In recent times, there has been a surge in the number of tokens entering the market with high valuations but abysmally low initial circulating supply. This worrying trend has raised concerns about the sustainability of the potential upside for traders following the token generation event (TGE). According to a recent report by Binance Research, the influx of private market capital, combined with aggressive valuations and a bullish market outlook, has led to an increasing number of cryptocurrency tokens being launched at significantly high fully diluted valuation (FDV) points. This could potentially pose a threat to the stability of the market.
The report estimates that a staggering $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 buy-side demand and capital flows, could create significant selling pressure. This would, in turn, challenge the market’s ability to absorb these tokens without negatively impacting prices. The report warns that while these tokens may experience rapid price appreciation under bullish conditions due to limited liquidity at launch, such growth is unsustainable once a wave of token supply hits the market upon unlocking.
An analysis conducted by Binance Research has highlighted a growing gap between market caps and fully diluted valuations (FDVs) for tokens launched over the past three years. The FDVs for tokens launched in 2024 are already approaching the total for 2023, indicating an unsustainable trend. Many of these tokens have extremely low circulating supplies, often comprising less than 20% of the total supply, leading to inflated FDVs compared to actual market caps. The analysis reveals that new demand of around $80 billion would be required to match future supply increases and maintain current prices.
The Challenges Faced by New Cryptocurrency Listings
It has been observed that more than 80% of newly listed cryptocurrencies on Binance have experienced a decline in their value. This trend is further exacerbated by the fact that most tokens listed on the exchange are backed by top-tier VC firms and launched at inflated valuations. The average fully diluted valuation at listing exceeds $4.2 billion, with some tokens even surpassing the $11 billion mark. These projects often lack an established user base or proper community support, further complicating the situation.
To address the issue of tokens launching at high valuations with limited initial circulating supplies, Binance has called for the fostering of a healthy and sustainable market environment. The exchange plans to engage with small to medium projects and invite high-quality teams and projects to apply for listing programs such as direct listing, Launchpools, Megadrops, etc. This initiative aims to promote projects with solid foundations and community support, thereby creating a more sustainable ecosystem for cryptocurrency trading.
The unsustainable growth of cryptocurrency tokens with high valuations and limited circulating supply poses a significant threat to the market’s stability. It is crucial for players in the industry to take proactive measures to address this issue and ensure the long-term viability of the cryptocurrency market.
