Markets
Why Altcoin Market Declines After Token Unlock
Altcoins face an early crypto winter, mainly due to major token unlocks in 2024.
According to Bloomberg, the project’s first investors seek to sell the received tokens quickly, wanting to obtain short-term profits. At the same time, they do not want to keep unlocked altcoins on their balance sheets for future growth.
Data from Token unlocks The platform, which tracks 138 projects, indicates that 120 are expected to unlock tokens in 2024. Analysts estimate that the total market value of this volume of assets is US$58 billion.
Edward Chin, co-founder of investment firm Parataxis Capital, believes massive sales of such assets are putting intense pressure on the altcoin market. At the same time, brokers often have to offer potential buyers early investor tokens at a discount of up to 40%.
“The market is strange at the moment as the many infrastructure projects that investors funded in the bear market are now approaching their token launches, but there are not many regular buyers of these tokens at high prices.”
Lex Sokolin, co-founder of Generative Ventures
How does unlocking affect tokens?
The timing and scale of token unlocks can significantly impact market dynamics. Unlocking too many tokens simultaneously can reduce buying interest and temporarily lower token prices.
Token unlock events can cause market fluctuations as investors react to the new token offering. Investors can adjust their positions based on the unlock schedule and the expected impact on token prices, resulting in price changes.
Which tokens collapsed after unlocking?
For example, the symbol of dYdX project, DYDX, fell 61% in the last three months. At the time of writing, the asset’s price was $1.4 and its market capitalization was $838 million.
Source: CoinMarketCap
A similar situation is observed on the Pyth Network (PITO) and Avalanche (AVAX) projects. In the same period, its tokens fell by 55% and 66%, respectively.
All three listed projects were unlocked in May 2024. General market volatility exacerbates the situation with altcoins. Of the 90+ most sizable crypto assets by market capitalization, only 12 have shown positive returns since mid-March 2024.
According to statistics, about 80 projects show negative dynamics in this indicator. At the same time, the price of 23 assets fell by more than 50%.
Crypto winter in the altcoin market
10xSearch Analysts note that the price of the 115 most prominent altcoins has fallen more than 50% since their 2024 peaks. This correction is mostly similar to declines seen in previous market cycles in 2017 and 2021. Without an influx of new funds and restoration of liquidity, the fall in altcoin prices may continue.
“Today, altcoins are in a brutal bear market. In 2024, 73% of these 115 coins peaked in March. We were correct in calling for Bitcoin to outperform everything else, especially Ethereum, but in early March the game changed.”
10xResearch
While altcoins are falling, the two main cryptocurrencies, Bitcoin (Bitcoin) and Ethereum (ETH), have shown relative resilience. They are down 11% and 13%, respectively, from this year’s peaks.
“Surviving the altcoin bear market depends on one crucial factor: effective risk management. Token unlocks and unfavorable crypto liquidity indicators are the main catalysts for this altcoin crash.”
10xResearch
In May, analysts warned of a possible decline in altcoin prices due to the unlocking of a significant volume of tokens. Nearly $2 billion worth of unlocked tokens are expected to enter the market before July, which could lead to a cryptocurrency sell-off and a price crash.
According to experts, this situation is due to the actions of venture capital funds. In the first quarter of 2022, these funds invested $13 billion in altcoins. Under pressure from investors wanting to return their funds, venture funds are forced to sell their tokens. The situation is worsened by growing investor interest in artificial intelligence (AI).
Should traders wait for altcoin season?
The part of Bitcoin in the total capitalization of the entire crypto market, the volume of which is $2.4 trillion, is 54.6%. The so-called Bitcoin Dominance Index indicates the market cycle and investor sentiment, with smaller cryptocurrencies typically outperforming Bitcoin and Ethereum in growth rates.
As a rule, the share of the leading digital currency in the total capitalization of the entire crypto market grows during cyclical downturns in the industry. During a bullish market period, when many altcoins grow faster than Bitcoin, it decreases. Thus, the first cryptocurrency dominance index indicates the market cycle and investor sentiment.
Swissblock Analysts called the conditions for the start of the altcoin season. Experts believe that traders need to monitor the ETH/BTC price ratio, which is the price of Ethereum in Bitcoin equivalent. The growth of the ETH/BTC pair is traditionally considered a harbinger of an influx of capital into alternatives
Furthermore, technical analyst Titan of Crypto also expressed faith in the upcoming season in April.
According to him, the altcoin market is ready for significant growth. The analyst emphasized that the phase after BTC halving often becomes an inflection point for them. Technical charts suggest that altcoins will soon take center stage, foreshadowing a potentially profitable bull season.
Disclosure: This article does not represent investment advice. The content and materials presented on this page are for educational purposes only.