Market environment and narrative are the main factors that determine asset performance.
Written by: Crypto Koryo
Compiled by Luffy, Foresight News
A lot of people have written about the topic of low circulation / high FDV tokens over the past few weeks. I wanted to add some insight here with two charts of data.
Not Circulating Supply and Recent Performance
The chart below shows the percentage of tokens’ uncirculated supply versus market performance over the past 3 months. The color of the circles indicates the number of months the project was launched. (Lighter/darker circles represent projects that were launched recently/recently, respectively).
What can we observe?
1/ Memecoins are the best performers. Their entire supply has been in circulation since day one. Interestingly, both old memecoins (SHIB, FLOKI) and new memecoins (BOME, WIF, PEPE) are outperforming.
2/ The worst performing projects are all newer VC projects with very high NCS:
3/ Interestingly, there are some outliers:
Both projects were listed in January 2024. This shows that newly launched projects with high uncirculated supply still have the potential to outperform.
Why do these tokens stand out? The answer is narrative (explained later).
Now removing the Memcoin outlier, let’s take a closer look at the distribution.
4/ Upon closer inspection, we find that although projects with higher NCS tend to perform poorly, there is no very obvious distribution pattern among projects with extremely low/high NCS.
For example, high-quality projects with lower NCS, such as FXS (NCS 20%), MASK (NCS 4%), and RPL (NCS 0%), had market performances of -44%, -10%, and -22% respectively in the past three months.
5/ On the positive side, we observe that projects with lower NCS generally perform better, regardless of project age.
My conclusion is that, in general, market conditions and narratives are the main factors in determining asset performance. However, high NCS projects tend to perform worse and they are usually a better choice for hedging or bearish markets.
Low Flow/ High FDV vs. High Flow/ Low FDV
If “low circulation/high FDV” is bad, then what about “high circulation/low FDV”?
I looked at the top 500 projects by market capitalization in 2023/24 (data: CMC) and classified projects with NCS above 80% as low circulation.
Let's look at the specific data:
As can be seen, the low circulation/high FDV projects performed pretty badly, with two notable exceptions: ONDO and JTO (guess why).
On the other hand, ignoring the few Memecoin outliers, high circulation/low FDV projects generally perform better.
so what?
Ultimately, it comes back to the question that concerns all of us: which Altcoin should you buy?
Low circulation/high FDV projects tend to perform poorly. Sure, there are 2 or 3 exceptions, but are you willing to put in the effort to try to find them? You can, but it takes a lot of effort and there is no guarantee of success.
At the same time, you may be hesitant to trade Memecoin, despite the data showing that it excels in this regard.
so what should I do now?
1/ Become a narrative trader
I have said this many times. If there is enough demand for a project, any selling pressure will be taken up. And this high demand comes only from catalysts and narratives. Since I have already discussed this extensively, I will not elaborate on it here.
2/ Find the sweet spot
There are two extremes: Memecoin has an NCS of 0%, while new VC tokens have higher FDVs and NCSs of over 80%.
Assume that the sweet spot is the project with NCS between 10% and 50%. Here are the recent best performing projects:
Projects such as FET, FTM, PENDLE, RNDR, AGIX, and AKT fall into this category.
Now combine that with some basic narrative trade-offs and you have the icing on the cake.
