Understanding the Rise of Tokens with High Valuations and Low Circulating Supply
There is a noticeable increase in tokens with high valuations but low initial circulating supply, leading to concerns about the sustainability of potential gains for traders after the token generation event (TGE). Binance Research’s latest report highlights this trend, showing a growing number of tokens launching with limited circulating supply and inflated valuations.
The Crisis of High Valuation and Low Liquidity
An influx of private market capital, along with aggressive valuations and a positive market outlook, has resulted in cryptocurrency tokens launching at high fully diluted valuation (FDV) points. The report estimates that approximately $155 billion worth of tokens will be unlocked from 2024 to 2030, potentially creating substantial selling pressure if not matched by buy-side demand and capital flows.
- Tokens may experience rapid price appreciation initially.
- Price growth becomes unsustainable when a wave of token supply hits the market.
- There is a widening gap between market caps and fully diluted valuations (FDVs) for tokens launched in recent years.
Implications of the Trend
The average MC/FDV ratio for tokens launched in 2024 is just 12.3%, indicating a significant need for new demand to match supply increases and maintain prices. This trend is driven by tokens with exceptionally low circulating supplies, leading to inflated FDVs compared to market caps.
Strategies to Navigate the Trend
Over 80% of newly listed cryptocurrencies on Binance have experienced a decline in value, with many tokens backed by top-tier VC firms launching at inflated valuations. Binance is taking steps to address this trend by fostering a healthy and sustainable market environment.
- Binance is engaging small to medium projects and inviting high-quality teams to apply for listing programs.
- Listing programs include direct listing, Launchpools, Megadrops, among others.
Conclusion
The rise of tokens with high valuations and low circulating supply poses challenges for traders and the market at large. By understanding this trend and adopting strategies to address it, crypto investors can navigate these challenges and build a more sustainable ecosystem for token trading.
Hot Take: Navigating the Challenges of Tokens with High Valuations and Limited Circulating Supply
As the cryptocurrency market continues to evolve, it is crucial for investors to be aware of the potential risks associated with tokens having high valuations and limited circulating supply. By staying informed and adopting proactive strategies, traders can mitigate risks and seize opportunities in this dynamic market.
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