The altcoin market is experiencing an early “crypto winter” as initial investors and founders of various projects sell off their tokens.
According to a recent Bloomberg report, this decline can be attributed to a combination of factors, including the unlocking of tokens held by venture capitalists (VCs) and founders, as well as the selling pressure caused by the correlation between altcoins and major network tokens.
Altcoin Market Hit By Token Unlock Wave
As the crypto market recovered from the prolonged decline of two years ago, many projects’ tokens have reached their unlock dates this year. Per the report, venture capitalists and founders who received these tokens in exchange for investments or work contributions now have the opportunity to sell them.
Out of the 138 tokens tracked by researcher TokenUnlocks, 120 have been scheduled for this year, with a combined market value of approximately $58 billion.
This anticipated selling from unlocking VCs has led to downside price reflexivity as non-VC holders attempt to front-run the selling pressure, often resulting in steep discounts to spot prices.
The price performance of altcoins such as DYDX, Avalanche (AVAX), and Pyth (PYTH) has been significantly impacted by token unlocks. DYDX’s token price has more than cut in half since mid-March, while AVAX and PYTH have also seen significant declines. These three tokens had unlocks scheduled for May, adding to the selling pressure.
Token unlocks, which had previously helped drive 2023 prices, are now receiving more attention from VCs and public participants, prioritizing short-term profits over long-term holdings for altcoins with unlocks.
Liquidity Crisis?
Notably, since March 14, when Bitcoin (BTC) reached 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, while 81 have recorded negative returns, according to the report.
Bitcoin has dropped around 12% since its peak, and most of the top 100 tokens have declined by more than 25%.
The smaller altcoins, including those correlated with major network tokens like Ethereum (ETH) and Solana (SOL), tend to be sold off first when there is a decline. The unlocking of tokens exacerbates this selling pressure, further impacting the altcoin market.
According to Bloomberg, the current market presents challenges for infrastructure projects funded during the bear market phase.
While these projects launch their tokens, there is limited demand from “regular buyers” at high prices. The altcoin market is currently characterized by a lack of liquidity and a surplus of tokens being unlocked, leading to downward pressure on prices.
Featured image from DALL-E, chart from TradingView.com