Altcoins
Crypto Winter Comes Early to Altcoin Market as Venture Capital and Founder Sales Rise
The altcoin market is experiencing an early “crypto winter” as early investors and founders of various projects sell their tokens.
According to a recent report by Bloomberg reportThis decline can be attributed to a combination of factors, including the unlocking of tokens held by venture capitalist (VCs) and founders, as well as selling pressure caused by the correlation between altcoins and major network tokens.
Altcoin Market Hit by Token Unlocking Wave
As the cryptocurrency market has recovered from its prolonged decline two years ago, many project tokens have reached their unlock date this year. Venture capitalists and founders who received these tokens in exchange for investments or work contributions now have the opportunity to sell them, according to the report.
Of the 138 tokens tracked by researcher TokenUnlocks, 120 were scheduled for this year, with a combined market value of around $58 billion.
This anticipated sale resulting from the unlocking of VCs led to a downward price reflexivity, because non-venture capital holders trying to get ahead of selling pressure, which often results in significant discounts to spot prices.
The price performance of altcoins such as DYDX, Avalanche (AVAX), and Pyth (PYTH) has been significantly impacted by the token unlocking. The price of the DYDX token has more than halved since mid-March, while AVAX and PYTH have also seen significant declines. The unlocking of these three tokens was scheduled for May, which has increased selling pressure.
Token unlocks, which previously helped drive prices higher in 2023, are now receiving more attention from VCs and public participants, prioritizing short-term profits over long-term holdings for altcoins with unlocks.
Liquidity crisis?
In particular, since March 14, when Bitcoin (BTC) hit an all-time high of $73,700, only 12 of the top 90 non-stablecoin assets tracked on centralized exchanges (CEXs) posted positive returns, while 81 saw negative returns, the report said.
Bitcoin has fallen about 12% since its peak, and most Top 100 Tokens have decreased by more than 25%.
Smaller altcoins, including those correlated to major network tokens like Ethereum (ETH) and Solana (SOL), tend to be sold first on dips. The unlocking of tokens exacerbates this selling pressure, further impacting the altcoin market.
According to Bloomberg, the current market presents challenges for infrastructure projects financed during the bear market phase.
As these projects launch their tokens, demand from “regular buyers” is limited at high prices. The altcoin market is currently characterized by a lack of liquidity and a surplus of unlocked tokens, leading to downward pressure on prices.
Featured image of DALL-E, chart from TradingView.com