Introduction of the Acheron Trading Index

The Acheron Trading Index is designed to quantify market speculation and health by focusing on the performance of primary listings through an asset’s initial 100 days. By participating in primary listings, the AT Index offers insights that are not readily available through existing market indicators to gauge investor sentiment and speculative pressures as new assets are launched.

Methodology of the AT Index

1. Data Source: The AT Index utilizes primary listing data from tracked exchanges.

2. Index Composition: It includes all primary listings from premier venues beginning from January 1, 2024. There are currently 89 projects who qualified for the AT Index.

3. Initial Index Value: The index starts at $1000.

4. Investment Strategy:

   1. Equity Allocation: The index invests 7% of its equity into every primary listing.

   2. Entry Price Calculation: Investments are made at the average price of the asset on its first day of trading (e.g., if an asset opens at $1 and closes at $3, the entry price is $2).

5. Exit Strategy

   1. Short-term Exit: 90% of the position is exited over the first 7 days.

   2. Long-term Exit: The remaining 10% of the position is exited over the subsequent 93 days, completing the exit by the 100th day.

Presenting the AT Index

When the broader market appreciates, excess funds tend to flow into highly speculative assets such as primary listings. This leads to an increase in the number of primary listings, which when coupled with favorable return, supports the index's rise as observed in the first quarter of 2024. 

The AT Index demonstrated significant month-over-month (MoM) growth as the index grew 92% in January followed by strong performance in all subsequent months signaling a strong risk appetite. The index peaked on April 15, 2024, roughly one month after Bitcoin’s ATH. A delay attributed to an exchange’s timeline to bring an asset to market, excess return trickling to riskier assets, and extended market optimism.

The performance of the index has been phenomenal since inception as the market has experienced the first bull run in over two years. Even with consolidation, the market will likely continue to support primary listings primarily due to the dearth of listings through 2022 and 2023. 

Implications for Future Market Behavior

The variability in the percentage of equity invested across the months indicates changing investor confidence and market liquidity. High investment return in January and lower return by April suggest a shift from aggressive investment strategies to more cautious approaches. We review the percent invested of the AT Index along with Smart Money holdings in stables (Nansen)to infer what may be next for the industry.

The high max values in January and early April (60.14% and 66.69%, respectively) signify peak market speculation. The January peak following the Bitcoin ETF approval and the April peak coasting off the Bitcoin all time high.  Conversely, the increase in minimum investment thresholds over the months might reflect a baseline increase in constant market participation regardless of broader economic signals. As we enter May, the percent invested for the index has reached 66.69%, the highest value at any point in the index’s history. However, while the index is exposed, the AT Index has stalled around ~$5,540 for nearly two weeks, further suggesting an oversaturated market.

Utilizing Nansen stablecoin data, the percentage holdings in stablecoins suggests similar positioning. The Smart Money % Stablecoin Holdings is at 11.33%, the highest figure since the end of January. Following this local high in January, the market saw a significant bid through mid March. Stablecoin holdings bottomed late March at 4% leading to stalled market performance evidenced in majors and the AT Index. 

The market saturation evidenced by percent invested combined with high percentage in stablecoins held by smart money would suggest that the current market deleveraging would allow for the reentry of capital permitting further upside in the AT Index. For this to occur, exchanges will need to reduce the number of listings per month to unclog retail flows.

Concluding Thoughts

The rapid increase in the index value alongside considerable listing growth through March and April warned of a frothy market. This condition has been followed by a significant correction where the majority of altcoins have fallen 50% from their highs. Nonetheless, given the current trends and barring any significant geopolitical events, the AT Index will likely continue to experience growth, albeit at potentially more moderate rates as the market stabilizes. 

In summary, the AT Index provides a nuanced view into the health and speculative nature of the market concerning new listings. Its performance is intricately linked to broader market conditions, investor sentiment, and liquidity flows, making it a vital tool for assessing market trends and preparing for future economic shifts. This analysis should serve as a basis for strategic decision-making for investors looking to navigate the complexities of the cryptocurrency market.