Two cryptocurrencies at risk of crash due to unlocks

The cryptocurrency market has started to recover over the past week, with top coins trending towards the top of their range. However, for some altcoins, the short-term outlook may turn red as unlock season begins.

At the time of writing, Ethereum is trading at around $1,900 with sideways price action in the last 24 hours. In the past week, the cryptocurrency has traded in the green but has been outperformed by altcoins such as XRP, Cardano (ADA), Polygon (MATIC), and its synthetic version, Lido Staked Ether (stETH).

Crypto Unlocks Jeopardize Altcoin Sector

According to an analyst at Scimitar Capital, the native tokens for the Ethereum-based scalability solution Optimism (OP) and the Sui Network (SUI) are poised for a major decline. These two tokens will soon unlock a significant portion of their supply.

In the past, any increase in circulating supply for a token has led to increased selling pressure in the market. The more supply, the less demand for the cryptocurrency, which translates into a downside price action.

The analyst claims that SUI will see a 13% unlock of its market capitalization, meaning that $67 million worth of the token, at current prices, is about to enter the market. On the other hand, OP is about to see a spike of over 110% in its market cap.

In other words, around $580 million worth of OP will flood the altcoin market. According to the analyst, the likely scenario is for the token to succumb to downside pressure:

Optimism has a massive unlock this week with over 114% of the current circulating supply unlocking. All else held equal, this means the token should trade much lower than it is now, as price is a function of supply and demand more supply = lower price.

If the price of Bitcoin and other cryptocurrencies cannot push upside and break out of their current range, then SUI and OP are likely to re-test critical support. Other altcoins could face a similar fate as market conditions worsen.

Unlock Season Hints at Bearish Pressure, But Shorting is a Bad Idea?

However, the team behind Optimism announced an important upgrade for the network. The second layer solution will lower fees and increase performance one week after unlocking the OP supply.

There have been other announcements regarding the state of this network and its development. The analyst believes that this is part of a strategy to offset the unlocks and warn traders against shorting the token, despite the unfavorable conditions:

(…) consider who you are trading against the investors and team are incentivized to coordinate and fuck over presellers as much as possible. Do you really want to pvp vs a16z and paradigm and the optimism insiders?

As mentioned, SUI is also likely to continue seeing downside price action. Despite unlocking fewer tokens than OP, the Sui Network team has a weaker strategy to counter the potential selling event, which could provide a better opportunity for traders.

Cover image from Unsplash, chart from Tradingview

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