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Arbitrum Faces $2.5 Billion Token Unlock: Will ARB Price Crash Following Supply Increase?

Last Updated March 13, 2024 12:53 PM
Valdrin Tahiri
Last Updated March 13, 2024 12:53 PM

Key Takeaways

  •  1.1 billion ARB tokens worth nearly $2.5 billion will be unlocked on March 16.
  • The ARB price reached an all-time high price of $2.42 on January 11.
  • Can the ARB price absorb this supply or will it correct after the unlock?

The ARB price enjoyed a positive end to 2023, increasing by more than 200% since September. There is a notable increase in interest for the network, as evidenced by the growth in Total Value Locked (TVL), which has reached new all-time highs. Additionally, the upcoming Dencun upgrade for Ethereum is set to greatly reduce transaction fees on Layer-2s such as Arbitrum.

However, there is an upcoming token unlock for March 16 that is set to nearly double the circulating supply of ARB. This has caused growing concern among investors as to whether the price can absorb this supply or correct instead.

Analyzing Arbitrum’s Vesting Schedule

ARB currently ranks #48 based on its market capitalization  of $2.77 billion. It has been a mainstay in top 50 nearly since its initial airdrop on March 16, 2023. However, only 12.8% of ARB’s circulating supply is unlocked. ARB has a maximum supply of 10 billion tokens, only 1.28 billion of which are circulating. This is all set to change on March 16, when 1.11 billion tokens will be unlocked.

Based on the current price, the unlock will increase ARB’s market capitalization to $5.18 billion. This will take ARB to #28 on the market capitalization rankings, between DAI and IMX.

ARB Unlock Schedule
ARB Unlock Schedule. Credit: Cryptorank

So far, the entire circulating supply has been created by the initial airdrop  at the Token Generating Event (TGE) on March 16, 2023 and the DAOs operating in the Arbitrum ecosystem.

The upcoming unlock  will give 673 million tokens to the team & advisors and 438 million tokens to early investors. The rest of the tokens will release to these two categories following a monthly schedule. According to the schedule, 92.63 million tokens will be released every month starting on April 16 and continuing for 3 years.

Given these numbers, it can be calculated that the March 16 unlock equals a year of monthly unlocks following the linear schedule. The vesting & lockup schedule  was likely chosen so early investors do not immediately take profit after the TGE.

Out of the two categories, early investors are more likely to be liquid. After the seed round which had a price of $0.005 per token, Series A and B funding  were conducted at a price of $0.12 for ARB. Therefore, early investors face more than 1,800% returns if they sell after the unlock.

How Will ARB Price React?

The technical outlook for ARB is positive. The price has increased since bouncing at the previous all-time high region of $170 on January 23, 2024. This created a bullish ascending triangle pattern. The ARB price currently makes the fourth breakout attempt above the triangle’s resistance area at $2.15.

A breakout that travels the entire height of the pattern (white) would cause a 35% increase to $2.95. The target also has some confluence in the form of the 1.61 Fib retracement level of the previous decrease.

ARB Price Possible Breakout
ARB/USDT Daily Chart: Credit – TradingView

The daily RSI and MACD cast some doubt in the possibility of a breakout since they have both generated a bearish divergence (green lines). However, a successful breakout would invalidate both divergences. With the positive price action and the fact that both indicators are trending upward, this seems to be the most likely scenario.

Total Value Locked All Chains
Total Value Locked All Chains: Credit – DefiLlama

It is also worth mentioning that Arbitrum has a TVL of $4.37 billion, which is significantly more than Avalanche at $1.35 billion and Polygon at $1.26 billion, both of which are ranked in the top 15 by market cap. Judging by this metric, the Arbitrum network will still be undervalued even if it holds the same price with the additional supply.

ARB Technical Are Strong Despite Supply Increase

To conclude, even though the ARB supply is set to increase dramatically, the technical outlook suggests the price is wellpositioned to absorb this increase, and so does the health of the network. It is possible the massive returns for early investors could cause some sell pressure if they decide to sell. But, ARB is well positioned to resume its bullish trend in the long-term.

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