Aptos’ APT hit a new all-time high of $20.39 after posting gains of over 400% since early 2023. While the rally could just be a pump-and-dump event due to perceived weak fundamentals, increasing negative sentiment towards the token will likely drive prices up in the near term.
Let’s explore some of the factors that could be driving the Aptos price rally.
A rich history and strong investor backing
Aptos is a byproduct of Facebook’s attempt at the Libra blockchain, which was forcibly shut down by regulators. Two of Libra’s leadership team, Mo Shaikh and Avery Ching, later found Aptos, a decentralized version of the abandoned blockchain project.
The project is based on the Move programming language and introduces a new class of Layer 1 blockchains that will compete with Solana and Cardano. The main reasons behind the tailwinds for the APT token include investor hope for a technological breakthrough that could finally provide a scalable, secure, and decentralized blockchain.
Aptos raised $350 million in 2022, including a $200 million seed round led by Andreessen Horowitz and a Series A financing of $150 million round led by FTX Ventures and Jump Crypto. Binance later made a follow-on strategic investment to help increase the Aptos ecosystem.
The prominence of FTX Ventures induces the risk of a liquidation of the defunct entity. In this sense, some investors could take comfort in the participation of other venture capitalists such as Multicoin Capital, Blocktower Capital and Coinbase Ventures. High volume exchanges like Binance could also soften the blow inflicted by FTX and Alameda Research.
Constant development of the ecosystem
The Aptos blockchain was released in October 2022 and is still in the early stages of ecosystem development. There are few decentralized finance projects or non-fungible tokens on the blockchain, and smart contract activity is currently limited. More than 94% of blockchain transactions are for APT transfers, which shows negligible decentralized application activity.
Development activity has been around average on the blockchain. The number of active developers on Aptos is higher than Avalanche and Tezos but behind Solana, Polkadot, Cardano and Ethereum.
Aptos is not the first project to build a large market capitalization without significant on-chain activity. Cardano and Polkadot are prominent examples, where the rise in the price of their native token is primarily led by the superior technology narrative.
However, even in this regard, the overall size of the Aptos community is smaller than the top Tier 1 projects. Cardano and Polkadot have over 1.3 million Twitter followers on their accounts. At the same time, Avalanche has over 855,600 followers and Tezos has over 470,000. Aptos is lagging behind, with a follower count of 364,500.
Going forward, the efforts of Aptos’ business development team and the performance of the blockchain will likely catalyze further price movements.
Trader disbelief could drive APT price higher
Given the lack of activity and limited growth in the ecosystem, the rally in APT has taken the market by surprise. It’s not hard to find tweets hinting at the token’s exaggerated market capitalization.
$ CURRENCY @ $12 billion market cap
Aptos @ $16 Billion Market Cap
— DavidHoffman.bedrock (@TrustlessState) January 25, 2023
However, going against the trend can be risky for sellers. Trading the short side of APT perpetual swaps is filling up as the token has passed its October 2022 peak of around $15, which is evident in the negative funding rate for APT.
It provides an opportunity for buyers to seek sellers’ liquidation levels by raising the price. And in the crypto markets, the reduction of short orders is done most of the time.
Selling pressure on APT is limited
APT tokenomics limits the selling pressure on the token for the first year after its launch in October 2022. The APT launch schedule delays the unlocking of investors until October 2023, after which there will be a sharp increase in the circulating supply of APT tokens. Until the unlock begins, the only source of inflation is the rewards staked, which is 7% for the tokens staked.
Initially, the foundation distributed 2% of the supply to early adopters and developers. In all likelihood, the users who wanted to sell your APT would have already sold within three months of its launch.
Significant buying interest for APT comes from the South Korean won trading pair on crypto exchange UpBit. The exchange makes up nearly 40% of Aptos’ trading volume. The APT price on Upbit is trading 1-3% higher than the market price, indicating strong demand in the region; therefore the same kimchi cousin.
There is a possibility that Upbit volumes are inflated from wash trade, or it could be an attempt to manipulate the markets. The owners of the bag have been left under the regulators competence many times in the past. However, the buying pressure will likely persist until the Kimchi premium is resolved.
While the prices may have started due to a broader positive trend in cryptocurrency prices, it is taking the form of a rally of disbelief as the sellers are proven wrong. Until the negative sentiment and Kimchi premium dissolve, the chances for Aptos to rise are considerable.
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