The December 26, 2004 Tsunami lands in Maldives: Wikimedia Commons
On January 9, 2018, the TSX-Venture reached an astonishingly high trading volume of 442,270,120 shares which equates to $539,800,073 of dollars traded throughout the Exchange in one day. TD Securities Inc was the top block trade broker, and cannabis company Newstrike Brands Ltd. (TSX- HIP.V) led the charge, trading a total volume of equivalent of CAD $127 million dollars.
The TSX Venture peaked on January 9th 2018, and since that date there’s been a significant reversal in volume and liquidity. Almost any investor who put money into the market in January is likely down money today, as the majority of stocks have declined in share price since the aforementioned date. As shown below, the average daily volume has been steadily falling, a trend that has continued well into the summer months.
Investors constantly seek to justify why the stocks they own are down. There’s a great number of unknown factors that contribute to increases in share prices, or in the overall market. However, there are periods of time when tidal waves of liquidity gush into the market, propelling stocks higher and generally “lifting all boats”. Subsequent to good times (a surge of liquidity), of course the bad times (the subsiding of liquidity as investors sell off their inflated stocks) will inevitably follow.
Interestingly, there’s a noticeable trend on the TSX Venture that correlates strongly to explain recent market dynamics. It is likely the driving cause behind the large increases in volume that began in September 2017, only to recede substantially after January 9, 2018.
Prior to the Market peak in January, the first big three Crypto or Blockchain deals were financed in September:
Glance Technologies Inc (CSE: GET) Initially raised only $350K at $0.18 to subsequently raise roughly $15.38M through several financings reaching as high as $3.
LeoNovus Inc (TSX.V:LTV) Initially raised $1.5M at $0.05 to subsequently raise $13.75M at $0.50.
Hive Blockchain Technologies Ltd. (TSX.V: HIVE) Initially raised $16.5M at $0.30 to subsequently raise roughly $180M through several financings reach as high as $3.15.
Spurred by the price of Bitcoin as it surged upwards of USD $20,000, this bullish trend attracted new pools of capital. Several new listings and a majority of the financings were either tied to Crypto or touted their involvement in the trend. Investors shared their overnight multi-bagger Blockchain success stories, and the markets continued to soar higher.
These companies reached market darling status, sucking up liquidity from all corners of the market, prices and public interest soared to dangerously high levels. The barrage of financings meant that an increasing number of investors soon had their capital locked up under mandatory escrow terms.
The outcome from this sudden shift in market dynamics caused a massive inflow of capital to one sector of the market, to only be followed by the inevitable drawback of liquidity, causing a crisis as investors were left with only one option, which was to be a seller. The downward selling pressures caused a ripple effect as free-trading paper continued to flood the market.
As everyone had finally heard of blockchain or Bitcoin, there were no new buyers, and the escrow periods began to mature. One by one, the entire sector’s financing participants all became net sellers. The outcome has been anything but exciting for shareholders, especially those that were locked into private placement escrow terms. The tidal waves of liquidity gushed out of the market as fast as they once flooded in, obliterating investors’ returns while padding the pockets of profiteering brokers and promoters.
All three companies mentioned above were dragged down 75% or more from their highest price as the crypto market fell in early 2018. Some investors faced extreme market turbulence and losses, causing them to rethink their strategies and return to “less risky” investments, or to fearfully wait on the sidelines. The ripple effect from the retraction of liquidity in the market had a wide-reaching effect, putting a dent in other sectors. The outcome can be demonstrated in one chart.
Pictured below is the TSX Venture which continues to hit new lows:
As overall market liquidity decreased, so did the valuations of high-quality companies listed on the Venture not related to blockchain and cannabis. With the higher quality companies also caught in oscillating tidal waves of liquidity, there could be a tremendous opportunity for new investors. Despite their business progress, some quality companies have become cheaper, creating an opportunity for new investors to buy discounted stock before the next wave of money moves into the market.