Altcoin Market Hit By Token Unlock Wave: VCs and Founders Cash Out, Triggering a 'Crypto Winter'

The altcoin market is experiencing an early “crypto winter” as initial investors and founders of various projects sell off their tokens.

The altcoin market is facing an early “crypto winter” as initial investors and founders of various projects sell off their tokens.

A recent Bloomberg report attributes this decline to a combination of factors, including the unlocking of tokens held by venture capitalists (VCs) and founders, and 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. According to 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 scheduled unlocks this year, with a combined market value of about $58 billion.

This anticipated selling by 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.

Bitcoin Price Crashes Below $61,000: The Main Reasons

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 halved since mid-March, while AVAX and PYTH have also seen substantial declines. These three tokens had unlocks scheduled for May, adding to the selling pressure.

Token unlocks, which previously helped to drive 2023 prices, are now receiving greater attention from both VCs and public participants, who are prioritizing short-term profits over long-term holdings for altcoins with unlocks.

Liquidity Crisis?

Since March 14, when Bitcoin (BTC) 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, while 81 have recorded negative returns, the report noted.

Bitcoin has fallen about 12% from its peak, and most of the top 100 tokens have declined by more than 25%.

The smaller altcoins, especially those correlated with major network tokens such as Ethereum (ETH) and Solana (SOL), tend to be sold off first during a downturn. The unlocking of tokens further exacerbates this selling pressure, impacting the altcoin market.

According to Bloomberg, the current market presents challenges for infrastructure projects that were funded during the bear market phase.

As these projects launch their tokens, there is limited demand from “regular buyers” at such high prices. The altcoin market is currently experiencing a lack of liquidity and an overabundance of tokens being unlocked, leading to downward pressure on prices.

Featured image from DALL-E, chart from TradingView.com

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