Hyperliquid (HYPE) in a Bearish Downtrend: Token Unlocks, Whale Activity, and Liquidity Wipeouts as Systemic Headwinds

The DeFi landscape in late 2025 has been marked by a confluence of structural risks for Hyperliquid (HYPE), a once-dominant perpetuals exchange. A combination of aggressive token unlocks, volatile whale behavior, and liquidity wipeouts has exacerbated a bearish downtrend, raising critical questions about the protocol's long-term resilience. While the Hyperliquid Foundation's proposed token burn aims to counterbalance these pressures, the interplay of these factors underscores a high-growth asset grappling with over-supply and competitive erosion.

Token Unlocks: A Double-Edged Sword

The most immediate headwind for HYPE is the Q4 2025 token unlock schedule. A significant cliff unlock on November 29, 2025, released approximately $370.98 million worth of tokens, representing a 3.66% increase in circulating supply. This liquidity injection, coupled with a second unlock on December 29, 2025, for core contributors, risks amplifying short-term volatility, particularly if recipients opt to sell. Such events inherently create downward pressure on price, as large token holders seek to monetize gains in a market already characterized by weak momentum.

The Hyperliquid Foundation's proposed token burn, however, offers a potential countermeasure. If approved via validator vote, the initiative would permanently remove 37 million HYPE tokens (valued at nearly $1 billion) from circulation, representing 13% of the current supply. This move, which hinges on stake-weighted consensus by December 24, seeks to reinforce deflationary tokenomics and clarify the asset's long-term scarcity according to analysis. Yet, the timing of the burn-post-dated relative to the November and December unlocks-raises concerns about its efficacy in mitigating immediate selling pressure.

Whale Activity: Mixed Signals in a Bearish Climate

Whale behavior in Q4 2025 has been a mixed bag. On one hand, two major wallets committed $4.2 million to new HYPE purchases in late December, signaling cautious optimism from large holders. On the other, a $115 million long-position liquidation on Hyperliquid's platform-driven by a $10.4 million ETH/USD long wipeout-pushed HYPE's price down by 4.3% to $28. This volatility highlights the fragility of leveraged positions in a market already strained by token outflows and reduced open interest according to market analysis.

Whale sentiment has also shifted from very bearish to slightly bearish, as the gap between long and short positions narrowed. While this suggests a tentative stabilization, it does not negate the broader structural risks. Internal token movements, such as the unstaking of 2.6 million HYPE tokens by team-controlled wallets, further erode investor confidence.

Liquidity Wipeouts and Competitive Erosion

Hyperliquid's dominance in the perpetuals market has plummeted from nearly 70% to under 20% in Q4 2025, as platforms like Aster and Lighter leveraged aggressive airdrop campaigns to capture market share. This erosion of liquidity has compounded HYPE's bearish trajectory, with the token hitting a seven-month low amid declining user activity according to market reports.

Institutional actions, however, have introduced a degree of counterbalance. Hyperliquid Strategy (PURR) staked its entire $420 million HYPE treasury, reducing circulating supply by 3.5% and generating $9.9 million in annual yield according to institutional filings. This move, while bullish in the short term, does little to offset the broader narrative of a token struggling to retain relevance in a crowded DeFi ecosystem.

Strategic Positioning: Navigating the Risks

For investors, the key lies in balancing the protocol's structural weaknesses with its long-term potential. According to Cantor Fitzgerald's bullish projection-a $200 billion valuation for HYPE over the next decade-hinges on assumptions of $5 billion in annual revenue and a 50x earnings multiple. While ambitious, this scenario assumes Hyperliquid can reclaim market share and sustain innovation, as evidenced by the October 2025 launch of HIP-3, which enabled permissionless listings on HyperCore.

However, the immediate outlook remains precarious. The interplay of token unlocks, whale-driven volatility, and competitive pressures creates a high-risk environment. Investors must weigh the potential for a successful token burn and institutional staking against the likelihood of further liquidity wipeouts and market share losses.

Conclusion

Hyperliquid (HYPE) stands at a crossroads. The Q4 2025 unlock schedule and whale activity have exposed systemic vulnerabilities in a market already strained by over-supply and competitive erosion. While the proposed token burn and institutional staking efforts offer glimmers of hope, they are unlikely to offset the immediate headwinds. For now, HYPE remains a high-growth asset with significant structural risks-a profile that demands cautious, strategic positioning in a volatile DeFi landscape.