The cryptocurrency market has been experiencing a concerning trend with the emergence of tokens launching with high valuations and limited initial circulating supply. This practice has raised questions about the sustainability of potential gains for traders following the token generation event (TGE). Recent research from Binance has shed light on this issue, revealing a growing number of tokens being launched with inflated valuations and restricted circulating supply. This article delves into the implications of this trend and the challenges it poses to the market.
According to Binance Research, approximately $155 billion worth of tokens are set to be unlocked from 2024 to 2030. This influx of tokens into the market, without a corresponding increase in demand or capital flows, could create significant selling pressure. The market may struggle to absorb these tokens without experiencing negative price impacts. While tokens may initially experience rapid price appreciation due to limited liquidity at launch, this growth is likely unsustainable when a wave of token supply is released into the market.
The analysis conducted by Binance shows a concerning discrepancy between market capitalizations and fully diluted valuations (FDVs) for tokens launched in recent years. Tokens launched in 2024 already exhibit FDVs approaching the total for 2023, with an average MC/FDV ratio of 12.3%. This suggests that around $80 billion in new demand would be required to match future supply increases and maintain current prices. A key driver behind this phenomenon is the prevalence of tokens with extremely low circulating supplies, leading to inflated FDVs compared to actual market caps.
In light of these findings, it has been observed that over 80% of newly listed cryptocurrencies on Binance have experienced a decline in their value. The majority of these tokens are backed by top-tier VC firms and debut at inflated valuations, with some exceeding $4.2 billion in fully diluted valuation upon listing. However, many of these projects lack an established user base or robust community support, raising concerns about their long-term sustainability.
Fostering a Healthy Market Environment
To address the trend of tokens launching with high valuations and limited circulating supply, Binance has outlined a plan to promote a healthy and sustainable market environment. This initiative involves engaging with small to medium projects and encouraging high-quality teams and projects to participate in the exchange’s listing programs. By offering opportunities such as direct listings, Launchpools, and Megadrops, Binance aims to support projects that demonstrate strong fundamentals and community backing.
The surge in tokens with high valuations and restricted circulating supply presents significant challenges to the cryptocurrency market. It is essential for industry participants to be aware of the risks associated with this trend and take proactive measures to ensure a sustainable and thriving ecosystem. By promoting transparency, due diligence, and community engagement, stakeholders can work together to establish a market that fosters innovation and value creation for all participants.
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