Avalanche’s AVAX Underperforms Ahead of $365M Token Unlock: Market Braces for Impact

• Over the past week, Avalanche dipped by 5.5%, while most of the 100 largest cryptocurrencies recorded an increase in price as AVAX bulls struggled to gain control over the market.
• The token’s price struggles come amid the looming token unlock tomorrow, where 9.5 million AVAX will flood the market, with analysts expecting this event to deal a blow to the price.

After a stellar run late last year, Avalanche has struggled this year, and it currently trades over 20% below its December highs. In the past week, as most of the top 100 cryptos recorded price gains, AVAX lost over 5%, and it could get worse as an impending token unlock event floods the market with millions of tokens tomorrow.

AVAX trades at $37.47 at press time, over 5% below its highest market price in the past day, as it continues to struggle with momentum over the past week.

Since hitting a weekly high of $43.48 on Feb. 15, the token has been on a downhill trend, losing 14% in six days. AVAX dipped below the critical $40 price level on Feb. 19, and after an attempt to rise above this price level was rejected the day after, it seems to have lost upward momentum.

In contrast, most major cryptocurrencies have made gains over the past week as the market rebounded after a tough start to February. Some, like Fetch.ai and Siacoin, gained over 50% in that time, while Kaspa, The Graph, Hedera, Filecoin and VeChain all clocked over 20% in gains.

Some popular market indices like the CoinDesk 20 Index (CD20) also recorded an upswing in the past week as some of its heavily weighted constituents, such as Bitcoin, Ethereum, Solana, and XRP, made gains.

Avalanche Braces for Unlock Impact: What’s Next for AVAX?

The much-hyped Avalanche token unlock is now 16 hours away, with 9.54 million tokens expected to hit the market in the early hours of Feb. 22. Accounting for 2.59% of the total AVAX supply, the tokens will add $380 million in extra supply at a time when the market is struggling with the existing liquidity.

Token unlocks can be unpredictable; for instance, the last time Avalanche had an unlock was in November, and in the month that followed, it set a new annual high as the bulls scooped up all the extra liquidity. However, in its previous unlock in August, the market tanked within weeks.

However, despite the variations, unlocks are almost always harmful to tokens with low liquidity, research by The Tie shows. The analytics firm reviewed over 350,000 unlock events for over 100 tokens and found that the effect mostly depends on how big the unlock is relative to the prevailing liquidity.

The researchers stated, “In cases where the unlock represented more than 100% of the average daily volume, prices tended to rebound faster, albeit briefly. This could be attributed to traders feeling relieved that the unlock did not immediately flood the market with new tokens.”

They added:

Nonetheless, within two weeks, prices of tokens facing such significant unlocks fell below their initial levels at the time of the unlock. This may suggest that holders preferred to wait a few days before selling into the market.

In Avalanche’s case, the $379 million expected tomorrow is way below the average daily trading volume, which in the past day was $627 million.