1 key reason why Cardano, Polkadot and Solana are crashing today

The crypto sector had a rather dismal outing overall today, with most major cryptocurrencies posting sharp declines as we move into late afternoon trading. Among the three tokens that investors can watch closely today are Cardano (ADA -4.92%), Spheres (POINT -6.20%)and Solana (SOL -2.39%)which fell by 5.9%, 5.8% and 2.5% respectively in the last 24 hours. Earlier, Solana fell more than 3% on the day, but has since recovered some of its earlier losses.

Much of the selling pressure seen today among risk assets such as cryptos can be attributed to comments from Federal Reserve Chairman Jerome Powell, who charged that the rate cut by the end of the year could be slower than the market price. in. These comments led to a sharp sell-off among certain riskier assets that are harder to value, with expected growth and higher long-term cash flows.

However, the three tokens in question – Cardano, Polkadot and Solana – each have a unique catalyst that investors seem to be focusing heavily on today. Here’s what it is and why investors should care.

Large token unlocks could create imbalances between supply and demand

Like stocks, which can see the number of shares increase through a number of factors over time, dilution can exist in the crypto sector as well through similar means. Aside from initial coin offerings (similar to initial public offerings on the stock market), where a certain number of tokens are reserved to be publicly traded in advance, token unlocks are common in the crypto sector. These token unlocks essentially add additional tokens to the ecosystem as a way to compensate early investors or the community behind a particular project.

As it happens, Cardano, Polkadot, and Solana each have upcoming token unlocks that the market seems to be pricing in right now.

In the case of Cardano, an upcoming unlock of more than 37 million tokens is expected to hit the market in the next two weeks (about 0.1% of the total supply). Solana will see a token unlock of over 524 million tokens (0.11% of the total supply), and Polkadot’s token unlock will amount to about 0.2% of the total supply.

While these numbers may seem small in the grand scheme of things, and they most likely are, it is also true that there must be a buyer of these newly issued tokens in the market, should those receiving these tokens look to sell. Added liquidity to the market can be a good thing in the long run, but it’s also true that some valuation discount can be applied based on the market caps of these projects spread across multiple tokens.

What will these unlocks mean for these three projects?

Today’s declines represent more than the relatively small number of newly issued tokens coming to market for these specific projects. However, concerns about demand for Cardano, Polkadot and Solana in the face of additional unlocks on the horizon could lead some investors to take a more measured approach to these projects in the near term.

As is the case with many such short-term headwinds, I think many investors will see these breakouts as just that (short-term headwinds that will quickly appreciate). But I also think that any disruption in supply and demand for high-profile DeFi projects like these three could lead to greater distortions in their value, especially if investors flock to projects that are excessively inflationary , favoring more stable projects with declining mining rewards or even deflationary supply.