Early access to emerging cryptocurrency projects usually comes with the benefit of considerable first-mover profits. However, for many investors that locked their tokens in hopes of wealth, the novel reality is settling painfully. New information brings to light this harsh truth: holders of these locked tokens are facing losses averaging almost 50% relative to OTC valuations from a year ago, a testament to the discomfort caused by the illusion of liquidity in a volatile market during a shift in overall sentiment.
The Initial Phases of Cryptocurrency Projects: A Premature Boom Sure to Bust
With the promise of radical new technology and unskinned exponential growth, the early stages of cryptocurrency projects usually tend to create massive hype and attract initial investors. The strategy of purchasing tokens at a presale discount and having them locked for a specified vesting period is often pitched as a Golden Ticket to life-altering potential gains. Many investors endorsed by the diamond hands mentality, or the deeply rooted belief in holding resources regardless of volatility, have grown accustomed to this approach, expecting even greater price movement after the lockup.
A Year of Decline: The Crushing Weight of Illiquidity
There is a much more sobering trend. Token holders’ paper losses stand to the tune of hundreds of millions when compared to their OTC market valuations from a mere year before. This decline in value, which is roughly a 50% decline in valuation, highlights the problems posed by trying to illiquid markets, especially in the highly unpredictable world of cryptocurrencies. So many of these investors missed market exits where they could have easily liquidated their investments at far more favorable prices. Instead, they decided to hold on to their investments, which have plummeted in value and are now laden with considerable financial losses.
Market Dynamics: The Absence of Sellers
Taran Sabharwal, STIX’s founder, highlighted that throughout 2024, demand from OTC buyers was abundant. The fundamental problem, and the one that caused dry liquidity in the market, was the unwillingness of initial token holders to let go of their labels. Oftentimes, these tokens were already inflated in value, and mark holders thought that they would continue to be on the upward trajectory. They were too optimistic, which led to a lack of sellers in the market and ultimately left a lot of these people without the chance to withdraw value from their assets before the market turned.
Hype Fades, Discounts Deepen: A Market Correction
Even the projects that once attracted a lot of attention are now facing severe devaluation. This market correction poses important concerns regarding the way investors seemed to price risk for such early-stage deals and if the actual dangers of illiquid positions were truly grasped. The warning signs of unsustainable asset pricing are evident in the drastic deflation of valuations, illustrating that hype by itself is not sufficient to prop up prices.
The Bleeding Altcoins: Losses Outpace the Market
Even the losses sustained by locked token holders surpass the losses that the rest of the crypto market has experienced. During this period, the average crypto market correction stood at 41%, even with the relative stability provided by Bitcoin (BTC) and Ethereum (ETH). This striking disparity underscores the heightened vulnerability predicated by the investment in illiquid, early-stage altcoins with long lock-up schedules.
A Landscape of Lost Opportunities: Lopsided Gains for Few
The pain is concentrated among locked token holders in historically performing projects. SCR is down 85%, BLAST is down 88%, EIGEN is down 75%, ZK is down 64%, W is down 50%, IO is down 48%, TIA is down 44%, and a myriad of others are performing near this range. JITO is the only project that salvaged the sea of red, managing to gain 75%. This example starkly illustrates how rare any kind of positive return is in such high-risk segments.
Rethinking Strategies: A Minefield of Liquid Vesting Illiquidity
The report underscores a critical issue: locked token rounds pose risks that are often neglected. Illiquidity and long-length vesting schedules, also known as ‘prevention of exit,’ heighten the risks investors face. The estimated market cap, or value, of these speculative-stage projects tends to dramatically evaporate with market sentiment shifts or stagnant adoption. Due to these factors, a large subset of investors are being forced to rethink their investment strategies as FDVs continue undermining crypto valuations across secondary markets. The strain is starting to show, especially for newer projects still burdened by their lock-up phases, as one-year market correction learning lessons become increasingly difficult to overlook.
