What Is A Lock-Up Period and How Does it Help the Token Prices?

An Initial Exchange Offering lock-up period is a kind of a limitation prohibiting investors from selling their stock/tokens for a certain period of time. The law generally does not state that this period is obligatory and it is usually something that companies decide for the lock-up period as well as the time.

So what is the real purpose of the lock-up?

First of all, the company brings in more cash when both the demand and the price of the token increases but the fundamental purpose of putting a lock-up period is to prevent the flooding of the market with too many tokens, which will lower the token’s price due to the selling activities.

Secondly, the large token sales may give the opinion of a lack of confidence in its anticipations. People seeing that the business insiders and investors are cashing out their tokens especially in long-term profits; and will certainly trigger a panic sell. Bear in mind that it is commonly seen that the token price of a company goes down after the lock-up period and its volume of trading increases.

Thirdly, the lock-up periods will also eradicate the appearance that those closest to the company harbor a lack of faith in its prospects. Nonetheless, keep in mind that it is common for the stock price of a company to go down permanently after the end of the lock-up period and for its volume of trading to increase greatly; so don’t panic.

Tips to Investors

• Anyone who is interested in investing in an IEO project should learn about the lock-up period.
• During a pre-sale, the business offers great discounts or bonuses, which makes it more profitable and worthy buying early.
• If you are already a skilled trader/investor, or if you don’t mind buying into an IEO and then holding until the token makes its way to a reputable exchange, then you do not have much to worry about here.
• If you are thinking about investing in an IEO only in terms of dollar value, you can think of skipping the IEO phase and buying the same token on the open market.
• Remember that there have been really successful IEO’s and ICO’s which have gone up by 1,000% and you literally have the opportunity to become of the early investors of a business that you think is going to skyrocket.