In recent times, there has been a noticeable concern within the cryptocurrency community regarding the rise of tokens with high valuations but limited initial circulating supply. This has led to discussions about the sustainability of the potential gains for traders post token generation event (TGE). Binance Research has released a report confirming this trend, showcasing a rise in the number of tokens being launched with restricted circulating supply and inflated valuations.
The increasing influx of private market capital, combined with aggressive valuations and a positive market outlook, has encouraged the practice of cryptocurrency tokens launching at significantly high, fully diluted valuation (FDV) levels. The report from Binance Research estimates that approximately $155 billion worth of tokens will become unlocked between 2024 and 2030. This influx of tokens into the market, without a corresponding increase in buy-side demand and capital flow, could result in substantial selling pressure. This could challenge the market’s capacity to absorb these tokens without negatively impacting prices.
During bullish market conditions, tokens with limited liquidity available for trading at launch might experience rapid price appreciation. However, this type of price growth is unsustainable when a wave of token supply hits the market upon unlocking. The analysis also highlights a growing disparity between market caps and fully diluted valuations (FDVs) for tokens launched in the past few years. Tokens from 2024, for instance, have an average MC/FDV ratio of only 12.3%, indicating that approximately $80 billion in new demand would be necessary to match future supply increases and sustain current prices.
A significant number of newly listed cryptocurrencies on Binance have seen a decrease in their value, with over 80% experiencing a decline. Furthermore, most of these tokens are backed by top-tier VC firms and are launched at inflated valuations. The average fully diluted valuation surpasses $4.2 billion upon listing, with some tokens exceeding $11 billion. These projects often lack an established user base or strong community support.
To combat the trend of tokens launching at high valuations with limited initial circulating supply, Binance is advocating for the creation of a healthier and more sustainable market environment. This involves Binance actively engaging with small to medium-sized projects and encouraging high-quality teams and projects to apply for the exchange’s various listing programs, such as direct listing, Launchpools, and Megadrops.
The increasing number of tokens with high valuations but limited initial circulating supply poses a potential risk to the cryptocurrency market’s stability. It is imperative for industry players to address this trend and work towards fostering a more sustainable and transparent market for investors and traders alike.