The crypto market maintained its downward trajectory amid fears of a possible economic downturn. Bitcoin (BTC) experienced a sharp drop, falling by over 4% at one point on September 5 before recovering to trade at $56,500 at the time of reporting.
Ethereum (ETH) towed a similar path as Bitcoin, losing more than 4% and dipping below $2,400 during the same time frame.
The jobs data report, released next week, is expected to shed more light on the economic situation. If gloomy, the report could further impact cryptocurrency prices.
Messari Predicts Price Drop as Aptos Token Unlock Nears
The broader cryptocurrency market also felt the pressure following Bitcoin’s decline. This is obvious as the CoinDesk 20 Index, a basket tracking the performance of 20 leading digital assets, fell by over 3%.
Certain altcoins such as Dogecoin (DOGE), Cardano (ADA), and Litecoin (LTC) managed to perform slightly better than the overall market.
The native cryptocurrency of the Layer-1 blockchain, Aptos (APT), experienced a sharp decline, plunging 7%. This decline has made it the worst-performing asset among the CoinDesk 20 Index members.
The sharp decline is attributed mainly to market concerns surrounding an upcoming token unlock event. This event, scheduled for next week, will see approximately $65 million worth of previously locked tokens released into circulation.
These tokens represent about 2.3% of the current total supply of the Aptos token. Data from Token Unlocks indicate that early investors will primarily receive the distribution.
The influx of new tokens will likely increase the overall supply in the market, which can dilute the value of existing tokens and trigger sell-offs. Early investors would likely use it to liquidate part of their holdings for profit.
Also, concerns stemming from the upcoming additional supply have likely impacted the price of APT as traders factor in the potential for increased selling pressure.
According to recent research conducted by Messari, cryptocurrencies have historically tended to perform below the broader market during the periods surrounding large token unlock events.
The analysis of hundreds of token unlock events in the past years drew this conclusion. According to Messari’s findings, in a window of seven days both before and after these unlock events, cryptocurrencies often struggle to maintain their value. They tend to exhibit a weaker performance compared to the broader market.
This pattern is based on the supply dynamics triggered by token unlocks. When previously restricted tokens enter circulation, the asset supply immediately increases.
This influx of supply leads to selling pressure, especially from early investors and insiders looking to capitalize on their gains.
Crypto and Stocks Diverge: One Faces Token Unlock, Other Reflects Risk Aversion
In contrast, while the cryptocurrency market faces challenges from token unlock events, traditional financial markets reflect a broader risk-averse sentiment.
Key U.S. stock indices declined during the morning trading session as investors shifted away from riskier assets. The Dow Jones Industrial Average (DJIA) dropped by 0.9%, showing investors have become cautious.
Similarly, the S&P 500, which provides a broader view of the U.S. equities market, was down by 0.5 % by midday Eastern time. Meanwhile, the Nasdaq 100, which initially showed some strength at the trading day’s opening, reversed its early gains and remained relatively flat.
Crypto-focused stocks also faced a downturn, similar to those in the broader market. Coinbase (COIN), one of the largest cryptocurrency exchanges, dropped 1%, briefly falling below $160 for the first time since February.
Meanwhile, large-cap Bitcoin mining companies were hit harder. Marathon Digital Holdings (MARA) experienced a 4% decline, while Riot Platforms fell 2%. These mining companies are susceptible to fluctuations in Bitcoin’s price.
Disclaimer: The opinions expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their own risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile, high-risk asset class.
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