that is is still a bit overvalued at current scenario.
- It is still "Experimental" in nature, and may or may not succeed. But, the rewards, if this succeeds as a useful currency will be huge.
- I'd wait for the dust to settle before entering. But again, trading this without understanding how it works, will be more like gambling.
Let us know in comments, about your thoughts!
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