Low Circulation Tokens with High FDV Doomed to Fail
A recent study by GSR found that tokens with low circulation and high fully diluted valuation (FDV) tend to underperform in the market.
The researchers analyzed over 2300 token listings on major exchanges from 2013 to date, covering various metrics such as initial circulation ratio, FDV, and market cap.
According to the study, the median initial circulation ratio for tokens has halved since 2017, dropping from 38% in 2017 to just 13% in 2020. This trend is expected to continue in the coming years.
The research team found that tokens with high FDV tend to have lower initial circulation ratios, which leads to underperformance in the market. In fact, tokens with FDV above $100 million had a median return of -81% one year after listing, while those with an initial circulation ratio below 20% saw a decline of around 75%.
The study also discovered that this phenomenon is not unique to the crypto market, as similar trends are observed in traditional stock markets. The authors suggest that the low initial circulation ratio and high FDV may lead to a shortage of supply, causing prices to drop.