Token unlocks trouble the market despite the events’ role in project stability

Token unlocks help maneuver volatility in the market as the releases bring opportunities for increased liquidity and, therefore, potential gains. Nevertheless, akin to the laws of demand and supply, the events lead to a fall in crypto prices for some assets. The price slump comes from a suddenly increased supply against a constant or reduced demand and panic selling. Over the first week of June, around nine ecosystems will see huge chunks of their tokens released, as reported, with the speculation already causing a steady slump in prices. However, reversals, or lack thereof, are expected as market players adjust their portfolios.

Also Read: Galxe, Optimism, and 1INCH set for volatility as $350 million token unlocks loom

Token unlocks could be a threat or an opportunity

Token unlocks may be a threat to the market for the short term, disrupting uptrends by increasing the circulating supply. Moreover, token unlocks are also known to cause uncertainty in the market, which explains why some traders sell immediately after the event.

Notably, such sell-offs contribute to downward pressure, ultimately leading to a prolonged downtrend for the asset.

Nevertheless, the impact of token unlocks is not universally negative. For example, there are instances when a project demonstrates solid progress and positive momentum after the event. When this happens, the unlock is considered a sign of confidence among community members, drawing in more investors and potentially driving the price higher. This underscores the multifaceted effects of token unlocks on price dynamics.

Factors influencing how a market reacts to token unlocks

Certain factors could influence the market's reaction to a token unlock event. Among them are the unlock's size and the project's overall reputation. In certain cases, a significant unlock could provoke or trigger panic selling, particularly where investors fear a price drop. On the other hand, a well-regarded project, coupled with the expectation of the unlock (not a surprise to community members), could bolster investor confidence by increasing liquidity and demonstrating the longevity prospects of the project.

As such, smart traders can take advantage of the ensuing price declines to enter long positions for select assets and be part of the next rally once the market corrects.

Data from Token Unlocks Dashboard shows that June is populated with many unlocks, with the scheduling and statistics suggesting intense tokenomics for the concerned coins. Notably, while some blockchain projects are already underway with their respective unlocks, others are yet to come, with the dashboard showing an estimated total of $619.4 million in tokens set to be released to the market.

Note, find the full list on TokenUnlocks.app

Ripple price reacts to June 1 token unlock

Ripple (XRP) was en route north after a May 25 breakout that saw the remittance token leap 20% to a new local high. However, the rally was interrupted on May 31, barely hours before the network unleashed tokens worth $500 million. The subsequent price action has resulted in a 5% dip thus far, giving sideline investors a chance to join the bandwagon before the next train leaves the station.

The pullback could see Ripple price obey the demand zone at around $0.46 before a northward push. A demand zone constitutes a price range signaling a sharp uptrend's beginning, either a bullish reversal or an uptrend continuation. In the case of XRP, this would be a bullish reversal.

Within the demand zone, there is accumulation. After Ripple price tests the demand zone, a bullish breakout could see XRP explode 20%, clearing the equal highs around $0.52 to tag the $0.55 resistance level.

XRP/USDT 1-day chart

Failure to do so could see Ripple price fall through to collect liquidity around the $0.41-0.40 price range where the candle wicks of the second week of May lie.