With a new month comes a new trend to put the spotlight on. Recent Web3 market trends show increasing traction for cryptocurrency tokens with low float (circulating supply) and high fully diluted valuation (FDV), particularly in the AI sector.
As discussed in an aelf blog, top AI crypto projects like Fetch.ai, The Graph, and SingularityNet have seen all-time highs, and they have been appealing to investors owing to significant growth in the AI industry, profit potential, and keen support for burgeoning innovations in AI blockchain.
This low float, high FDV phenomenon has become a focal point of discussion within the crypto community, raising questions about sustainable growth and long-term value creation.
1. The Low Float, High FDV Trend
It is becoming increasingly common for tokens to launch with a low circulating supply and allocate a significant portion for future release. Data from CoinMarketCap and Token Unlocks confirm this growing trend, with tokens launched in 2024 showing the lowest market cap to FDV ratio in the past three years.
Due to the limited liquidity available for trading at launch, these tokens can experience rapid price appreciation under bullish conditions. However, this kind of price growth is often unsustainable when the remaining token supply hits the market.
2. AI Tokens Bucking the Trend
Projects like Bittensor (TAO) and Autonolas (OLAS) exemplify the low float and high FDV trend. These tokens currently have a smaller portion of their total supply in circulation relative to their overall valuation. While this structure offers potential for long-term growth, it also comes with high volatility and risk.
On the other hand, tokens such as Artificial Superintelligence Alliance (FET) and Render (RNDR) exhibit higher floats and lower FDV ratios. With more of their supply in circulation, they often experience reduced speculative volatility and may represent a more stable investment option.
3. Market and Venture Capital (VC) Trends
The inflow of Web3 VC capital into the crypto space has been on a steady ascent, surpassing $91 billion since 2017. This influx has resulted in a corresponding rise in the influence of VCs in shaping crypto market valuations. The impact is evident in the increasing prevalence of multi-billion dollar valuations at the time of token launch. As a result, retail investors may find it challenging to profit from future growth. Such high initial valuations by top crypto VC funds also pressure crypto projects to justify their worth, potentially leading to unsustainable growth strategies using Web3 and AI integrations.
The view on AI Crypto remains rather divisive amongst Web3 VCs. Though the rapid proliferation of AI-focused crypto projects has created much excitement over the recent few months, crypto VC firms remain cautiously optimistic about projects with high FDV. Take Bittensor (TAO) for example; with a $10 billion fully diluted valuation, there's considerable doubt about whether there's room left for significant price appreciation. At the same time, the intersection of AI and crypto presents novel regulatory challenges that could impact project development and token value, that is taken into consideration by Web3 funds.
4. A Return to Fundamentals?
Given these market dynamics, a prudent approach for both crypto VCs and retail investors might be to fall back on fundamental analysis, which includes:
- Valuation ratios: Evaluate metrics like FDV/revenue and FDV/TVL in relation to competitors to gauge relative value
- Product analysis: Assess the project's stage in the product life cycle, evidence of product-market fit, and potential for real-world application
- Team and community: Examine the background and experience of the team, as well as the engagement and growth of the project's community
- Tokenomics: Pay close attention to token unlock schedules and vesting periods, as these can significantly impact future token price performance
- Long-term viability: Consider the project's potential for sustainable growth beyond initial hype and token price speculation
What's aelf Ventures?
aelf Ventures is the investment arm of aelf, a high-performance Layer 1 AI blockchain platform that offers builders and users advanced AI functionalities and cutting-edge infrastructure. With a dedicated fund of $50 million, aelf Ventures is focused on empowering Layer 1 blockchain projects and various aspects of the Web3 ecosystem, such as DeFi, GameFi, NFT, and those looking to make the transition from Web2 to Web3.
Till date, aelf Ventures has invested in projects such Crystal Fun and Confiction Labs (pka. Mythic Protocol), and is actively incubating promising ventures within the ecosystem such as Portkey, eBridge, Forest NFT Marketplace, AwakenSwap, eWell, and BeanGoTown.
As the market matures, we might see a shift towards more balanced tokenomics and a greater focus on fundamental value. Projects that can demonstrate real-world utility, sustainable growth, and sound token economics are likely to emerge as long-term winners in this evolving AI and blockchain landscape.
For investors, whether VCs or retail, the key lies in thorough due diligence, a focus on fundamentals, and a long-term perspective. The tide of initial hype and speculation will eventually recede, revealing which projects truly have staying power.
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