Crypto

KuCoin could be the token crypto investors want to watch now | The Motley Fool

What happened

Ongoing concerns about the potential for contagion in the cryptocurrency market have certainly hit exchange-linked tokens such as KuCoin (KCS 14.55%), the native token of the KuCoin exchange. KCS plunged from around $10 a week ago to $5.62 yesterday. But a dramatic 21% rally in the past 24 hours has significantly reduced the token’s losses, with KCS now trading around $7.80 at the time of this writing.

This increase appears to be related to previous tweets by KuCoin CEO Johnny Lyu, who denied that KuCoin has exposure to a now bankrupt crypto exchange. FTX (FTT -20.61%). This follows a dramatic multi-day decline, which saw the vast majority of FTX’s value wiped out as a centralized crypto exchange. filed for bankruptcy and sparked widespread concern that more exchanges could be exposed to such sales, if their exchange-linked tokens were sold en masse.

So what

Notably, Lyu’s November 10 tweets describing KuCoin’s crypto exposure did little to allay investor concerns, with KCS continuing to decline through today’s rally. So it looks like investors now think that this selloff may have been overdone.

Although KuCoin has substantial exposure to its native KCS token, there are also many more liquid crypto assets supporting this exchange. So while the exchange (like most others) is exposed to its native token, it appears that KuCoin remains relatively more diverse than other peers.

That said, the exact value that investors will want to place on KCS, which allows traders to share profits generated from the KuCoin exchange, remains unclear. If trading volumes continue to decline as investors shift to other assets, contagion concerns could be reason enough for investors to turn to other larger-cap cryptocurrencies.

Now what

There is a lot of uncertainty in the crypto industry because of the FTX fallout. One thing is certain, and that is that the volatility created by these contagion concerns could be negative for most exchanges, hurting the valuation of tokens such as KCS.

So while this rally is nice, another one-legged move lower is possible, if FTX is just one of the dominoes in the crypto exchange world to fall. It’s a risky time to be a risk-taker investor looking for rebounds like those seen today.

KuCoin could gain market share following the demise of FTX. This exchange appears to be diversified, with little to no direct exposure to FTX. Thus, a bullish case could be made that significant upside potential is possible.

For now, I’ll happily watch how exchanges and exchange-linked tokens like KCS perform on the sidelines. But it’s clear that some investors think KuCoin could be a great way to play a short-term rally in the crypto sector, which means more fireworks could be on the horizon for this token.

Chris MacDonald has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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