On Thursday, as the wider cryptocurrency market displayed signs of rebound, Solana (SOL), one of the prominent altcoins, surged beyond the $200 threshold, indicating an 8% rise over the previous 24 hours.
This positive momentum moves the sixth-largest cryptocurrency by market capitalization nearer to its historical high reached in November 2024. Nevertheless, market specialists warn that Solana may encounter significant headwinds in the upcoming days.
A Double-Edged Sword For Solana Stakeholders
Ben Lilly, a market analyst at Jarvis Labs, recently pointed out potential dangers associated with the “Grayscale Effect.” In a social media update, he cautioned that the forthcoming Grayscale SOL tokens unlock could induce significant selling pressure on the altcoin.
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Grayscale, a leading digital asset management firm, implements a policy to safeguard assets for 12 months after acquisition. With the two major unlocking windows approaching—January 24 to February 2 and July 24 to August 7—Lilly advises that investors should remain vigilant.
The operational framework of the Grayscale Trust mirrors what was previously observed with the Grayscale Bitcoin Trust (GBTC). In that scenario, investors would acquire Bitcoin (BTC) via Grayscale, which would retain the assets for a duration before issuing shares.
This generated a premium, where the shares traded at a price exceeding the actual Bitcoin price, resulting in substantial market rallies.
However, when that premium faded, it marked the market peak in 2021, causing a domino effect of collapses for companies like Three Arrows Capital, BlockFi, Celsius, and Voyager.
Possible Price Decline Ahead For SOL’s Value
Lilly notes that Grayscale is currently employing a similar tactic with Solana, and the impending unlocks could reflect the past volatility observed in the crypto market.
The analyst mentions that earlier substantial acquisitions of SOL tokens experienced private placements unlocked from late July 2024, during which the price plummeted by 40% within just ten days.
The worry is that a similar pattern may materialize with the January 2025 unlocks, potentially resulting in a considerable sell-off. The analysis indicates that when investors who benefited from the premium previously act to liquidate their holdings, they might inundate the market, exerting downward pressure on the SOL price.
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Lilly advises that Solana holders contemplate selling ahead of the January 24 unlock date, as this could represent a pivotal moment for the asset.
While the Grayscale Trust for Solana is relatively minor in comparison to SOL’s overall market capitalization, the potential influence on price should not be underestimated.
According to Lilly’s assessment, historical patterns reveal that even modest unlocks can significantly affect market dynamics. He reassures that although the upcoming sell pressure may not produce disastrous losses, it could lead to local peaks and a reduction in premiums.
At the time of writing, SOL is trading at $205, down slightly more than 20% from its peak of $263 reached on November 24 of the previous year.
Featured image from DALL-E, chart from TradingView.com