Locked crypto token holders are suffering average losses of nearly 50%, underperforming the broader market’s 40.7% decline. Early-stage investors in tokens like SCR and BLAST faced extreme drawdowns of up to -88%. Lock-up periods have become volatility traps, with investors missing optimal exit points amid significant market corrections, underscoring the risks inherent in early-stage crypto investing and the need for better valuation models.
Locked crypto token holders are experiencing significant losses, with average drawdowns nearing 50%, compared to a broader crypto market decline of 40.7%. Early investors in tokens such as SCR, BLAST, and EIGEN have faced even more severe losses, with some experiencing drawdowns as high as -88%. The volatility of lock-up periods has exposed investors to significant repricing risks, particularly in fluctuating market conditions.
Taran Sabharwal, founder of STIX, reported that locked token holders have seen an average 50% drawdown comparing their holdings to over-the-counter (OTC) valuations from May 2024. The report highlights a harsh market correction affecting early investors with illiquid holdings. The analysis covers major projects like JITO, BERA, and ZRO, revealing a drastic gap between initial expectations and current valuations.
Among the hardest hit, SCR and BLAST recorded colossal year-over-year losses of -85% and -88% respectively, while EIGEN faced a -75% decline. Other tokens such as ZK, W, IO, and TIA also experienced substantial declines ranging between -44% and -64%. Conversely, JITO stood out as an anomaly with a noteworthy +75% increase against its prior OTC valuation, defying negative trends prevalent in the market.
The stark difference between current market prices and OTC valuations emphasises the risks of early-stage crypto investments, particularly during lock-up periods. As Sabharwal noted, investors may buy locked tokens at inflated prices during market peaks, only to encounter a changed landscape when the tokens become tradable. Many investors potentially lost the chance to exit at significantly higher prices if liquidity had existed earlier.
The data indicates that locked token holders likely missed several optimal exit points during 2024, a period also marked by corrections in the broader crypto market. Artemis reported an average 40.7% drawdown across 22 tracked crypto sectors, including Bitcoin (BTC) and Ethereum (ETH), which, while substantial, is still more favourable than the performance of locked token positions.
This analysis serves as a stark reminder for venture capitalists, angel investors, and retail participants involved in early-stage token investments: lock-up periods are not merely liquidity issues but potential volatility traps. The rapid transition from fundraising excitement to current market outlook has placed renewed stress on newer projects. As valuations rapidly adjust in secondary markets, early backers may find themselves at a disadvantage before their tokens are fully vested.
Despite the attractive prospect of early access and advantageous pricing, Sabharwal’s findings stress the necessity for more realistic valuation methodologies and improved risk-adjusted strategies in the private token market. In a fast-moving environment where liquidity is crucial, the consequences of holding through a lock-up period might outweigh any potential benefits from early investments.
