Cointime

Download App
iOS & Android

Bullish Token Unlocks Buck Bear Market Trend in Spur to Altcoin Season

The overcrowded short trade in the lead up to token unlocks is beginning to backfire, with several altcoins showing signs of strength into what is normally perceived to be a bearish event.

This week Axie Infinity (AXS) surged by 40% in the lead up to $64 million worth of previously locked tokens being unleashed on the market. This took onlookers by surprise as an increase in supply typically leads to a reduction in value, and also gives early investors or project team members an opportunity to liquidate their initial investment.

But AXS is not alone in bucking the trend – decentralized derivatives exchange dYdX's cryptocurrency has outperformed its peers with a 64% rally this month in spite of a token unlock coming on Feb. 2. And Aptos, the token that underlies the layer 1 blockchain that came out of Facebook's failed Diem project, has been a top performing asset since the turn of the year, surging by 283% despite a notable token unlock that took place on Jan. 12.

The magnitude of gains has rejuvenated the altcoin market as a whole, with CoinDesk's DeFi Index (DCF), which tracks the price of 43 cryptocurrencies related to decentralized finance, printing a 49.35% increase since Jan. 1, surpassing the rise of the Bitcoin index, which is up by 37.92% over the same period.

DeFi Index (CoinDesk Indices)

According to Unlocks Calendar, a website that tracks upcoming token unlocks, the trend is being caused by projects withholding positive news until sell pressure climaxes before a scheduled unlock.

"As we experience positive market momentum, teams with upcoming unlocks will release good news that they withheld for months when the market was dead," Unlocks Calendar tweeted on Jan. 14. "The goal would be riding positive market moves to pump the price just before unlocks."

There is also a sophisticated trading element to the value increase. Historically, in the cases of the IMX and APE tokens late last year, token unlocks caused a period of downside price action. This prompted traders to short the tokens before the event, but based on the recent flurry of short liquidations on AXS, it appears this trade has become overcrowded, leaving it vulnerable to the other side due to a lack of liquidity.

Liquidity across altcoins is significantly thinner than for major crypto assets such as bitcoin and ether. Market depth, which quantifies liquidity by working out how much capital is needed to move an asset in each direction, is currently at $49 million for a 2% move on bitcoin, whereas only $357,520 is needed to move AXS 2%, according to CoinMarketCap.

This means that when short positions pile up leading into an event, astute traders can capitalize on thin order books by initiating a short squeeze by purchasing the asset and going long. The short positions then either get liquidated or force closed, which triggers positive momentum to the upside.

The entire cryptocurrency market cap has risen by over $250 billion since Jan. 1 to $1.05 trillion, caused in part by a resurgence in the speculative altcoin market, a move commonly referred to as "alt season."

Comments

All Comments

Recommended for you

  • RWA project Midas completes US$8.75 million in seed round financing

    According to Jinse Finance, RWA project Midas has completed a seed round of financing worth $8.75 million, led by BlockTower, Framework, and HV Capital, with participation from institutions such as Coinbase Ventures, Ledger, GSR, Hack VC, Axelar, and FJ Labs.

  • Two Different Sentences for FTX Founder Sam Bankman-Fried: 25 Years and $11 Billion vs. 16 Months and $8 Billion Losses

    The founder of FTX, Sam Bankman-Fried, has been sentenced to 16 months in prison and charged with eight criminal counts, including money laundering and conspiracy. He was involved in a scheme that caused customers to lose $8 billion and allegedly diverted customer funds to Alameda. Bankman-Fried's lawyers had requested a lighter sentence, but the judge rejected their argument that the collapsed company had vowed to return money to its customers. Prosecutors had sought up to 50 years in prison for Bankman-Fried.

  • SBF ordered to forfeit more than $11 billion

    SBF has been ordered to confiscate more than 11 billion US dollars. SBF has now been sentenced to 25 years in prison.

  • Former CEO of FTX and Alameda Research Sentenced to 25 Years in Prison for Fraud and Money Laundering

    Sam Bankman-Fried, the co-founder and former CEO of FTX and Alameda Research, has been sentenced to 25 years in prison for fraud and money laundering. The judge criticized Bankman-Fried's behavior during the trial and deemed a 25-year sentence to be sufficient. Bankman-Fried's sentence may send a message to the crypto industry and there is no possibility of parole, but he may earn "good time" credit for good behavior while incarcerated. Bankman-Fried was found to have misused over $8 billion in customer funds and will be serving time in prison for his actions. The trial emphasized the importance of not using customers' funds without their knowledge or approval.

  • Web3 AI training company FLock raises $6 million in seed funding

    Web3 artificial intelligence training company FLock has raised $6 million in seed funding led by Lightspeed Faction and Tagus Capital. FLock will use these funds to develop its team and build a federated learning-driven artificial intelligence training platform.

  • Prisma: Vault owners need to prohibit delegation of contracts related to LST and LRT

    The LSD stablecoin protocol Prisma Finance stated in a post that for vault owners, please prohibit delegating authorization of the LST contract starting with 0xcC72 and the LRT contract starting with 0xC3eA.

  • MAS: Singapore is working on global first-tier fund tokenization regulation

    Chia Der Jiun, Managing Director of the Monetary Authority of Singapore, introduced some fund tokenization pilots at an event for asset managers. These pilots are part of the Project Guardian and MAS Global Layer 1 (GL1) tokenization plans. Chia Der Jiun emphasized the advantages of tokenization in real-time settlement and process automation, which can improve efficiency and achieve greater customization of funds. UK asset management company Schroders and fund distribution platform Calastone are exploring this as part of the Project Guardian public blockchain trial in Singapore. A recent survey by Calastone showed that 96% of asset management companies in the Asia-Pacific region plan to launch tokenized products within three years. Chia stated that as these Project Guardian pilot projects approach commercialization, MAS is working with the pilot project managers to study the legal and regulatory treatment and impact of tokenized investment funds."

  • Indonesia's Financial Services Authority to Regulate Crypto Industry in 2025 with Evaluation in Regulatory Sandbox

    Indonesia's Financial Services Authority (OJK) will take over regulation of the crypto industry from the commodities agency Bappebti. Crypto firms must undergo evaluation in a regulatory sandbox before being licensed to operate in the country. The OJK aims to prioritize consumer protection and education, and firms operating without evaluation in the sandbox will be considered illegal. The sandbox provides a safe and isolated environment for testing and innovation development, helping to enhance security and responsible management in the financial sector. Once under OJK's oversight, crypto assets will likely be reclassified as financial instruments.

  • The Shenzhen Illegal Fund Raising Prevention Office issued a risk warning on the "DDO digital options" business

    The Shenzhen Office for Preventing and Dealing with Illegal Fundraising issued a risk warning regarding the "DDO digital option" business. The activities related to the DDO digital option business conducted in the name of Dingyifeng International are essentially the issuance and trading of virtual currencies. According to the "Notice on Further Preventing and Dealing with Risks of Speculation in Virtual Currency Trading" jointly issued by ten departments including the People's Bank of China in September 2021, it is clear that virtual currency-related business activities are illegal financial activities, and overseas virtual currency exchanges providing services to residents within China are also illegal financial activities. The activities conducted by Dingyifeng International in the name of serving residents within China are suspected of illegal fundraising and other illegal financial activities. Our office has organized relevant departments to carry out work, resolutely deal with illegal fundraising and criminal activities, and seriously investigate the legal responsibilities of relevant personnel. (Shenzhen Local Financial Supervision and Administration Bureau)

  • The Hong Kong Legislative Council plans to review the relevant stable currency consultation and sandbox legislation at the end of this year or next year

    Hong Kong legislator Wu Jiezhuang revealed that Hong Kong will release stablecoin consultation and sandbox (computer security mechanism), which will allow the industry to innovate digital asset projects in the sandbox environment. Relevant legislation will be reviewed in the Legislative Council at the end of this year or next year, which will help the entire digital asset industry ecosystem. Hong Kong has been improving the digital asset (virtual asset) market on different legal levels. Last year, there were regulations on virtual currency trading platforms and issuance systems.