VELVET, the native token of the Velvet protocol, has seen a meteoric rise of over 300% in just three days, reaching an all-time high above $2 on June 29 before pulling back to around $1.72. While the token remains up more than 260% over the past week, technical indicators and on-chain data suggest the rally is entering a more uncertain phase, raising the question: is the VELVET price rally over?
What Drove the Surge?
The rally was sparked by two key protocol updates. First, Velvet consolidated all of its protocol-owned liquidity on Base into Aerodrome Finance, making the decentralized exchange the sole liquidity venue for the protocol. This move concentrated trading activity, reducing slippage and improving order execution for traders. Second, Velvet launched synthetic pre-IPO markets offering tokenized exposure to private companies like SpaceX, which attracted speculative demand and pushed the token to new highs.
The rally also occurred against a backdrop of relatively subdued price action in Bitcoin and Ethereum. With the Federal Reserve maintaining restrictive monetary policy and the U.S. Dollar Index elevated, speculative capital has flowed into smaller narrative-driven tokens, allowing VELVET to outperform the broader crypto market.
Technical Analysis: Overbought and Cooling
Recent price action shows buyers remain in control, but momentum has cooled after the sharp advance. The token broke through the long-standing $0.60–$0.67 resistance area, triggering a breakout that accelerated as short sellers covered positions. The move carried VELVET to roughly $2.15 before profit-taking emerged near record highs.
The daily Relative Strength Index (RSI) stands near 72, keeping the token in overbought territory. While elevated RSI readings often indicate strong buying momentum, they can also precede consolidation or short-term pullbacks as traders take profits. The daily MACD remains positive, with the MACD line above the signal line and expanding green histogram bars, suggesting bullish momentum has not yet reversed. On the 4-hour chart, Chaikin Money Flow holds around 0.30, indicating capital continues to flow into the asset.
Fibonacci retracement levels show VELVET consolidating around the 23.6% retracement near $1.73. Holding above that level could keep attention on the next resistance near $2, while a deeper correction may expose the 38.2% retracement around $1.47, followed by the 50% level near $1.27.
Valuation Concerns and Supply Risks
Despite the technical strength, several indicators point to risks. Velvet's fully diluted valuation (FDV) has climbed to roughly $800 million, while the protocol secures only about $770,000 in total value locked (TVL). This wide gap suggests the rally has been driven mainly by enthusiasm surrounding synthetic pre-IPO trading and AI-focused DeFi narratives rather than corresponding growth in on-chain usage.
Blockchain transaction data also shows that market maker DWF Labs transferred nearly 29 million VELVET tokens to centralized exchanges during the rally. While these transfers do not confirm immediate selling, they have drawn attention given the sharp increase in trading activity. Additionally, token unlock schedules indicate about 10.4 million VELVET tokens are due to be released on July 10, creating another potential source of selling pressure if speculative demand begins to fade.
For context, similar dynamics have played out in other crypto rallies. For instance, SoFi Stock Rebounds 27% from Lows: Can Q2 Earnings Sustain the Rally? and Uniswap Gains 5% as Stablecoin Volume Dominance and Derivatives Data Signal Rally Potential illustrate how narrative-driven surges can face headwinds from fundamentals.
Outlook
VELVET's rally has been impressive, but the combination of overbought technicals, a high FDV/TVL ratio, and upcoming token unlocks suggests the path forward may be challenging. Investors should monitor whether the token can hold above key support levels and whether on-chain usage grows to justify the valuation. As always, due diligence is essential.
This article is for informational purposes only and does not constitute financial advice.
