Arbitrum (ARB) Hits Rock Bottom, But Market Cap Soars To $2B – What’s Behind This Disconnect?

Paxful
Arbitrum
Blockonomics


The price of Arbitrum’s governance token, ARB, has been experiencing a significant slump, nearing its all-time low. However, despite this downward trend, the market capitalization of ARB has witnessed substantial growth, expanding by over 75% to reach $2.23 billion. 

Market Cap Defies Price Decline

Over the next three years, an additional 36% of Arbitrum’s total token supply will be unlocked. Presently, the circulating supply stands at approximately 2.9 billion tokens. 

CoinGecko data reveals that ARB’s price has declined by 24% over the past year, currently trading at $0.816, just above away from its record low of $0.74. Despite this price downturn, the market capitalization of ARB has experienced substantial growth, surging from approximately $1.27 billion a year ago to its current valuation.

The market capitalization of a cryptocurrency is determined by multiplying the price of a single token by the total number of tokens in circulation. Typically, market capitalization increases when a token’s price rises while its circulating supply remains constant. 

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However, in the case of Arbitrum’s governance token, the market capitalization has grown despite the declining price due to a significant increase in the circulating supply.

Token Unlocking Spree Takes Toll On Arbitrum’s Price

According to Unchained, the growth in market capitalization can be attributed to the unlocking of previously frozen tokens. These token unlocks prevent massive sell-offs by early investors during the early stages of a project. 

In March, Arbitrum initiated substantial token unlocks, as reported by our sister website NewsBTC, with 1.13 billion ARB tokens becoming unfrozen, marking the largest unlock in the past year.

According to Arbitrum’s governance documents, there will be a monthly token unlock until 2027, with each unlock amounting to approximately 108 million ARB tokens. 

This will lead to releasing an additional 3.6 billion tokens in addition to the current 6.4 billion unlocked tokens. At current prices, each monthly unlock, excluding the one in March 2024, is valued at approximately $83 million.

The remaining token unlocks are allocated to the Arbitrum Foundation, Offchain Labs, and investors. Since the airdrop and the first major token unlock in March, the ARB token has witnessed a decline of around 64% from its local high of over $2.15.

In sum, the inverse relationship between ARB’s price and market capitalization showcases the impact of the substantial token unlocks on the market dynamics. 

While the ARB token struggles to maintain its value, the increased circulating supply has propelled the growth of its market capitalization. The ongoing unlocking process will continue to shape the token’s price and market performance in the coming years, making it a crucial aspect to monitor.

The daily chart shows the 6-month downtrend of the ARB price. Source: ARBUSD on TradingView.com

After hitting a low of $0.745 on Tuesday, the ARB token has rebounded and is currently trading at $0.8160, representing a 5% increase in the past 24 hours. At present, the market capitalization of ARB stands at $2.36 billion.

Featured image from DALL-E, chart from TradingView.com 



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