Under the pressure of monopolistic interest groups, project teams are sacrificing small and medium-sized investors to provide sufficient “exit liquidity” to early-stage investment institutions and internal personnel. In this article, we will conduct data analysis to determine whether investing in new coins is a good investment.
(Data Support from @tradetheflow_ Perspective)
Background:
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Table of Contents:
Data Support (from @tradetheflow_ perspective)
Extended Perspective
Data Support
Binance’s Response to the Above Voices
Recently, there has been much discussion in the market about the pressure faced by project teams in the venture capital (VC) and CEX monopolistic interest groups. To provide sufficient liquidity for early-stage investment institutions and internal personnel, project teams launch CEX transactions with the highest possible Fully Diluted Valuation (FDV), leaving small and medium-sized investors as the “bagholders.”
Dragonfly managing partner Haseeb Qureshi responded to this in his article “VC Perspective: What Causes the Decline of Low Circulation/High FDV Tokens” and provided data support. His core viewpoint is that the underperformance of low circulation/high FDV tokens is a self-correcting process in the market.
On the other hand, the founder of Ambient presented a perspective from an “ETH-centric” angle, stating that the FDV of newly issued tokens does not differ much from the past when measured in ETH.
What is the actual situation? Based on the research conducted by @tradetheflow_ on the X platform, Odaily Star Daily has updated, supplemented, classified, and interpreted the data, and compared two bull market cycles. The conclusion drawn is that buying new coins on top-tier CEX platforms is no longer a good investment.
Looking back at the past six months, we noticed that over 80% of token prices have dropped since their listing on the largest CEX, Binance. The exceptions are:
$MEME: A meme coin
$ORDI: Fair launch without the participation of top-tier VCs
$JUP: Strong support from the Solana ecosystem
$JTO: Also strong support from the Solana ecosystem
$WIF: Another meme coin
Most of the newly listed tokens on Binance are supported by top-tier VCs and are listed with extremely high valuations. The average FDV of these tokens on the day of listing on Binance exceeds $4.2 billion, and some even reach a ridiculous FDV of over $11 billion.
However, these projects usually lack real users or strong community support.
Conducting a simple backtest, if you hold a portfolio with a strategy of investing the same amount in each new coin listed on Binance, your losses in the past six months will exceed 18%.
Therefore, the conclusion we draw is very clear: the new coins launched on Binance in the past six months are no longer good investment products. Their potential for growth has already been overdrawn. Instead, these new coins represent the exit liquidity for insiders, who take advantage of the fact that retail investors cannot access high-quality early-stage investment opportunities.
From many perspectives, the current token issuance mechanism is manipulated and not beneficial to the cryptocurrency industry.
Launching new coins with high FDV will only lead to market bloodshed and loss of trust, ultimately turning these new coins into a Damocles sword hanging over the market. But more importantly, this path is unsustainable and will damage the reputation of the entire cryptocurrency industry.
Retail investors are tired of being the exit liquidity for insiders. Slowly, retail investors are starting to realize how absurd this situation is. The current situation needs to change, otherwise our industry will pay a long-term price for these short-sighted behaviors that abuse the market.
Most of the tokens currently being issued are artificially inflated during the bull market, and when the market cools down, they will inevitably be dumped.
One reason for this is that founders set very short cash-out schedules for investment institutions and other early-stage angel investors, and provide false indicators of dilution to investors. Projects focus on marketing hype rather than discovering real users. To make matters worse, “scientists” and market makers occupy advantageous ecological positions in the secondary market. The cryptocurrency industry urgently needs a new way to issue and distribute tokens.
Many attempts have been made, and investors hope to participate in this market in a fair manner, which explains the popularity of BRC-20 tokens that innovate the asset issuance method (Fair Launch).
It seems that everyone has forgotten CZ’s wise advice a few years ago—he set the price of BNB very low so that more investors would participate in the community building of BNB, creating a highly active and high-quality community.
From another perspective, indeed, many projects in the current bull market have income delivery requirements for VCs and the need to issue and list tokens. But can the current liquidity sustain Binance’s continuous launch of new coins almost every one or two weeks for several months?
Some tokens (such as NFP and ACE) have gone through many bull and bear cycles in just a few months. Without a significant increase in on-exchange funds other than BTC, high FDV, low market cap tokens are destined to decline.
In this cycle, it can be said that it is particularly correct to speculate on old coins rather than new ones. Compared to the high FDV new coins waiting for large-scale unlocking in this cycle, it is more ideal to speculate on old coins that have already been unlocked (AR, NEAR, etc.) in terms of risk-reward ratio.
Comparing the opening market values of 14 new projects on Binance Launchpool in the previous bull market cycle (January 14, 2021, to September 19, 2021) and 15 projects in this current bull market cycle (October 31, 2023, to April 17, 2024), we divided the table into two sections to observe the changes in “new project” market value and FDV in the near and far cycles.
If we refer to the performance of tokens listed on Binance during the previous bull market cycle within the specified time period, shorting any new token listed on Binance within the first week will result in a return of over 80% within two years.
This only captures the tokens launched on Launchpool and does not include tokens that have already been listed on other exchanges (such as WIF, METIS) and first-issued tokens (such as TNSR, W).
Regarding whether exchanges (and project teams) should be “responsible” for token price trends, whether the timing of listing is not well balanced between institutions and retail investors, and whether landing on major exchanges and achieving more efficient pricing, this “ultimate question,” this article does not delve into. But it is clear that Binance is also paying attention to the discussions in the market.
On May 20, Binance released a report summarizing that low circulation and high FDV tokens unlocking may trigger selling pressure, with an estimated $155 billion worth of tokens unlocking from 2024 to 2030. VCs continue to play an important role in the cryptocurrency industry and can work with project teams to ensure fair supply distribution and reasonable valuations.
On the evening of May 20, Binance released an announcement in response to the questioning:
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