The cryptocurrency market has been witnessing a concerning trend in the form of tokens being launched with high valuations but limited initial circulating supply. Recent findings from Binance Research shed light on this alarming practice, revealing that an increasing number of tokens are entering the market with inflated valuations. This phenomenon has raised questions about the sustainability of the upside potential for traders post-token generation events (TGE).
According to the report, the influx of private market capital, combined with aggressive valuations and a positive market outlook, has led to tokens being launched at steeply high fully diluted valuation (FDV) points. The estimated unlocking of $155 billion worth of tokens from 2024 to 2030 has raised concerns about the market’s ability to absorb such a substantial supply without negatively impacting prices. The gap between market caps and FDVs for tokens launched in recent years has also widened, with 2024’s FDVs already nearing 2023’s totals.
Tokens launched in 2024 have an average MC/FDV ratio of just 12.3%, indicating that approximately $80 billion in new demand would be required to offset future supply increases and maintain current prices. This demand is crucial, especially considering the low initial circulating supplies of many tokens, which result in inflated FDVs compared to actual market caps. The report warns that under bullish market conditions, tokens may experience rapid price appreciation due to limited liquidity at launch but could face significant selling pressure once a wave of supply hits the market upon unlocking.
The Downward Trend in Token Performance on Binance
An alarming discovery from the report is the declining performance of newly listed cryptocurrencies on Binance, with over 80% experiencing a decrease in value. Most tokens listed on the platform are backed by top-tier VC firms and launched at inflated valuations, with the average FDV exceeding $4.2 billion at listing. Some tokens even surpass the $11 billion mark, indicating a disconnect between valuation and actual market demand.
In response to these concerning trends, Binance has called for the establishment of a healthy and sustainable market environment. The exchange aims to engage with small to medium projects and encourage high-quality teams to apply for listing programs such as direct listing, Launchpools, and Megadrops. By taking the lead in promoting responsible token launches, Binance seeks to address the issue of tokens entering the market with high valuations and limited circulating supply.
The growing popularity of tokens with inflated valuations and restricted circulating supplies poses significant risks to the cryptocurrency market. Without a corresponding increase in buy-side demand and capital flows, the unlocking of billions of dollars’ worth of tokens could create considerable selling pressure and price volatility. It is imperative for industry stakeholders to prioritize transparency, accountability, and sustainability to ensure the long-term health of the market.
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