Understanding Token Unlocks: Effects on Market Dynamics
A recent report by Keyrock highlighted the impact of token unlocks on price movements in the cryptocurrency market. Here are some key takeaways from the report:
Effects of Token Unlocks
- 90% of token unlocks exert negative price pressure, with effects taking up to 30 days to fully materialize.
- Around $600 million worth of locked tokens are regularly circulated through predetermined schedules.
- Unvested investors’ preemptive selling and hedging strategies contribute to downward pressure on prices.
Impact of Unlock Sizes
- Events releasing over 5% of the total token supply often cause immediate price volatility.
- Frequent, smaller releases lead to consistent downward pressure but with less dramatic cumulative impact.
- Prices may begin declining up to 30 days before the unlock event, driven by retail anticipation and institutional hedging strategies.
Recipient Category Matters
The category of recipients significantly influences price outcomes:
- Team unlocks can lead to severe price declines due to lack of coordinated selling strategies.
- Ecosystem unlocks, allocated for liquidity provision and infrastructure funding, contribute to long-term network growth and price stabilization.
- Investor unlocks are often controlled and predictable, minimizing market disruption through sophisticated strategies.
Strategies for Traders
While token unlocks pose risks, they also present opportunities for traders:
- Optimal entry points typically occur 14 days after a significant unlock, once volatility has subsided.
- Consider selling 30 days before the unlock event to capitalize on price declines that may precede the event.
