Aptos And Microsoft: A Partnership Or A Hype Piece?

Summary The lead developer of the Aptos blockchain announced a partnership with Microsoft. The native token of the blockchain rallied 20% in response. Bears are fading the move and funding rates dropped to an all-time low following the news. There is a possible squeeze setup at play despite a 2% supply unlock on August 11th, but I'd avoid this coin entirely. If you have found yourself bidding altcoins in recent weeks, you're not alone. While Bitcoin ( BTC-USD ) hasn't moved all that much, there are numerous cryptocurrencies that have rallied between 15-25% in the last month. One of the assets in the space that has seen a notable surge higher recently is the native token of the Aptos ( APT-USD ) blockchain. APT 5 Day Performance (Seeking Alpha) After an initial 20% intraday spike on from low to high on August 9th, APT has given back roughly half the gain but is largely holding a 10% increase since early August. The entirety of that positive performance in APT has come in reaction to an announcement from Aptos' lead developer Aptos Labs. That announcement highlighted what the Aptos team has called a partnership with Microsoft ( MSFT ): Today, we're making Aptos history. @AptosLabs is partnering with @Microsoft to unlock Web3 on the @Aptos_Network. As an @msPartner, our joint suite of AI-supported tools will offer developers and users around the world effortless access to Web3. Critics of Aptos, of which you can consider me one , were quick to point out that use of the word "partnership" might be taking liberties with language. Some have claimed it might be more accurate to say the Aptos team is integrating a Microsoft product with the Aptos network rather than partnering directly with the corporation. But quotes in Fortune from Microsoft's general manager of A.I. and emerging technologies Rashmi Misra seem to corroborate the notion that there is a mutually beneficial relationship between the entities: The intersection of A.I. and blockchain is one of the most interesting combinations of emerging technologies. By fusing Aptos Labs’ technology with the Microsoft Azure OpenAI Service capabilities, we aim to democratize the use of blockchain. However, this quote mirrors similar sentiment from Misra earlier this year in an announced partnership with blockchain infrastructure protocol Ankr ( ANKR-USD ). From where I sit, it's too early to tell what, if any, fruit will be born from this Aptos/Azure integration. APT Pumps: A Brief History Aptos is a relatively new blockchain so there isn't a large trading history for the APT token. However, the last time there was a large pump in the price of APT, I covered the logic behind the move in a Seeking Alpha article . At that time, I concluded the following: There is absolutely no reason for this as far as I can see. I would be very careful chasing anything in the crypto industry right now, let alone new protocol coins that have poor tokenomics, poor sentiment, and poor levels of activity. Aptos is the latter. I called it a hold in October, and that was probably being generous. Today, APT is a sell, in my view. Since then, APT has declined by roughly 60% while network usage has actually picked up a bit since my January coverage: 30 Day User Trend (Aptos Labs) While still well below many other leading L1 smart contract chains, daily active accounts on Aptos have noticeably picked up in recent weeks from the 30k range seen earlier this year to over 100k in mid-July. New accounts created have generally held steady in the 85-95k range on a daily basis. However, despite these apparent increases in chain usage, real APT volume has remained near all-time lows. Though we do see a clear recent exception following the Microsoft announcement: Real Volume (Messari) Over the last several months, APT volume has held relatively firm between $25 to $30 million on a daily basis. Volume spiked to $216 million on August 9th following the Microsoft announcement. Other Considerations This spike in APT volume could theoretically be attributable to demand for the token for on-chain usage. However, what is probably more likely is the volume surge is due primarily to news-related speculation. Digging into the derivative market data from Coinglass, we can see a collapse in the volume-weighted funding rate following the partnership announcement: Coinglass The volume-weighted funding rate of -0.0397% on August 9th would be a record low for APT and an indication that bears are piling on positions in anticipation of a drop in the coin's price. It should be noted that a funding rate this extreme could actually work against bears if the price of APT moves higher and they're forced to cover. A fall in price could be seen as a fairly logical expectation given another unlock event that will see 4.5 million APT tokens vest on August 11th. APT Unlock (Token Unlocks) However, in the grand scheme of things this might not necessarily be a large selling event as the 4.5 million APT coins amount to a little over 2% of the circulating supply. Given the enormous level of emissions that are still coming for APT for the remainder of the year, I don't know that 4.5 million coins on August 11th will be the straw that breaks the camel's back for APT. For example, after the July 11th unlock, APT actually rallied from $6.85 up to $8.18 one week later. Closing Thoughts There are signs Aptos is being used more than it had been in previous months. Bears are clearly betting against a rise in the token's price and one could conceivably argue that trade has become one-sided immediately following the Microsoft announcement. Even though I still believe APT has terrible tokenomics and I have serious doubts about the Aptos blockchain going forward, tactical traders might be able to find an opportunity to squeeze bears temporarily if history repeats from the July unlock. Of course, the argument could also be made any post-unlock gains have already been made and given back. In my view, it's best to sit this one out and watch from the sidelines. As mentioned above, there are other blockchain-based infrastructure projects that have a "partnership" with Microsoft and with arguably much less hype. As a long term investment, APT is still a definite avoid for me.