Aptos (APT) reached a new all-time high of $20.39 after posting gains exceeding 400% since the start of 2023. While the rally could just be a pump-and-dump event due to the perception of weak fundamentals, increasing negative sentiment toward the token will likely fuel the prices in the short term.
Let’s explore some of the factors that could be propelling the Aptos price rally.
A rich history and strong investor backing
Aptos is a byproduct of Facebook’s attempt with the Libra blockchain, which regulators forcibly shut down. Two of Libra’s leadership team members, Mo Shaikh and Avery Ching, later found Aptos, a decentralized version of the abandoned blockchain project.
The Move programming language-based project introduces a new class of Layer-1 blockchains that will compete against the likes of Solana and Cardano. Investors’ hope for a technological breakthrough, Aptos that could finally provide a scalable, secure, and decentralized blockchain are primarily responsible for creating tailwinds for the token.
Aptos raised $350 million in 2022, which includes 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 help boost the Aptos ecosystem.
The fact that FTX ventures are prominent investors induces the risk of a sell-off from the defunct entity. In this regard, some investors might be reassured by the involvement of other venture capitalists like Multicoin Capital, Blocktower Capital, and Coinbase Ventures. High volume exchanges like Binance could also soften the blow dealt by FTX/Alameda.
Steady ecosystem development
The Aptos blockchain was launched in October 2022 and is still in the nascent stages for ecosystem development. There are not many DeFi and NFT projects on the blockchain and the smart contract activity is currently limited. More than 94% of the blockchain transactions are for APT transfers, showing negligible dApp activity.
Aptos transaction volume by purpose of transactions. Source: Pinehearst
The development activity has been around average on the blockchain. The number of active developers on Aptos are more than Avalanche and Tezos, but behind Solana, Polkadot, Cardano and Ethereum.
Number of active developers working on blockchains and dApps. Source: token terminal
Aptos is not the first token to build a hefty market capitalization without significant on-chain activity. Cardano and Polkadot are prominent examples, where the rise in their native token’s price is primarily led by the superior technology narrative.
However, even in this respect, the total size of the Aptos community is smaller than top Layer-1 projects. Cardano and Polkadot have more than 1.3 million Twitter followers on their account. At the same time, Avalanche has over 855,600 followers and Tezos has more than 470,000. Aptos is lagging behind with 364,500 follower count.
Moving forward, the efforts of the business development team of Aptos and the performance of the blockchain will likely catalyze future price movements.
Traders’ disbelief could push APT price higher
Given the lack of activity and limited ecosystem growth, the rally in APT has taken the market by surprise. It is not difficult to find tweets hinting at the overblown market capitalization of the token.
$COIN @ $12b market cap
Aptos @ $16b 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 getting crowded as the token surpassed its October 2022 peak of around $15, which is evident in the negative funding rate for APT.
Funding rate for APT perpetual swaps. Source: Coinglass
It provides an opportunity for buyers to hunt seller’s liquidation levels by pushing the price up. And in crypto markets, the short squeeze of short orders is realized more often than not.
The sell pressure on APT is limited
The Aptos token economics has limited the selling pressure on the token for the first year since its launch in October 2022. The release schedule of APT delays investor unlocks until October 2023, post which there will be a steep rise in the circulating supply of APT tokens. Until the unlock begins, the only source of inflation is from staking rewards, which is 7% for staked tokens.
Initially, the foundation distributed 2% of the supply to early users and developers. In all probability, users who wanted to sell their APT would have already sold three months after its launch.
A significant buying interest for APT is coming from the South Korean won trading pair, APT/KRW, on the UpBit crypto exchange. The exchange constitutes nearly 40% of Aptos’s trading volume. The price of APT on Upbit is trading around 1-3% higher than the market price, which indicates high demand in the region; hence, the same Kimchi premium.
Aptos spot trading data. Source: Coingecko
There’s a chance that the volumes of Upbit are inflated from wash trading, or it could be an attempt to manipulate the markets. The exchange’s owners have come under the purview of regulators many times in the past. Nevertheless, the buying pressure will likely persist until the Kimchi premium resolves.
While the prices may have started due to a broader positive trend in cryptocurrency prices, it’s taking the shape of a disbelief rally by proving sellers wrong. Until the negative sentiment and Kimchi premium dissolve, the chances of Aptos moving higher are considerable.
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