- Avalanche, a top-ten market cap cryptocurrency, has fallen 12% over the past seven days.
- The price tumble comes as an upcoming token unlock releases AUD $500M worth of coins into the Avalanche ecosystem.
- Token unlocks typically result in short-term corrections as supply momentarily inflates.
- This writer has intentionally avoided using the term “Avalanche” to refer to AVAX’s price decline.
Hype and project fundamentals are some of the biggest factors in the crypto market’s oft-mercurial price swings. But the age-old cornerstone of economics – supply and demand – still plays a massive role over the long-haul. No greater example of this is the upcoming token unlock for Avalanche (AVAX), one of the most popular DeFi projects in circulation. The top-ten market cap coin has endured a rough week, falling nearly 12%. Although the broader market has slipped a little of late, Avalanche’s downturn is clearly significant – and there’s a reason why.
Nearly 10M AVAX to be Unleashed into Ecosystem
Cryptocurrency projects often use differing methods to release supply into circulation. Some, like Bitcoin, rely on miners and the Bitcoin halving to avoid inflation. Others, like Avalanche, slowly trickle new tokens into the ecosystem through periodic token unlocks. In the long-term, this makes sense, as airdropping a coin’s max supply in one go is a recipe for a valueless token. However, the tradeoff is when these token unlocks approach, the market for the project takes a bit of a hit as supply gets briefly inflated.
The unlocking event – scheduled for later this week – will release 9.5 million AVAX into the Avalanche system, valued at over USD $350M (AUD $534M). This represents an increase of 2.6% to the current circulating supply. Such events frequently result in price dumps as supply outpaces demand, and this event has been no exception. Traders are getting in early by moving out of Avalanche tokens, dropping the value of AVAX by 12% on the week and 3% in the past 24 hours alone.
While the downturn due to the increased supply isn’t typically permanent, there may still be a bit of red to go for AVAX holders as market demand catches up. It may be a fortnight, or even a month, before the full impact of the token unlock is felt.
At the time of writing, AVAX is trading at USD $37.42 (AUD $57).
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