The cryptocurrency market has been witnessing a concerning trend in recent times, with tokens being launched with high valuations but limited initial circulating supply. This has raised questions about the sustainability of the potential upside for traders following the token generation event (TGE). The latest findings from Binance Research shed light on this trend, revealing an increasing number of tokens entering the market with inflated valuations and restricted circulating supplies.
An influx of private market capital, along with aggressive valuations and a bullish market outlook, has contributed to the proliferation of tokens launching at exceedingly high fully diluted valuation (FDV) points. According to the report, an estimated $155 billion worth of tokens will be unlocked between 2024 and 2030. This influx of tokens into the market, without a corresponding increase in demand and capital flows, could lead to significant selling pressure. As a result, the market may struggle to absorb these tokens without experiencing adverse impacts on prices.
The report highlights the unsustainable nature of the rapid price appreciation experienced by tokens with limited liquidity available for trading at launch. While these tokens may initially see a surge in value under bullish market conditions, the subsequent release of a substantial amount of tokens into the market can lead to a sharp decline in prices. This phenomenon underscores the challenges posed by tokens with high valuations and low initial circulating supplies.
An analysis of tokens launched over the past three years reveals a growing disparity between market caps and fully diluted valuations (FDVs). The FDVs of tokens launched in 2024 are already approaching the total FDVs of 2023, indicating a concerning trend. With an average MC/FDV ratio of just 12.3% for tokens launched in 2024, an additional $80 billion in demand would be required to accommodate future supply increases and maintain current prices. This trend is driven by tokens with extremely low circulating supplies, leading to inflated FDVs compared to actual market caps.
The report also highlights the challenges faced by newly listed cryptocurrencies on Binance, with over 80% of them experiencing a decline in value. Most of these tokens are backed by top-tier VC firms and are launched at inflated valuations, with the average fully diluted valuation exceeding $4.2 billion at listing. Some tokens even surpass the $11 billion mark, indicating a lack of established user base or community support. This raises concerns about the long-term sustainability of these projects in the market.
To address the trend of tokens launching at high valuations with low initial circulating supplies, Binance has proposed initiatives to foster a healthy and sustainable market environment. The exchange aims to engage small to medium projects and encourage high-quality teams and projects to participate in its listing programs, such as direct listing, Launchpools, and Megadrops. By promoting transparency, accountability, and community support, Binance seeks to create a more balanced and sustainable ecosystem for cryptocurrency trading.
The increasing prevalence of tokens with high valuations and limited initial circulating supplies poses significant challenges for the cryptocurrency market. It is essential for market participants, including exchanges, projects, and investors, to work together towards building a market that is sustainable, transparent, and fair for all parties involved. By addressing the root causes of this trend and promoting responsible practices, we can ensure the long-term viability and success of the cryptocurrency market.