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What Really Happens After Crypto Token Unlocks? Examining Cases like $SOL, $DYDX, and $ARB?
Token unlocks in cryptocurrency refer to the release of previously locked tokens into the market, usually as per a schedule outlined in a project’s whitepaper. These tokens are often reserved initially for stakeholders like developers and investors to control initial distribution and prevent market oversupply. The purpose of token unlocks is to introduce tokens gradually, mitigate price volatility, incentivize long-term project support, and sometimes comply with regulatory requirements. These events are closely watched by investors and traders, as they can significantly influence a token’s supply, market price, and overall valuation.
Most crypto investors view token unlocks with a mix of anticipation and caution, as these events can lead to significant market movements, either by increasing supply and potentially lowering prices, or by unlocking value and spurring investment. They often strategize around these unlocks, considering the short-term potential impact on token prices and the overall market dynamics they might trigger. Many investors usually sell the tokens before huge unlocking and plan to buy them later at a lesser price.
With not-so-popular crypto projects, where tier 3 VCs and weak hands invest, with those projects, the risk of the price plummeting is always there. However, with projects where top-tier crypto VCs invest, the case is completely different.
What we are going to learn?
Reasons Why Token Price May Not Fall After Token Unlocking?
VCs Aim for Long-Term Substantial Gains
VCs often hold onto their tokens for the long term, aiming for substantial gains. They may not sell immediately after a token unlocks, even if they have the opportunity for high short-term profits. VCs’ decisions to hold or sell can significantly influence the market.
Impact Depends on Crypto Project’s Strength
Crypto token unlocks are less likely to negatively impact the price if the project is strong, marked by user growth, partnerships, product releases, and community development.
Growth Catalysts Around Unlock Dates
Projects that plan growth catalysts around token unlock dates may mitigate potential negative effects. Growth catalysts could be some major events planned around or after the token unlocking like the burning of tokens, halving, major upgrades, new features, and business opportunities that would increase the revenue of the Web 3.0 company, etc.
Differentiation Between Projects
Most crypto projects are “shitcoins” with no valid goals or growth. The token unlocks are more problematic for such projects, especially if they lack transparency, and progress, or are backed by low-tier VCs.
Analyzing the 3 Cases of Token Unlocks
Let’s analyze the impact and implications of token unlock in the cryptocurrency market, particularly for coins like $SOL, $DYDX, and $ARB.
SOL token Unlocking: Token Unlocks Don’t Always Lead to Price Drops
Contrary to common expectations, significant token unlocks, like the one for $SOL, don’t always result in price crashes. The example given is $SOL’s price increasing by 85% after its first major unlock that happened on January 21, 2023.
Specific Cases of $DYDX and $ARB
For $DYDX, there is a major unlock that is scheduled to happen on the 21st of November, 2023. Around 1.2% (2.16M) of the DYDX coins will be added to the circulation, which at the time of writing is valued at 6.56M USD.
DYDX holders are confused about how to approach the upcoming unlock event.
A crypto analyst, Hitesh Malviya, through a Twitter thread, shared, that DYDX token unlocks might not lead to a significant price drop because of strategic planning and backing by top-tier VCs. For $ARB, upcoming unlocks might not lead to dumping because of the project’s potential and planned growth catalysts.
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How Should You Approach Token Unlock from Now on?
Approaching token unlocks in cryptocurrency requires a careful strategy that includes understanding the unlock schedule, assessing the project’s fundamentals, analyzing historical data, and monitoring VCs, their past records, and stakeholder intentions. Staying informed about the latest developments and maintaining flexibility in investment strategies are key. Twitter plays an important role here. Join Twitter (now X app) and follow amazing crypto educators.
Additionally, considering the long-term potential of the project can be crucial for investors, as short-term price fluctuations might be less relevant for those with a longer investment horizon. This approach combines research, risk management, and an informed perspective to navigate the potential impacts of token unlocks.
