The Unsustainable Trend of Tokens with High Valuations and Low Circulating Supply

The cryptocurrency market has been witnessing a concerning trend in recent times – tokens with high valuations and low initial circulating supply. This trend has raised doubts about the sustainability of the upside potential for traders following token generation events (TGE). Binance Research has released its latest findings confirming this trend, revealing that an increasing number of tokens are being launched with limited circulating supply and inflated valuations. This surge can be attributed to an influx of private market capital, coupled with aggressive valuations and a positive market sentiment.

According to the report, tokens are being launched at steeply high, fully diluted valuation (FDV) points, with an estimated $155 billion worth of tokens expected to be unlocked from 2024 to 2030. This influx of tokens into the market without a proportional increase in buy-side demand and capital flows could lead to substantial selling pressure. As a result, the market may struggle to absorb these tokens without negatively impacting prices. The report suggests that while these tokens may experience rapid price appreciation at launch due to limited liquidity, this growth is ultimately unsustainable when a wave of token supply hits the market upon unlocking.

Analysis conducted by Binance Research highlights a widening gap between market caps and fully diluted valuations (FDVs) for tokens launched over the past three years. Tokens launched in 2024 already have FDVs approaching totals from 2023, with an average MC/FDV ratio of just 12.3%. This implies that approximately $80 billion in new demand would be required to match future supply increases and sustain current prices. This phenomenon is largely driven by recent token launches with extremely low circulating supplies, often accounting for less than 20% of the total supply. With the majority of tokens locked, their FDVs are inflated compared to actual market caps.

Recent data suggests that over 80% of newly listed cryptocurrencies on Binance have experienced a decline in value. Most of these tokens are backed by top-tier VC firms and are launched at inflated valuations, with the average FDV exceeding $4.2 billion at listing. Some tokens even surpass the $11 billion mark. However, these projects often lack an established user base or strong community support, making them vulnerable to market fluctuations.

To address the trend of tokens launching at high valuations with low circulating supplies, Binance has proposed fostering a healthy and sustainable market environment. The plan involves Binance actively 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. This initiative aims to promote transparency, value, and longevity in the cryptocurrency market, steering away from unsustainable practices that could harm both investors and the market as a whole.

The unsustainable trend of tokens with high valuations and low circulating supply poses a significant risk to the cryptocurrency market. As we move forward, it is crucial for industry players to adopt practices that prioritize long-term sustainability and value creation, rather than short-term gains that could ultimately lead to instability and negative outcomes.