Factors such as an influx of private market capital, aggressive valuations, and upbeat market sentiment have contributed to the trend of tokens launching with high FDVs.
Leading cryptocurrency exchange Binance has announced plans to unlock low float and high fully diluted value (FDV) tokens worth approximately $155 billion over the next six years.
What are Low Float and High FDV Tokens?
Low-float tokens refer to crypto assets with a limited or low supply available for trading while high FDV tokens are digital assets with a large supply and a high market capitalization potential. They are often based on vesting, gradually releasing tokens to investors over a predetermined schedule.
Launching tokens with a low circulating supply has affected the market dynamics, primarily by increasing selling pressures. It is estimated that approximately $155 billion worth of tokens are set to be unlocked over the next six years. Binance believes that participants will be under significant pressure to sell without a corresponding capital inflow.
In light of this, it is essential to understand token unlock schedules, and tracking them is vital for investors to avoid being caught off guard when the tokens underperform a significant unlock and go below expectations.
A few factors, such as the influx of private market capital, aggressive valuations, and upbeat market sentiment, have contributed to high valuations and constant selling pressure from token unlock.
Role of Venture Capital in Crypto Investing
Ventures Capital (VC) funds have progressively solidified their positions as significant underdogs in crypto investing. Despite natural fluctuations and swings in capital invested due to market circles, VC capital inflow into the crypto sphere has steadily increased.
According to a data report, the total VC funding in crypto projects since 2017 has exceeded $91 billion. As more funds flow through the space consistently and as VCs participate in more deals, they drive up valuations. As a result, tokens often debut at high prices and valuations due to massive private market raises, making it harder for public investors to profit from future growth.
The Impact of Aggressive Valuations
Aggressive valuation refers to assigning a high value to an asset, often based on optimistic assumptions about its future performance or growth potential. It can result in a price significantly higher than what might be justified by current financial metrics or market conditions.
According to Binance, this year’s strong market performance has boosted investor sentiment and led to more aggressive deal-making, with some investors now more willing to invest at high valuations.
Given the norm of multi-million dollar valuations, VCs risk looking bad to their limited partners (LPs) if they are too discerning, as this could mean missing out on most deals during high activity. While market activity is below the 2022 peak, the number of crypto deals in Q1 remains significant.
Upbeat market sentiment is a positive outlook among investors, which can lead to increased buying, higher asset prices, and more aggressive investment actions.
Despite the crypto market capitalization moving up to 61% in the first quarter of the year, market sentiment has been positive.
