It has been a tumultuous few weeks for TRON and BitTorrent’s CEO Justin Sun, who seems to have been embroiled in one predicament after another since calling off his widely-trumpeted lunch date with Warren Buffet. Intriguingly, the price-action of TRX during the spate of controversies may prove the cryptocurrency market has reached a significant level of maturity.
A case study by Coinmetrics highlighted that Tron (TRX) traders responded nearly instantly to three announcements July 22-23 regarding Sun, suggesting a certain level of efficiency in a market that has traditionally been deemed too immature for institutional participation.
Examining TRON’s price-action during July
The two days in late July were particularly eventful days even for Sun—a controversial figure whose flamboyant promotion of TRON has on more than one occasion landed him in hot water with both the authorities and his fellow cryptocurrency founders. In response, TRX dropped more than 29 percent in USD value during the period.
TRX became discernibly volatile upon news that Sun, canceling his highly publicized lunch with legendary investor Warren Buffet claiming to have been stricken by a sudden bout of kidney stones. The cancelation was first announced by the Tron Foundation at 21:28 UTC, July 22, and at 21:49 pushed to Sun’s 1.2 million followers on Chinese social media app, Weibo.
TRON Foundation announces postponement of Warren Buffett lunch, press conferences after founder Justin Sun falls ill with kidney stones. Parties agreed to reschedule at a later date. @GLIDEsf @WarrenBuffett
— TRON Foundation (@Tronfoundation) July 22, 2019
Following the news, TRX began a steep descent seeing the coin lose nearly 8 percent in USD value in an hour.
In the next instalment of Sun’s two-day saga, Beijing-based media outlet Caixin issued a report alleging the TRON founder and CEO was being held by authorities in China for unknown reasons. Later, the 21st Century Business Herald published a number of seemingly incriminating allegations against Sun including that the 28-year-old had conducted illegal fundraising and money laundering, and distributed child pornography.
Expectedly, the news did not bode well with the bulls. Breaking at 14:45 UTC July 23rd, the Caixin announcement appeared to stimulate a 30-minute sell-off this time resulting in an even greater 9 percent decline in price.
The third high-impact event came at 17:45 UTC when Sun tweeted a photo of himself in San Francisco, intended to disprove he was being detained in China. This time buyers were spurred into action, and price quickly rebounded up to $0.0254.
TRON and the paradigm of “market efficiency”
The efficient-market hypothesis (EMH) can be defined as a market’s ability to price in available information and stems from the assumption that, in a market with “strong” efficiency, assets will always be priced at their fair value.
As pointed out by Coinmetrics, closer examination of the three events surrounding TRON’s price-action may make the case for “moderate”—not strong—efficiency in the cryptocurrency market.
Where a strong market would have been able to react instantly to unexpected developments such as the Buffet lunch cancelation, TRX traders did not take meaningful action until 22:25 UTC when they instigated a precipitous sell-off. This comes in contrast to markets such as equities, which would be expected to respond near-instantaneously to the initial event.
The two subsequent events were priced in nearly instantly, however, with TRX’s price declining or increasing noticeably within minutes of their announcement. Per EMH, this would be explained on account of the enhanced attention of traders, who would have become more ready to react to new information as it was released.
What would a strongly efficient market mean for crypto adoption?
A lack of efficiency in the cryptocurrency market may have inhibited (or be a product of) the asset class’s supposed transition into an institutionally-sponsored, likely multi-trillion-dollar, market.
With efficiency, traders in theory are able to trade with access to accurate and complete information, and in the eyes of regulators and market participants, this is imperative.
Assuming TRX, as the 12th-largest cryptocurrency by market capitalization, represents the current state of efficiency in the crypto market, this would give a compelling explanation as to why institutional trading powerhouses have remained on the sidelines of the market, and the U.S. Securities and Exchange Commission has dismissed a string of supposedly robust Bitcoin ETF applications on the basis they could not “prevent fraudulent and manipulative acts and practices.”