Altcoin Market Facing Challenges Amidst Token Unlocks
The altcoin market is currently experiencing a phase dubbed as an early “crypto winter” as initial investors and project founders are selling off their tokens. According to a recent report by Bloomberg, this decline is mainly attributed to the unlocking of tokens held by venture capitalists and founders, along with the selling pressure caused by the correlation between altcoins and major network tokens.
Token Unlock Wave Impacting Altcoin Market
As the crypto market bounces back from the prolonged downturn of a couple of years ago, many tokens from various projects have reached their unlock dates this year. Venture capitalists and founders who received these tokens in exchange for their investments or work contributions now have the opportunity to sell them. Out of the 138 tokens tracked by researcher TokenUnlocks, 120 have unlock schedules this year, with a combined market value of roughly $58 billion.
- As VCs unlock their tokens, downside price reflexivity ensues as non-VC holders anticipate the selling pressure, leading to discounts to spot prices.
- Projects like DYDX, Avalanche (AVAX), and Pyth (PYTH) have seen significant impacts on their token prices due to unlocking events.
Liquidity Crisis Looming?
Since March 14, when Bitcoin hit an all-time high of $73,700, only 12 out of the top 90 non-stablecoin assets tracked on centralized exchanges (CEXs) have posted positive returns. Bitcoin has fallen around 12% from its peak, causing most of the top 100 tokens to decline by over 25%. Smaller altcoins, particularly those correlated with major network tokens like Ethereum (ETH) and Solana (SOL), are the first to be sold off during market declines.
- The unlocking of tokens exacerbates the selling pressure, further impacting the altcoin market as a whole.
- Infrastructure projects funded during the bear market phase are also facing challenges in the current market scenario.
Challenges for Infrastructure Projects
Infrastructure projects that were funded during the bear market are particularly at risk during this period. The market is witnessing limited demand from regular investors at high prices as these projects launch their tokens. The altcoin market is currently characterized by a lack of liquidity due to a surplus of tokens being unlocked, leading to downward pressure on prices.
Hot Take: Navigating Through the Early Crypto Winter
As the altcoin market faces challenges due to the wave of token unlocks and selling pressure from initial investors, it is essential for crypto investors to navigate through these turbulent times:
- Stay informed about token unlock schedules and potential impacts on specific projects.
- Consider the long-term fundamentals of projects rather than short-term fluctuations in token prices.
- Diversify your portfolio to mitigate risks associated with specific tokens facing selling pressure.
Sources: Bloomberg Report
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