Ever since the launch of the pre-voting period and staking, I’ve observed a gradual uptick in the amount of chatter on various ICON channels about the lack of corresponding price action. Many ICONists seem mystified that the price of ICX has not started to gradually uptick as the number of staked ICX grows.

This confusion is certainly understandable. As basic economics tells us, as the supply of something decreases, and if demand stays constant or increases, then the price increases. As we see more and more ICX being staked, it’s understandable that we should perceive this as a reduction in supply circulating within the market.

However, I think our situation is a bit more complex than that, and I believe the short-term (defined by a one-year timeframe) impact of staking on the price of ICX will be limited.

The True Meaning of “Circulating Supply”

In order to break this down, we need to make sure we understand just what “supply” means as it relates to the impact on price.

In this context, supply means “ICX that is available to be bought on the open market by those who wish to buy ICX.” That seems obvious. But here’s what that understanding is important: I believe those who are currently staking ICX had been holding their ICX already (and thus, being unwilling to sell) — either because they believed in the project, they wanted staking rewards, or both — meaning it was already unavailable to purchase on the open market. In other words, those 120 million ICX currently being staked (as of this writing) were already “out of circulation” by the simple fact that their holders had no intention of selling them (and did not sell them) prior to staking.

Here are the primary types of people I believe are currently holding and staking ICON:

  • Those who bought at ICO but did not sell. If they did not sell at $12 (after purchasing at $0.11), they certainly aren’t going to sell at $0.20. These people — as shown by their non-selling actions thus far — have no intention of selling their ICX anytime soon. Their ICX has thus been “out of circulation” since Day 1, regardless of staking.
  • Those who bought either at the middle or top of the market during 2017–18. I believe that if these people sold, they did so a long time ago, when they could either sell for a profit, or sell for a modest loss. If they did not sell prior to 2019, they are most likely holding, as selling for $0.45 (the high of 2019) or less after buying for an amount 10x higher would not be very logical. These individuals have almost certainly become holders, perhaps over the long-term, or until they break even. Either way, their ICX has been “out of circulation” for the year (approximately), regardless of staking.
  • Those who believe in the long-term prospects of the project, regardless of purchase price or the price today. Those who believe in the project long-term are basically the definition of “holders,” and their ICX would be “out of circulation” regardless of staking.

I believe these three categories roughly describe the vast majority of those holding ICON and participating in staking today. Some individuals may fall into all three categories, some may fall into only one.

(I’m aware there are others who may be exceptions, but I believe they are outliers. For instance, a long-term holder who may have actively trade their ICX stack — successfully or otherwise — in the hopes of growing their portfolio, who have stopped that activity once staking began. This person probably exists, but there are not very many of them.)

So Why is there Market Activity?

You’re now likely wondering: If all of those people are holding their ICON, why are there transactions happening on exchanges all the time? Who are those buyers and sellers?

Here is what I wrote in one of my prior articles, “Why I Don’t Worry About the Price of ICX”:

While I don’t have concrete data to prove this, it’s my belief that most price action in the crypto market today is caused by active short-term traders.
They buy because the chart looks “good” (based on whatever metrics they use). They sell when the chart looks “bad” (or if they’ve captured the profit they hoped for). Then they go look at a chart for a different project. They’ll tweet things saying “wow, this coin is garbage!” but only in the context of the “chart” and not the actual fundamentals of the project.
Will we see 20% pumps from time to time? Sure. And then profit targets are hit, traders sell, and the price falls back to exactly where it was before. This has happened to ICON several times over the past several months. It will likely continue to happen.
Until retail investors come back to the party (or mass enterprise demand kicks in), I think most price action basically boils down to the often-repeated adage — either there were more buyers than sellers on a given day, or there were more sellers than buyers. It’s boring, I know — but it’s the current state of the market (in my opinion).

In other words, I believe current price action and the bulk of liquidity is primarily generated by active day traders (either actual humans or bots) who are simply trying to capture whatever potential profits are available through the regular swings in price of ICX. Lately, the price of ICX has been bouncing around between $0.18 and $0.21. To holders who have seen ICX at $12, this basically makes ICON seem like a stable coin. However, to active traders, an increase from $0.18 to $0.21 represents a 17% increase — this is not an insignificant profit margin for a trader to capture over a short time frame (just a few days), making the ICON market fertile ground for an active day trader.

Of course, there are still individuals out there who are purchasing ICON based on their desire to own ICX over the long-term. I am sure that every day someone new stumbles upon ICON while doing research and decides it’s worth an investment; however, most of these individuals are purchasing relatively small amounts; at the same time, there are certainly individuals who have simply decided to give up on the project or find another project more enticing and want to shift their funds away from ICX into another token (however illogical that may sound to us!). They, too, are also trading relatively low amounts. The buyers in this case were purchasing their tokens from individuals who had a desire to sell; the enticement of staking clearly did not sufficiently impact the latter (otherwise they wouldn’t be selling).

The Intrinsic Value of Staking

If someone purchased ICON, it’s likely because they believed it would go to $20 or more when it was $12, they believe it will return to $12 from where they bought it, or their expectations lie at some point between those outcomes. Either way, they purchased ICON with the belief that it will deliver multi-fold returns on their investment over a relatively short-time frame. They likely did not buy ICON because it offered a 15% annual ROI. This is a nice bonus and a value added, but I believe most ICON holders have their sights on a ROI much higher than 15%.

Accordingly, staking by itselfdoes not make a huge difference on the long-term demand ICON. I believe if staking did not exist, that the number of people holding ICON would not be much lower.

To help make this point, think about when you decided to buy ICX. It was probably because of their partnerships, their possible use cases, and/or the fact it had shown it could reach $12. It was probably not because it could earn you 15% annually. The added rewards were probably a bonus for you, but not the primary reason you purchased.

The Two ICX Markets

Taking all this into consideration, I look at the ICON market with two lenses. The first lens is a zoomed out view of the ICON market, in which I’ve perceived the number of coins being held long-term and thus “out of circulation” to have gradually increased over the last year or so (or perhaps even longer). Meanwhile, as the cryptomania has gradually died down, retail demand has decreased significantly, while enterprise demand has yet to show up, leading to the overall price decrease. These are the macro trends that have dictated ICON’s general price action over the past 18 months (along with the crypto market as a whole). This longer-term market is driven by fundamentals, enterprise demand, and ICX accumulation among holders, and a growth in the number of holders.

Meanwhile, the other lens is the day-to-day fluctuations of the market. This is driven by the fluctuations in supply and demand amongst the “true” circulating supply of ICX (an amount that does not include the ICX taken “out of circulation” by long-term holders described above). This shorter-term market is driven by day trading and buying/selling ICX at relatively small amounts for non-day trading purposes.

It can be true that long-term holders (and stakers) have a positive impact on the long-term market without making much of a difference in the short-term market. I believe this is what’s happening with staking. Whatever potential price impact that staking may provide has likely already been baked into the price of ICX, and has been for some time now.

The Good News

To those who were hoping for a price increase in the short-term due to staking, this article may seem pessimistic. However, there’s reason why there is good news over the long-term.

Remember that 120 million ICX figure I referenced earlier? As mentioned, this is the amount of ICX that we can confidently assume is being held over the long-term. As time goes by, I believe we will see that number continue to increase, as it has over the past couple of weeks since pre-voting began.

This number is the quantitative indicator of how many individuals (and their corresponding amount of ICX) believe in the project over the long-term and will be holding for a while. As mentioned earlier, I believe the number of long-term holders is far higher today than it was when the price was $12. During the days of high prices, people purchased based almost purely on price speculation rather than fundamentals.

Meanwhile, those who have purchased while the price has plummeted, or while it’s been so low, have done so because they believe in the long-term prospects of the project. With so many more people holding ICON over a longer period of time, there will be fewer ICX circulating in the open market in the future — in other words, a lower supply.

With minimal demand, this fact has lower supply has negligible impact on price. However, if ICON (and ICONists, including P-Reps) are able to deliver on the vision laid out by the project, it means that enterprise (and possibly retail) demand will increase at a significant amount over the long-term.

The result of these two situations is that, through our long-term market lens, supply is relatively lower, while demand increases substantially.

That’s when we’ll get our price action — and it will be far higher than just 17%.