In January, ApeCoin (APE) had a disappointing performance against metaverse-based tokens like Decentraland (MANA) and The Sandbox (SAND). The APE token gained 61% compared to the respective 90% and 150% gains seen in SAND and MANA. The moderate gains can be attributed to the large APE staking rewards which are likely creating some selling pressure.
An upcoming release of around 9% of APE’s circulating supply in March 2023, along with not-so-impressive fundamentals, will add further headwinds for the token. APE gains will depend on the success of blockchain game projects in the ApeCoin ecosystem and new partnerships between Yuga Labs and major brands.
Traders take advantage of oversized APE staking rewards
ApeCoin DAO launched its APE staking mechanism in December 2022. The APE staking pool has generated annual returns of 90% in the first two months. Holders of Bored Ape Yacht Club (BAYC) NFTs and related collections are eligible for a 2x return of around 171%, which adds significant selling pressure for the token.
However, these traders are primarily interested in capturing risk-free APE gains instead of hoarding the token. Thus, they can eventually become a source of constant sales pressure.
The token was heavily shorted in the futures market, especially after the launch of the staking mechanism. The funding rate for APE/USD perpetual contracts has been negative since December 2022.
Otherside Metaverse and the influence of Yuga Lab
The ApeCoin ecosystem is the most valued metaverse project, not only in terms of total market capitalization, but also in terms of the total value of its virtual world. APE will be the main currency of the Otherside metaverse. The Otherside metaverse has 100,000 virtual land plots which have a floor value of 1.6 ETH. In comparison, the Sandbox has 113,400 lots with a floor price of 0.98 ETH.
There will be a total of 200,000 Otherdeeds and currently 100,000 Otherdeeds are available. The other 100,000 NFTs will be awarded to people who own Otherdeeds and contribute to the development of Otherside.
The decentralized organization has awarded numerous grants to develop the game space of the Otherside metaverse. The ApeCoin ecosystem will also see a native NFT marketplace and a clothing brand. According to a report by crypto-analytics firm Messari, the developments are “helpful, but are unlikely to generate significant structural demand on their own.”
Although ApeCoinDAO is registered as an independent entity, Yuga Labs plays an important role in its adoption. Recently, the company launched an endless runner game (think Temple Run), Dookey Dash, for BAYC holders and associated NFT collectors.
Apparently the players spent $2 million play this game. While efforts like Dookey Dash show promise, they have failed to generate massive demand for the token. Most of the money was spent on NFTs which gave access to the game.
Going forward, the development and user engagement of the Otherside metaverse will determine the appeal of using APE.
APE will experience significant symbolic dilution in 2023
In addition to the staking reward, the APE vesting schedule adds additional dilution risk related to the unlocking of tokens allocated to the team and investors. These include parts that are unlocked at once and monthly releases.
On March 15, 2023, an additional 25 million tokens will be unlocked for backers at launch. Additionally, 8 million tokens allocated to Yuga Labs and BAYC founders will also be unlocked. Approximately 8.90% of the supply will unlock immediately with additional monthly unlocks.
Related: ApeCoin geoblocks US stakers, two monkeys sell for $1m each, market is on
In 2023, the circulating supply of APE will almost double, which could induce volatility in the price of the token. Usually, token releases mean supply dilution, which adds selling pressure. However, when many traders attempt to take advantage of this plan, the market usually reacts by moving higher first to eliminate liquidity from short sellers.
Crucial support and resistance levels for APE/USD are found around $3.29 and $7.69 respectively. If sellers or buyers can overcome these levels, it could amplify a move in the direction of the breakout.
Yet, given the selling pressure from staking rewards and upcoming token unlocks, with a lack of actual yield or APE usage, the path of least resistance appears to the downside.
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