- Since its March debut, ApeCoin (APE-USD), a crypto connected to Bored Ape Yacht Club, has experienced high volatility.
- This high volatility has started to calm down, and could continue to do so, as NFT holders who received tokens finish cashing out.
- If insiders decide to cash out their positions as they become unlocked, upside may be limited.
Move over, dog-themed cryptocurrencies. With the launch of ApeCoin (APE-USD), there’s a new hot memecoin in town.
This token, connected to the famed Bored Ape Yacht Club non-fungible token (NFT) collection, has generated a lot of buzz since its launch on March 17.
But while its volatility has calmed down some, you may want to keep in mind several risks before jumping in yourself. The risk/return proposition may be less appealing than you think.
Sure, the massive selling by NFT holders who received tokens at ApeCoin’s debut has started to wrap up. Yet over the next few years, lockup provisions on tokens held by insiders will steadily expire. These insiders could decide to take the money and run as well.
Add in the lack of memecoin frenzies so far in 2022, like the ones seen with Dogecoin (DOGE-USD) and Shiba Inu (SHIB-USD) in 2021, and APE-USD may have little chance of experiencing another significant run-up in price.
ApeCoin at a Glance
APE-USD is a utility token of the Ape Foundation, a decentralized autonomous organization that oversees the Ape Ecosystem. This is an entity independent of Bored Ape Yacht Club and its parent company, Yuga Labs. But Yuga, along with backers of the project, hold a large interest in its outstanding tokens.
To launch ApeCoin, the DAO offered 150 million tokens to investors who own NFTs from the BAYC and related entities. Many of these investors took this windfall, and quickly cashed out, when the token began trading on major crypto exchanges. That’s why it made such wild moves in its first days of trading.
According to CoinMarketCap.com, on March 17, APE-USD went from $1 to $39.40 per token, before plunging, closing out the day at $8.52 per token. The following day, it traded for between $8.53 and $17.75 per token, before settling at $12.96 per token. During these first few trading days, billions of dollars worth of tokens changed hands.
In short, NFT holders looking to cash out their windfall have likely done so. Yet down the road, insiders who received a large slug of the tokens may decide to cash out as well.
The Impact of Future Lockup Expirations
Besides NFT holders, Yuga Labs and other insiders received a large amount of ApeCoin at its launch. Yuga directly holds 15% of total minted tokens. “Launch contributors,” which really means venture capital investors in Yuga such as Andreessen Horowitz, received 14% of total minted tokens. BAYC’s founders received 8% of minted tokens.
Now, these insiders aren’t able to cash in on their virtual windfall as quickly as the NFT holders. Their positions are under lockup provisions. I would speculate that these lockup provisions were put into place to avoid any heat from the U.S. Securities and Exchange Commission.
In the case of Yuga, its 150 million tokens are under lockup for 12 months. After that, 4.166 million will be unlocked per month over the next three years. BAYC founders are under a similar schedule. Launch contributors are under varied lockup schedules. Some will have their positions become freely tradable in large chunks over an 18-month period. Others will see their lockup periods play out similar to Yuga’s.
This steady unlocking could prevent a serious drop if any insider goes with the “take the money and run” approach. Even so, it could apply downward pressure on the token. In turn, limiting its potential to make “to the moon” moves.
The Takeaway With APE-USD
Admittedly, the fact insiders will be able to cash out a year from now may not matter to you. Your interest in APE-USD may be as a short-term trade. As these insider tokens remain under lockup, doesn’t that mean circulating supply will see little change in the months ahead.
Yes, the lockup provisions are more a concern for its long-term upside potential. Still, there’s something else that could limit its upside potential in the near term. That would be a lack of memecoin mania in the market today, compared to what played out during 2021. Memecoins have seen some price spikes so far in 2022. Just nowhere near the level seen last year.
Put simply, short-term and long-term upside potential may be limited. ApeCoin could wind up being an underwhelming gamble.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.