The cryptocurrency market has recently been on a roller coaster ride, with some dramatic shifts in market dynamics over the past several weeks. One of the most talked-about and notable events is the impending unlock of 11.2 million Solana ($SOL) tokens.
This event, set for March 1, is connected to the ongoing bankruptcy situation of the FTX exchange. The FTX lawyers currently estimate that FTX holds around 3.3 million of the yet-to-be-unlocked $SOL tokens. Stirring talks and fears among traders and investors that these token unlocks will lead the cryptocurrency market into a downturn—the doomsday scenario for crypto—is above all else reminiscent of last fall, when panic spread over what would happen following the unlocking of a massive amount of Ethereum tokens.
The $2 Billion Unlock: What Does It Mean for the Market?
The March 1 token unlock, which saw 11.2 million $SOL (worth about $2 billion) released, is a big deal for the Solana network. These tokens account for about 2.2% of the CURR circulating supply of SOL, which stands at approximately 488 million right now. What we’re seeing in terms of the volume that is going to be unlocked combined with the unknown market conditions has got people talking that this might be what pushes the price of SOL down.
In February, Solana’s price took a dive, which is what this has to be viewed in light of. The price dropped from $295 to $125, which—let’s face it—looks a lot like a crashing price. The key driver behind this price drop, I would say, is fear. Fear that is widespread and has many investors of many assets in its grip. Fear, in this case, revolves around the imminent large unlock of Solana that happened on the 3rd of March and the concerns that this large unlock might impact the price negatively. From our numbers here, the amount involved in this large unlock was 11.2 million SOL tokens.
This release is part of the ongoing legal matters related to FTX, which is in bankruptcy. The estate of FTX holds a sizable amount of $SOL, and these tokens have been locked for quite a while. Now, as the liquidation process unfolds, the tokens are about to be released, adding another twist to an already volatile market.
What Could Happen After the Unlock?
When the 11.2 million SOL tokens hit the market, the immediate reaction will be key. On the one hand, the cash flow could instigate a buying frenzy, with some investors possibly trying to reallocate their just-unlocked tokens to other crypto assets. That said, the cash flow itself could also lead to selling, as some investors use the token unlock as a liquidity event to front-run the market and take some unleveraged profits. If the cash flow does lead to selling, it could put some downward pressure on Solana’s price in the short term.
Nonetheless, it is crucial to point out that this unlock is not necessarily a “death knell” for Solana. The reaction could be more nuanced. For one, the Solana network has demonstrated significant resilience in the past, despite challenges like network outages and competition from other blockchain platforms. If the network can continue to stay above water and show scalability and efficiency, some market participants might see this unlock as a potential buying opportunity, especially if prices dip in the short term.
In addition, the release of these tokens might have a delayed impact. Even though many traders expect a sell-off to happen right away, it’s possible that some investors might just hold the newly unlocked tokens and wait for them to appreciate in value. In any case, the price of Solana will be greatly influenced by the overall market conditions. To put it another way, if Bitcoin and the other big crypto players are doing well or poorly, that will also be reflected in the price of Solana.
What About Solana’s Future Unlocks?
The most significant unlock happened on March 1, but we should not overlook two smaller token unlocks scheduled for the next couple of months. On April 1, 12,700 $SOL will be unlocked, followed by another 73,700 $SOL on May 1. These unlocks, though, are trivial compared to the big one we already discussed. Still, they contribute incrementally to the $SOL circulating supply. And again, these tokens are held by the FTX estate. So, in the context of the bankruptcy proceedings, the release of these tokens is noteworthy.
Smaller unlock events are likely to keep the market’s eyes on them, as they will apply short-term, incremental pressure on the circulating supply. Even though these unlocks are much smaller in scale compared to the earlier events, the combined effect over time could still nudge market sentiment in a different direction. The Solana community and investors in it will have to keep a close watch on what these unlocks do to the appearance of the network in the eyes of the people who determine its value.
Market Sentiment and the FTX Legacy
The 2022 FTX downfall left a deep wound in the crypto market. And ongoing FTX bankruptcy proceedings have only added to the uncertainty. As they make their way through court, estate representatives will have to decide whether to release locked tokens and to what extent. They will also have to contend with a market that—understandably—associates the FTX name with a lack of integrity and with bankruptcy. Solana has become collateral damage in that way. For these reasons, and probably others too, it seems prudent for Solana to be a little more quiet.
Although the unlocks caused momentary volatility, Solana has stuck to its short- and medium-term narrative of being a usable high-performance blockchain. Its real-world applications are primarily in two areas: decentralized finance (DeFi) and non-fungible tokens (NFTs). Price volatility is a potential downside for any blockchain, with a connected investor base that could sometimes be a loyalty tent. Also, Solana’s connection to FTX in the fallout Ed S. has had a marked effect on investor sentiment as we enter 2023.
What’s Next for Solana and Investors?
To sum up, the Solana network could face a critical moment with the March 1 unlocking of 11.2 million $SOL tokens. The immediate effect might just be to drive the price down because with 11.2 million more tokens out in the market, some folks are bound to get scared. But if the Solana network and price of $SOL is actually stable and healthy, it might be the price of $SOL that recovers, not the price of the 11.2 million newly unlocked tokens.
Currently, those involved in the market will be keeping a close watch on the outcomes of the FTX unlock and the yet-to-come smaller token releases that are set to happen in April and May. The next few months could very well be a make-or-break time for Solana in terms of whether it can stay intact in the storm it has been in and whether, in the meantime, it can also somehow dodge the price effects of the FTX fallout.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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