What Are P2E Coins, and Why Are They Doing So Well?
GameFi

What Are P2E Coins, and Why Are They Doing So Well?

7 months ago

Why are some gamefi tokens doing so well in this relatively bear-ish market?

What Are P2E Coins, and Why Are They Doing So Well?

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P2E coins — or coins associated with the very popular play-to-earn games — have been doing exceptionally well over the past weeks. With GALA leading the charge, tokens in this sector rallied as much as 100% from the January lows. In today’s article, we go over potential reasons for the sector’s recent success.

First things first, though, what does P2E even mean?!

P2E, or “play-to-earn,” is an up-and-coming hot topic in the crypto world. As the name suggests, play-to-earn is a sector in the gaming industry where players are making money by playing the game. While most of us are happy to play a game like Call of Duty or League of Legends for fun, these games bring playing to a whole new level.

When the powers of gaming and crypto join forces, you can be sure something big is about to happen. Can you imagine spending hours playing your favorite game and actually making money for it?

This is what P2E is trying to do. Generally, the games reward players with tokens or NFTs that can be used in the game or sold for real-world currency.  Essentially, P2E doesn’t work that much differently from “illegal marketplaces” for in-game items. Many of us gamers will have bought black market FIFA coins, or CS:GO skins, in our gaming lifetime. The only difference here is that while EA and Valve actively police the trading of in-game items, it is totally accepted in P2E games.

As long as the game is popular (and therefore in demand), people will continue to make money just by playing the games.

What Are Popular P2E Coins?

There are four major players dominating the play-to-earn scene. As seen in the screengrab below, Decentraland (MANA), The Sandbox (SAND), Axie Infinity (AXS) and GALA are miles ahead of the competition, with market caps multiples of their closest competitor.

I remember buying AXS at $0.25, and then selling for $2.00. Ouch. Mistakes were made!

Anyway, Why Are P2E Coins Doing So Well?

There are various pieces to the puzzle. First, let’s address the obvious: the entire market has seen a significant bounce from the lows. The screengrab below shows Bitcoin’s performance over the last month, compared to the performance of GALA, shown as a white line.

As you can tell, the two have performed in a close correlation. The major difference? GALA (and with it, other P2E coins) have moved much more violently: where Bitcoin corrected 52% over the last months, GALA dropped as much as 82%. Bitcoin then bounced 38%, while GALA saw a 162% price increase. This higher volatility is called beta, in finance jargon:

Beta is the volatility of an asset compared to the index. In crypto, Bitcoin is generally seen as the index. When an asset has a higher beta (>1), it will move harder in both directions, although in the same direction as the index.

So, a large portion of the sector’s outperformance can be simply attributed to being a higher beta BTC proxy.

In all honesty, P2E coins’ recent highs cannot be attributed to beta alone. At the start of this article, we talked about sectors. Let’s zoom in on that for a bit. During the bull market, we have seen the entire market cap enjoying steep gains, but there always were baskets of coins doing better than others.

Usually, these assets in the metaphorical basket are related to each other in some way, such as the NFT hype, DeFi summer 2020 or the recent FOAN trend (Fantom, Harmony, Atom, Near). When these sectors do well, they enter a special spotlight, articles like this one pop up, and the buying frenzy starts. Identify the outperforming basket early, and you’re in to make some good money.

Jordan Fish (also known as Cobie) discussed playing the musical chairs of sectors in great detail in one of his recent articles, which I recommend you read here, after you finish reading mine!

What Does All This Have to do With Play-to-Earn?

Well, there is potential for this sector to be a future basket of outperformers. Even though right now things are still immensely correlated, it does not always have to be like that. If you think about it, this sector is less and less speculative than other crypto baskets.

If the gaming and crypto industries intertwine further, I could see a future where play-to-earn tokens move more freely, regardless of general market sentiment. If players start to take up a larger share of the market for P2E coins, speculation is driven to the background, which will inevitably result in less extreme reaction to pumps or dumps.

After all, the majority of market participants are simply playing the game, and therefore automatically less concerned with price movements of the rest of the market. A gamer is a gamer first, and the money is a side-benefit.

A complete decoupling from crypto seems unlikely, though. In the end, all financial markets are correlated one way or another, and crypto markets will always have a speculative nature.

What’s Next for P2E?

Play-to-earn is still in its infancy, and yet many experts consider P2E to be the “future of gaming,” and for good reason. If the model takes off, it could revolutionize the way gaming works forever. Instead of paying to play a game, you will get paid for it.

Time will have to tell if the model takes off, with plenty of questions on the long-term viability of the business model, and whether or not pay-to-earn will erode the fun of gaming over time are left unanswered.

In any case, play-to-earn gaming is another highly interesting movement, and new projects are popping up left and right. I'm curious to see what P2E brings next!

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