There has been a growing concern regarding the increased traction of tokens with high valuations but low initial circulating supply, which has sparked discussions about the sustainability of upside potential for traders following the token generation event (TGE).
Binance Research’s latest findings have confirmed this trend, depicting an increasing number of tokens being launched with limited circulating supply and inflated valuations.
High Valuation, Low Liquidity Crisis
An influx of private market capital, coupled with aggressive valuations and an upbeat market outlook, has stimulated the practice of cryptocurrency tokens launching at steeply high, fully diluted valuation (FDV) points.
The report estimates that around $155 billion worth of tokens will be unlocked from 2024 to 2030. This significant influx of tokens into the market, without a proportional increase in buy-side demand and capital flows, could exert substantial selling pressure, as per the report, which, in turn, would challenge the market’s ability to absorb these tokens without negatively impacting prices.
“Under bullish market conditions, these tokens can experience rapid price appreciation due to limited liquidity available for trading at launch. However, it is apparent that this kind of price growth is unsustainable when a wave of token supply hits the market upon unlocking.”
The analysis further highlights a widening gap between market caps and fully diluted valuations (FDVs) for tokens launched over the past three years, with 2024’s FDVs already approaching 2023’s totals. Tokens launched in 2024 have an average MC/FDV ratio of just 12.3%, implying around $80 billion in new demand would be needed to match future supply increases and maintain current prices.
This appears to be primarily driven by recent token launches with extremely low circulating supplies, often under 20% of the total supply. With the majority of tokens locked, their FDVs are inflated compared to actual market caps.
Addressing The Trend
As reported earlier, well over 80% of the newly listed cryptocurrencies have experienced a decline in their worth on Binance.
It was also found that most tokens newly gracing Binance’s listing boards are backed by top-tier VC firms which are launched at inflated valuations, with the average fully diluted valuation exceeding $4.2 billion at listing and some tokens even surpassing the $11 billion mark. These projects were observed to lack an established user base or proper community support potentially.
To address the trend of tokens launching at high valuations with low initial circulating supplies, Binance has called for fostering a healthy and sustainable market environment. The plan involves Binance taking the lead in engaging small to medium projects and inviting high-quality teams and projects to apply for the exchange’s listing programs, such as direct listing, Launchpools, Megadrops, etc.
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