Aptos’ APT hit a new all-time high of $20.39 after posting gains of over 400% since early 2023. While the rally may just be a pump-and-dump event due to perceptions of weak fundamentals, heightened negative sentiment towards the token is likely to fuel prices in the near-term.
Let’s examine some of the factors that could be driving the Aptos price rally.
A rich history and strong investor support
Aptos is a by-product of Facebook’s attempt at the Libra blockchain, which was forcibly shut down by regulators. Two members 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 against Solana and Cardano. One of the main reasons behind the tailwinds for the APT token is investors’ hopes for a technological breakthrough that could finally offer a scalable, secure, and decentralized blockchain.
Aptos raised $350 million in 2022, including a $200 million seed round led by Andreessen Horowitz and a $150 million Series A funding round led by FTX Ventures and Jump Crypto . Later, Binance made a follow-on strategic investment to strengthen the Aptos ecosystem.
FTX Ventures’ prominence puts the defunct company at risk of a sell-off. In this regard, the participation of other venture capitalists such as Multicoin Capital, Blocktower Capital and Coinbase Ventures could reassure some investors. High-volume exchanges like Binance could also soften the blow from FTX and Alameda Research.
Steady ecosystem development
The Aptos blockchain was launched in October 2022 and is still in the early stages of ecosystem development. There are few decentralized finance or non-fungible token projects on the blockchain and smart contract activity is currently limited. More than 94% of blockchain transactions are destined for APT transfers, showing negligible decentralized application activity.
Aptos transaction volume by transaction purpose. Source: Pinehearst
Development activity on the blockchain has been about average. The number of active developers on Aptos is larger than Avalanche and Tezos, but behind Solana, Polkadot, Cardano and Ethereum.
Number of active developers working on blockchains and dApps. Source: Token Terminal
Aptos isn’t the first project to build a sizable market cap 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 narrative of superior technology.
But even in this regard, the overall Aptos community size is smaller than top layer 1 projects. Cardano and Polkadot have more than 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 lags behind with 364,500 followers.
Going forward, the efforts of Aptos’ business development team and the performance of the blockchain will likely catalyze future price movements.
Traders’ disbelief could push the APT price higher
Given the lack of activity and limited ecosystem growth, the rally in APT has taken the market by surprise. It’s not hard to find tweets pointing out the token’s exaggerated market cap.
$COIN @ $12b market cap
Aptos @ $16 billion market cap
— DavidHoffman.bedrock (@TrustlessState) January 25, 2023
However, going against the trend can be risky for sellers. The short-side trade for APT Perpetual Swaps is becoming crowded as the token surpassed its October 2022 peak of around $15, reflected in the negative funding rate for APT.
Funding Rate for APT Perpetual Swaps. Source: coin jar
It offers buyers the opportunity to chase sellers’ liquidation levels by pushing the price higher. And in the crypto markets, the short squeeze of short orders is mostly realized.
The selling pressure on APT is limited
APT’s tokenomics limit selling pressure on the token for the first year after its launch in October 2022. APT’s release schedule delays investor activation until October 2023, after which there will be a sharp increase in the circulating supply of APT tokens. Until unlocking begins, the only source of inflation is the staking reward, which is 7% for staking tokens.
Initially, the foundation distributed 2% of the supply to early adopters and developers. Users looking to sell their APT would most likely have sold it in the three months since launch.
Substantial buying interest for APT comes from the South Korean won trading pair on UpBit crypto exchange. The exchange accounts for nearly 40% of Aptos’ trading volume. APT’s price on Upbit is trading around 1-3% above the market price, indicating high demand in the region – hence the same kimchi premium.
Aptos spot trading data. Source: Coingecko
There is a possibility that Upbit’s volumes will be inflated by wash trading, or it could be an attempt to manipulate the markets. The owners of the exchange have come under the purview of regulators many times in the past. Still, the buying pressure is likely to continue until the kimchi premium is resolved.
While prices may have started due to a broader positive trend in cryptocurrency prices, it is taking the form of a disbelief rally by proving sellers wrong. Until the negative sentiment and kimchi bounty dissipate, the chances of Aptos rising are significant.
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