On Thursday, the crypto market started to bounce back, and Solana (SOL), a top-tier altcoin, made a notable leap past the $200 mark, showing an impressive 8% rise over the last day.
This boost nudges Solana, the sixth-biggest cryptocurrency by market value, closer to its all-time high noted in November 2024. Yet, industry experts are advising caution, warning that Solana could encounter considerable challenges soon.
Solana Investors: A Mixed Blessing
Ben Lilly, a market analyst at Jarvis Labs, has pointed out potential concerns related to what he describes as the “Grayscale Effect.” Through a recent social media post, Lilly alerted investors about upcoming Grayscale SOL token unlocks, which might lead to significant selling pressure on this altcoin.
Grayscale, known for its digital asset management, sticks to a strategy of safeguarding assets for a full year after they are acquired. As the two unlock periods — January 24 to February 2 and July 24 to August 7 — approach, Lilly stresses that investors should be vigilant.
The Grayscale Trust functions similarly to the Grayscale Bitcoin Trust (GBTC) from before. Investors would purchase Bitcoin (BTC) through Grayscale, which would then hold the assets briefly before distributing shares.
This process often created a premium, where the shares were priced higher than Bitcoin itself, sparking substantial market rallies. However, once that premium vanished, it signaled the height of the market back in 2021, which then led to failures for firms like Three Arrows Capital, BlockFi, Celsius, and Voyager.
SOL’s Potential Price Drop
According to Lilly, Grayscale’s current moves with Solana might mimic past market volatility. He recalls that when large SOL token purchases began unlocking from late July 2024, the price plummeted by 40% in just ten days.
The fear is that a similar pattern may repeat with the January 2025 unlocks, potentially sparking a significant market sell-off. If investors who previously gained from the premium decide to offload their stakes, it could flood the market and put downward pressure on SOL’s price.
Lilly advises Solana holders to consider selling before the critical unlock date of January 24, as it may represent a pivotal moment for the asset. While Solana’s Grayscale Trust is small compared to SOL’s overall market cap, its potential impact on pricing shouldn’t be underestimated.
Drawing from historical patterns, Lilly argues that even small unlocks can greatly shape market behavior. He calms nerves by saying that although the impending selling pressure might not cause catastrophic losses, it could lead to local peaks and reduce premiums.
As of this report, SOL is valued at $205, which is around 20% lower than its high of $263 reached on November 24 of last year.
Image featured by DALL-E, chart sourced from TradingView.com.
