Time is money: What year one of Seasonal Tokens has shown about cryptocurrency economics

The Seasonal Tokens economy consists of four proof-of-work tokens: Spring, Summer, Autumn and Winter. They’ve been designed so that their prices will cycle around each slowly, over the course of years.

This is achieved by controlling the rates of production. Before June 5, 2022, Spring tokens were produced at the fastest rate and were consequently the cheapest of the four tokens. Then the rate of production of Spring tokens was halved, and Spring became produced at the slowest rate. In the following months, Spring went from the cheapest token to the most expensive, as the market adjusted to the lower rate of supply.

Many other proof-of-work cryptocurrencies also use regular halvings of the rate of production to control the supply and support the market price over the long term. The most prominent example is Bitcoin, whose halvings in 2012, 2016 and 2020 were followed by year-long bull markets that brought the price to record highs on each occasion.

Despite the clear evidence that cryptocurrency halvings do affect the market, there are many questions left unanswered:

• Is it the lower rate of production or the higher cost of production that drives the changes in the market price?
• How long does it take before the effects of the halving start to affect the market?
• How much of the market response is due to speculation rather than real economic factors?
• How does the number of coins already in existence influence the market’s response to the halving?

There has been only one halving in the Seasonal Tokens economy so far, but the Spring halving in June and the market’s response to it have provided a clearer view of the internal market economics than any other historical events before now. The main reason is that the price of other cryptocurrencies has always been measured in United States dollars or Bitcoin (BTC), which have their own dynamics and are not neutral reference currencies.

With Seasonal Tokens, each token has three other nearly identical reference tokens whose prices can be used as benchmarks. Spring’s rate of production was halved, but Summer, Autumn and Winter were unchanged and serve as stable reference points. Instead of measuring the price of Spring in USD, the price can be expressed in relation to the prices of the other tokens. This removes many of the complicating factors, such as popularity and market performance, that make it hard to clearly see the effects of a halving on other cryptocurrency prices.

The evolution of the prices of the four tokens throughout 2022 has revealed that:

• The main factor controlling the relative prices has been the rate of production. Before the June halving, the amount of time needed to produce each of the tokens by mining had the ratio 5:6:7:8 — five minutes of mining Spring, six minutes of mining Summer, seven minutes of mining Autumn, and eight minutes of mining Winter, all produced the same number of tokens. The market prices stayed close to this ratio up until June.
• After the halving, the ratio of mining times shifted to 10:6:7:8. It took ten minutes of mining Spring to produce as many tokens as six minutes of mining Summer. Over the following months, the prices of the tokens drifted toward the same ratio.
• The relative prices began to move immediately after the halving — at a rate of 1% per day — toward their new target ratio.
• Neither the cost of production nor the total number of tokens already in existence had any measurable effect on the relative prices.

These results can be summarized by saying that time is money. It wasn’t the cost of the electricity needed to mine a token that controlled the relative market prices; it was the rate at which new tokens were produced. The number of tokens already in existence also had no statistically significant effect. The relative prices drifted, efficiently and without delay, to reflect the amount of time needed to produce each.

Speculation had a visible effect, causing a lot of volatility around the time of the halving, and once again when Spring overtook Winter as the most expensive token. Despite this, the effect was temporary, and the prices quickly returned to normal and reflected the rates of production afterward.

In summary, the first year of the Seasonal Tokens economy has provided valuable insights into how market prices respond to cryptocurrency halvings. There are multiple economic factors at play, but one component appears to dominate the market response: time.

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