Understanding the adjustment mechanism of the crypto market and its impact on token prices

Is it Inevitable for Token Prices to Fall on Ex-Dividend Dates?

Generally speaking, on the ex-dividend date, the value of the Token will decrease and the price will fall because the Token holders have already received the allocated earnings. However, based on historical situations, the price drop on the ex-dividend date is not inevitable, especially for some leading Tokens with stable dividends, stable performance, and are highly sought after by investors, where price increases on the ex-dividend date are also quite common.

In the case of rights issuance, the project's circulation increases due to the issuance of additional Tokens or the allocation of new Tokens. With the total project value unchanged, the value represented by each Token will correspondingly decrease, meaning the price will adjust downward.

In the case of ex-dividend, the revenue distribution (such as staking rewards or transaction fee dividends) given to holders by the project also signifies a real decrease in project assets. Therefore, although holders will receive revenue after the ex-dividend, the Token price will also be adjusted downwards accordingly.

Specific Case Analysis

Assuming that the annual return of a Token project is 3 dollars per Token. The market values this revenue stream at 10 times, which means 30 dollars per Token. The project has accumulated a reserve of 5 dollars per Token, making the total valuation of the project 35 dollars per Token.

The project has decided to pay each Token holder a special dividend of 4 dollars, retaining only 1 dollar per Token as a reserve for emergencies.

On the ex-dividend date, the theoretical value of the token is the previous day's closing price minus the dividend to be distributed per coin. Based on the previous assumption, it can be considered that the token price on the ex-dividend date will change from $35 per coin to $31 per coin.

If it is distributing new Tokens, the theoretical price calculation formula is: Post-distribution Token Price = (Pre-distribution Token Price - Distribution Price) / (( + Distribution Ratio)

However! The price fluctuations of tokens are not solely influenced by the ex-dividend factors; they may be the result of multiple factors such as market sentiment and project development. This is similar to the pricing fluctuation principles corresponding to unique economic model events of cryptocurrencies, such as Bitcoin halving and Ethereum staking rewards.

Is it more cost-effective to buy tokens after the ex-dividend date?

This issue depends on the specific circumstances. We can consider it from these three perspectives:

• Price performance before the ex-dividend date
• Historical observation of price trends after dividends
• Project fundamentals and whether to hold long-term

For ex-dividend tokens, there are two important concepts: filling dividends and贴权息.

"Ex-dividend recovery": Refers to the phenomenon where a Token temporarily falls in price after the ex-dividend date due to the distribution of profits, but gradually recovers as investors become optimistic about the project's fundamentals and future prospects, eventually returning to or nearing the level before the ex-dividend date. This indicates that investors are optimistic about the project's future growth prospects.

"Ex-rights": refers to the situation where the Token price remains sluggish for a period after the ex-rights date and does not recover to the level before the ex-rights. This often indicates investors' concerns regarding the future performance of the Token, which may be due to poor project development or changes in the market environment.

Considerations

1. Considerations Before Ex-Dividend and Ex-Rights: Before the ex-dividend and ex-rights date, if the Token price has risen to a high level, many investors tend to realize profits early. Therefore, entering the market at this time may not be a wise move.

2. Historical Observation of Price Trends After Dividend Distribution: Looking back at history, the trend of tokens after the ex-dividend date often tends to fall rather than rise. However, if the price continues to decline after the ex-rights date until it reaches a technical support level and shows signs of stabilization, this may be a buying opportunity worth considering.

3. Project Fundamentals and Long-Term Holding Perspective: For those projects with solid fundamentals and a leading position in the industry, dividend actions are more often seen as part of price adjustment rather than a sign of value impairment.

What are the hidden costs of participating in the ex-rights Token?

Income Tax

If an investor buys ex-dividend Tokens using a personal regular taxable account, they may incur an unrealized capital loss on the ex-dividend date while also having to pay taxes on the received distribution. Tax policies on cryptocurrency gains vary across different countries and regions.

transaction fees and taxes

In cryptocurrency trading:

• Transaction fees are usually charged as a certain percentage of the transaction amount (different platforms have different charging standards).
• Some regions may also impose specific taxes on cryptocurrency transactions.

What is the ex-rights and ex-dividend in the cryptocurrency market?

"Ex-rights" in the cryptocurrency market refers to the act of a project distributing a portion of its profits to token holders in the form of direct allocation or additional tokens, based on operational conditions.

"Ex-Dividend": Refers to the distribution of profits to token holders by a project, similar to staking rewards and fee dividends. This type of profit distribution is usually more stable and its nature is similar to fixed income products in traditional finance.

"Ex-rights": refers to the project distributing additional tokens to token holders. Since the distribution involves tokens, their price will fluctuate with market prices, making the rewards from ex-rights more uncertain compared to ex-dividends, and it comes with a certain level of potential risk.

When a project announces the distribution of profits or additional tokens, the allocation record date and the ex-rights date will be confirmed. Only users who hold the token on the allocation record date can enjoy the right to receive profits or additional tokens. This mechanism is particularly common in staking products and profit distribution on mainstream trading platforms.