What happened
Ongoing concerns around the potential for contagion in the cryptocurrency market have certainly hit exchange-related tokens such as KuCoin (KCS), the native token of the KuCoin exchange. KCS plunged from around $10 a week ago to as low as $5.62 yesterday. But a dramatic rally of 21% over the past 24 hours has cut this token's losses dramatically, with KCS now trading around $7.80 at the time of this writing.
This surge appears to be tied to previous tweets from KuCoin's CEO, Johnny Lyu, who denied that KuCoin has any exposure to now-bankrupt crypto exchange FTX (FTT 5.03%). This followed a dramatic multiday decline, which saw the vast majority of value in FTX wiped out as the centralized crypto exchange filed for bankruptcy and caused widespread fear that more exchanges could be exposed to such sell-offs, if their exchange-related tokens were sold en masse.
So what
Notably, Lyu's tweets on Nov. 10 outlining KuCoin's crypto exposure did little to quell investor concerns, with KCS continuing to decline until today's rally. So it appears investors now think that perhaps this sell-off was overdone.
While KuCoin does have substantial exposure to its native KCS token, there are also plenty of more-liquid crypto assets backing this exchange. Thus, while the exchange (like most others) carries exposure to its native token, it does appear KuCoin remains relatively more diversified than other peers.
That said, the exact value investors will want to place on KCS, which allows traders to share in the profits generated by the KuCoin exchange, remains unclear. If trading volumes continue to drop as investors shift to other assets, contagion-related concerns could be enough reason for investors to look to other larger-cap cryptocurrencies.
Now what
There's plenty of uncertainty in the crypto sector from the fallout from FTX. One thing that is certain is that the volatility created by these contagion-related concerns could be a negative for most exchanges, thereby hurting the valuation of tokens such as KCS.
Thus, while this rally is nice, another move a leg lower is possible, if FTX is just one of the dominos in the world of crypto exchanges to fall. It's a risky time to be a risk-taking investor chasing rallies such as those seen today.
KuCoin could gain market share as a result of FTX's demise. This exchange does appear to be diversified, with little to no direct exposure to FTX. So a bull case could be made that significant upside potential is possible.
For now, I'm going to happily watch how exchanges and exchange-related tokens like KCS perform from the sidelines. But it is clear that some investors think KuCoin could be a great way to play a near-term rally in the crypto sector, meaning more fireworks could be on the horizon for this token.
