On Thursday, as the overall cryptocurrency market showed signs of recovery, Solana (SOL), one of the top altcoins, surged to $200, reflecting an 8% gain in the past 24 hours.
The rally brings the sixth-largest cryptocurrency by market capitalization closer to its all-time high reached in November 2024. However, market experts warn that Solana could face significant pressure in the coming days.
A Double-Edged Sword for Solana Investors
Ben Lilly, a market analyst at Jarvis Labs, recently highlighted the potential risks associated with the “Grayscale Effect.” In a social media post, he warned that the upcoming Grayscale SOL token unlock could create significant selling pressure on the altcoin.
Grayscale, a prominent digital asset management firm, enforces a policy of protecting assets for 12 months after acquisition. With two major unlock periods approaching—January 24 to February 2 and July 24 to August 7—Lilly warns investors to be vigilant.
The Grayscale Trust mechanism is similar to what has been seen in the past with the Grayscale Bitcoin Trust (GBTC). In that case, investors would purchase Bitcoin (BTC) through Grayscale, which would hold the assets for a period of time before issuing shares.
This creates a premium, where the stock trades at a higher price than the actual Bitcoin price, leading to a significant increase in the market price.
However, when that premium disappeared, it marked the peak of the market in 2021, leading to a series of bankruptcies by companies like Three Arrows Capital, BlockFi, Celsius and Voyager.
Potential Price Drop Coming Soon for SOL Price
Lilly points out that Grayscale is currently pursuing a similar strategy with Solana, and the upcoming unlock could mirror past volatility in the cryptocurrency market.
The analyst noted that previous large SOL token purchases saw private offerings unlock from late July 2024, during which time the price dropped 40% in just ten days.
The concern is that a similar trend could emerge with the January 2025 unlock, potentially leading to a significant sell-off. Analysis suggests that as investors benefiting from past premiums sell their holdings, they could flood the market, creating downward pressure on the SOL price.
Lilly recommends that Solana holders consider selling before the January 24 unlock date as this could be a pivotal turning point for the asset.
While the Grayscale Trust's stake in Solana is relatively small compared to SOL's overall market capitalization, the potential impact on price cannot be ignored.
According to Lilly's analysis, historical trends show that even small unlocks can have a significant impact on market behavior. He asserted that while the upcoming selling pressure may not result in catastrophic losses, it could lead to local tops and a drop in premiums.
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