Imagine a market of 180,000 customers each buying 1,000 units of phones every week to supply their clients, and suddenly, the producers decide to increase the quantity supplied to wholesalers and the quantity on the market rises to 500 million samples from 180 million previously. Naturally, the price per phone must drop due to the dilution of the new quantity or the number of customers must increase to 500,000 for prices to remain stable.
Now let's apply this same principle in the crypto world, the effect will be similar. Unlocking tokens impacts token prices downwards if there is no corresponding demand generally. But there are scenarios to observe at this level.
The good question to ask here is how to analyze unlocking events?
What percentage of the total supply will be unlocked 🔓?
Who are the main recipients?
What are the market conditions? (Bullish or Bearish)
What are the news or latest trends on the tokens?
Let's dive into these 4 questions with a simple analogy…
×××> The percentage to unlock:
A 5% unlock will not have the same effect as a 20% unlock. Moreover, the market anticipates the event in advance before the D-Day, always! So we might see a drop in price for a while after the unlock if investors decide to sell, but if they are optimistic about the project, the effect will be short-lived.
×××> The recipients:
The big ones are them, let me explain.
Among them, it can be the devs, project leaders, early investors, or participants in the airdrop or staking… I let you imagine if the unlock quantity 🔓 is huge and they decide to sell, we will have a ketchup effect 📉
×××> Market conditions:
In a bullish market and under optimistic conditions, token unlocks 🔓 do not create significant damage as demand easily absorbs the new supply created, but in a bearish market, even a small unlock of 2% could create strong selling pressure.
×××> The news, the latest updates on the project:
Partnership announcements, updates on the project can help mitigate the damage caused by the unlock by strengthening investor confidence.
As a pro-crypto, understanding this subject is important to navigate the ecosystem smoothly without fearing FOMO.
To follow the projects and stay updated on these events, it is necessary to use platforms like @CoinMarketCap and @DefiLlama which offer real-time tracking calendars. Before taking any action, do not forget to thoroughly DYOR!