Altcoins

Why the altcoin market is declining after the token is unlocked

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Altcoins are facing an early crypto winter, mainly due to significant token unlocks in 2024.

According to Bloomberg, the first investors of the project seek to quickly sell the tokens received, wishing to guarantee profits in the short term. At the same time, they do not want to keep unlocked altcoins on their balance sheets, for future growth.

The data of Unlocked Tokens The platform, which tracks 138 projects, says 120 are expected to release tokens in 2024. Analysts estimate the total market value of this volume of assets at $58 billion.

Edward Chin, co-founder of investment firm Parataxis Capital, believes that the massive selloffs of these assets are putting intense pressure on the altcoin market. At the same time, brokers often have to offer potential buyers tokens from early investors at a discount of up to 40%.

“The market is weird right now, in that many of the infrastructure projects that investors funded during the bear market are now getting to launch their tokens, but there aren’t a ton of regular buyers of those tokens at high prices.”

Lex Sokolin, co-founder of Generative Ventures

How does unlocking affect tokens?

The timing and extent of token unlocking can have a significant impact on market dynamics. Unlocking multiple tokens at once may reduce interest in purchasing and temporarily lower token prices.

Token unlock events can cause market fluctuations as investors react to the new token supply. Investors can adjust their positions based on the unlock schedule and the expected impact on token prices, resulting in price variations.

Which tokens crashed after unlocking?

For example, the token of the dYdX project, DYDX, fell 61% in the last three months. At the time of writing, the asset’s price is $1.4 and its market capitalization is $838 million.

Source: CoinMarketCap

A similar situation is observed in the Pyth network (PYTH) and Avalanche (AVAX) projects. During the same period, their tokens fell by 55% and 66% respectively.

The three listed projects were released in May 2024. The general volatility of the market is making the situation worse with altcoins. Of the 90+ largest crypto assets by market capitalization, only 12 have posted 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 top 115 altcoins have seen their prices drop 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 a restoration of liquidity, the fall in altcoin prices could continue.

Source: 10xSearch

“Today, altcoins are in a brutal bear market. In 2024, 73% of these 115 coins peaked in March. We were right to call for Bitcoin to outperform everything else, notably Ethereum, but at the beginning of March the situation changed.

10xSearch

While altcoins are falling, the two flagship cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), have shown relative resilience. They are down 11% and 13% respectively from their peaks this year.

“Surviving the altcoin bear market depends on one crucial factor: effective risk management. Token unlocking and unfavorable crypto liquidity indicators are the main catalysts for this altcoin crash.

10xSearch

In May, analysts warned of a potential decline in altcoin prices due to the release of a large volume of tokens. Nearly $2 billion in unlocked tokens are expected to enter the market before July, which could lead to a cryptocurrency sell-off and a drop in prices.

According to experts, this situation is due to the action of venture capital funds. In the first quarter of 2022, these funds invested $13 billion in altcoins. Under pressure from investors wishing to return their funds, venture capital funds are forced to sell their tokens. The situation is aggravated by growing investor interest in artificial intelligence (AI).

Should traders wait for altcoin season?

The sharing of Bitcoin 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 generally outperforming Bitcoin and Ethereum in terms of growth rate.

Source: TradingView

Typically, the share of the leading digital currency in the total capitalization of the entire crypto market increases during cyclical industry downturns. During a bullish period in the market, when many altcoins are growing faster than Bitcoin, Bitcoin declines. So, the first cryptocurrency dominance index indicates the market cycle and investor sentiment.

Swissblock Analysts called the conditions for starting the altcoin season. Experts believe that traders should monitor the ETH/BTC price ratio, which is the price of Ethereum in Bitcoin equivalent. The growth of the ETH/BTC pair is traditionally seen as a harbinger of an influx of capital into alternatives.

Additionally, technical analyst Titan of Crypto also expressed confidence in the upcoming alt season in April.

According to him, the altcoin market is poised for significant growth. The analyst pointed out that the phase after the BTC halving usually becomes a turning point for them. Technical charts suggest that altcoins will soon take center stage, foreshadowing a potentially lucrative alt-season.

Disclosure: This article does not constitute investment advice. The content and materials presented on this page are provided for educational purposes only.

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