原文作者:ROUTE 2 FI
原文来源：substack
原文标题：Reflexivity -what happens when too many altcoins and token unlocks hit the market going forward?
编译:深潮TechFlow
The total market capitalization of altcoins is steadily growing due to the constant entry of new tokens into the market.
I think when the BTC.D trend goes down and the altcoin market arrives, there will be a handful of altcoins that will rise significantly. Not every altcoin that people are used to will rise significantly.
Reflexivity: What happens when too many altcoins and token unlocks keep flooding the market?
Let's talk about altcoins, how they were recently launched, and the impact on the market.
During this cycle, there was a trend to launch tokens with high FDV, large-scale airdrops, low floats, and later huge unlocks from venture capital firms.
Crypto assets are reflexive. What does that mean?
This article is inspired by Twitter, telegram chats, conversations with crypto friends, etc., and this is an article I've wanted to write for a long time. Special thanks to Cobie, Thor Hartvigsen, Thiccy, Andrew Kang, and Regan Bozman for their thoughts on this. Follow them on Twitter.
Reflexivity: Great ideas about feedback loops
Originally proposed by George Soros, reflexivity is the theory that a positive feedback loop between expectations and economic fundamentals can cause price trends to deviate significantly and persistently from equilibrium prices. Bitcoin has always been characterized by strong reflexivity. Bitcoin's positive cycles can last for a long time, however, Bitcoin's negative cycles are notorious for their length and depth.
According to Cryptonary, it is important to remember that the concept of market reflexivity is at odds with conventional wisdom when analyzing the market and how it moves and operates. Theoretically, the market is always looking for equilibrium, and all participants are rational people whose decisions are based on facts. Bubbles, capitulation events, and boom-bust cycles are anomalies in market volatility; The price has no effect on the factors that establish equilibrium.
On the other hand, in market reflexivity, everyone makes judgments based on their interpretation of reality, and price has an impact on market fundamentals. You can see how this goes: if pricing affects fundamentals, then changes in prices must also affect fundamentals, which in turn affect investors' expectations, which in turn affect prices, as investors act on these revised expectations. As group behavior reinforces price movements, prices move farther and farther away from reality, eventually becoming the new reality – a self-fulfilling prophecy, if you will.
Prices should tend to equilibrium, but due to the reflexive nature of the market, they often go above or below that equilibrium for a longer period of time. Only when market participants realize that their perception of the market is no longer based on reality will the price begin to reverse the current trend, which usually occurs long after the price has already exceeded or fallen below a reasonable level.
Friends, that's why we have this diagram:
You see, reflexivity goes both ways. There is no doubt that the ball thrown into the air will eventually fall back to the ground.
If the price of Bitcoin rises significantly in a short period of time, then the price may increase for a period of time after the initial move. Vice versa. The cryptocurrency market is still in its infancy, so large price swings are "more likely" to occur.
Take a look at the diagram above. This perfectly describes reflexivity. I think you now have a good understanding of the concept, so let's move on.
Now, let's take a look at altcoins and what the market will hold up in the future as all these new coins are launched into the market.
New tokens are good (until the circulating supply increases)
I've already written about supply and demand in crypto before, but let's repeat it a little more.
Market Cap: The price of the circulating supply ×
Fully Diluted Valuation (FDV): The price of all tokens (including unissued) ×
It's important to understand the VC/angel investment game, especially from a retail investor perspective.
Most cryptocurrency companies raise funds from investors through SAFT (Future Token Simple Protocol). In the stock market, SAFT can be compared to the Simple Agreement for Future Equity (SAFE), which allows investors in startups to convert their cash investments into equity at some point in the future, provided that certain conditions are met.
To illustrate what a typical SAFT transaction might look like, let's make a very simple example.
代币名称:Yolo Coin
FDV: $100 million
Unlock conditions: 10% at TGE, then 1 year cliff, then 3 years linear vesting
Circulating supply at TGE: 12% (part of which is via airdrop)
Yolo Coin was launched after a lot of hype, and FDV is now $1 billion (10 times that of seed investors). Investors are happy because they can sell at a guaranteed price, and they still have 90% of the allocated tokens, which will be gradually unlocked over the next 36 months (after a 1-year cliff period).
But wait, why is the VC locked up for so long? The short answer is to ensure long-term consistency in case it is sold off at TGE.
Let's see why this is problematic:
Since investors are locked in for a long time, this means that when they finally start unlocking, there will be constant selling pressure on the market.
Take a look at the diagram below.
Let's say the price of Yolo Coin is $1 (investor price = $0.10). 12% of the supply entered the market at launch, but we know that more and more supply will flood the market as the token is gradually unlocked.
This has led to an increase in supply.
But the question is: where is the demand? Who will buy the tokens that the VC sells on you?
You can assume that the price will rise due to factors such as X, Y, and Z, for example, an increase in TVL in DeFi protocols, a bullish event, etc., which may work for a while. But at some point, supply will exceed demand, and we will start a downward spiral due to a large increase in inflation.
Early buyers will be trapped, which leads to pessimism in the community, reduced TVL of protocols/protocols, developers (if any) leaving in search of better opportunities, team members leaving, etc.
Thor Hartvigsen summed it up well: "The market will not be able to absorb all the extra liquidity + people who get airdrops seem to want to cash it out rather than hope for more airdrops in the future".
By far the biggest change in this cycle has been in spatial dispersion. We were taught that altcoins would skyrocket together. But now there are about 300 good projects that are not liquid.
We hear a lot about the copycat season, but this time I think things will be different. We're used to hearing that every coin skyrockets under the right conditions. But is it true?
Keep in mind that there are tokens on the market today that have much more "utility" than they did in 2021. Now 3-5 "premium" coins are added to the market every week. The total market capitalization has increased, and everyone seems to be happy. But ask yourself, who will buy all these tokens. Unless institutional or retail investors enter in large numbers, this will simply be an eternal PvP competition.
An example from two weeks ago was the Wormhole airdrop. Launched at a $10 billion valuation. Now ask yourself why you want to have it. I don't see any reason other than pure speculation. Since its launch, the price has fallen by 40%, bringing its FDV to $6 billion.
As Cobie says, "Market capitalization is a measure of demand, and FDV is a measure of supply".
This means that the market capitalization is the total value of public demand, and it increases and decreases as the price changes. If the price rises, the FDV will also increase, but it will also increase when the token is unlocked.
Let's look at Pendle. Everyone loves Pendle now because their TVL has increased dramatically due to the massive growth in integral mining and Eigenlayer storytelling.
Also note that 950,000 of the 2.58 million tokens are circulating in the market today (37%). As the price rises, the market capitalization will rise. However, an increase in market capitalization does not mean that there is additional demand for those tokens that are locked. To explain why, think about it from an investor's perspective. I know people who participated in Pendle for less than 10 cents. Now the price is more than $6. Do you really think that unlocked token holders care if the price is $6 or $7? No, so they'll sell. Again: supply increases, but demand remains the same. (I haven't checked Pendle's unlocking schedule yet, and I don't know how much FDV people have invested.) Just make some assumptions to explain supply and demand).
Is a high FDV token scary? Not always, a good example is $TIA in November 2023. $TIA current FDV is $12 billion, but since the locked tokens won't be listed until the fall of 2024, it's not that bad, and other traders may be intimidated by the high FDV.
For more information on this, see Cobie's article.
Okay, but back to the question of demand. Where are the buyers?
As I mentioned in the introduction, new "premium" projects are launched every week, and the FDV is very high. This means that a lot of supply enters the market, and unless a new buyer comes in, these tokens have to fall (at least in the long run).
Retail investors like to invest in meme coins and SOL shitcoins. They don't buy high-tech VC tokens. They learned from the 2021 rally. They're smarter today. Permissionless token listings and greedy venture capital firms are not good for the long-term development of individual tokens. 100 new tokens are launched every year. This allows the existing tokens to be diluted.
It's April 2024 and the inflow of altcoins seems to be more selective, but not enough to offset the massive unlocks.
Is there a solution?
We have learned that a low float token model is bad. But can we fix it?
Obviously, an important part of the problem is the number of projects that are being launched. Not everyone will be able to buy all of these items. But a more linear unlocking plan might be wise (as opposed to Arbitrum), as well as retroactive airdrops: consider Ethena and EtherFi, which are doing 2 rounds of airdrops. Maybe it would be helpful to relaunch the ICO, which will create more loyal fans.
I think when BTC.D is trending down, there will be a handful of altcoins that will rise sharply. Not everyone that people are used to will be like this. There are more crypto participants at this time than in the previous cycle, but now people are smarter.
According to Thiccy, there is a daily supply of more than $250 million in altcoins unlocked from new tokens and all tokens on the market, and most of these tokens are not sold when people airdrop or invest in rounds due to upward reflexivity (positive feedback loop) because the market is just going up ("why sell today because you can make more money by selling tomorrow" mentality). That's why we saw a massive sell-off in April, and the market just needed a reason (for war).
Okay, so token unlocks, new token listings, and staking rewards for existing tokens have led to an increase of $250 million per day in the altcoin supply so far in 2024. Due to the introduction of a large number of new coins, FDV growth outpaced circulation, with an annual growth of about 70%. The gap between FDV and circulating supply, which represents the amount of supply that will enter the market in the future, has increased by more than $150 billion so far this year. As inflows into mainstream coins slow, the weight of the daily altcoin supply is becoming more and more apparent. The more I learned about trading, the more I realized that tactically shorting crypto altcoins was actually beneficial. At least when you're trading currency pairs.
In any case, the total market capitalization of altcoins is steadily growing as a result of the constant launch of new tokens and new supplies entering the market.
There are some high cap cap/FDV tokens in the example above. Look at Worldcoin: $1 billion market cap, but $64 billion in FDV. What does this mean?
This means that Worldcoin will continue to supply tokens to the market in the future. In July 2024, they will start releasing like crazy, with 6 million $WLD tokens entering the market every day. Today, there are only 181 million $WLD tokens on the market.
Looking at the basic supply and demand curve, it's easy to see how difficult it can be to keep $WLD prices going to be very difficult when these supplies enter the market.
Who will buy 6 million $WLD tokens per day?
What does this mean for a bull market?
As long as BTC/ETH rises, this may not have much of an impact. We will see this happen in bear market conditions.
However, I like Anteater's approach, which is to be bullish on strong coins and bearish on weak coins. This is a hedging strategy, not a triangular arbitrage like Ethena. Hedging in a bull market may sound strange, but there will be several downtrends along the way to the peak of the bull market. The process of reaching the apex is not smooth sailing.
In addition, there have been several recent posts on crypto Twitter saying that the cycle is 70% over. Who knows, so decide based on the risk you take.
I think most of the new VC scam coins (high FDV coins) end up selling off significantly. You can use this for hedging trades, or in situations where you want to hedge.
Examples of weak coins could be $STRK, $APE, $BOME, $ADA, $CRV, and $XRP. Or if the altcoins are doing well overall, combine these weak altcoins with strong altcoins: the current strong ones are: $ENA, $TON, $FTM, $PENDLE. However, this is not a recommendation to buy/sell these coins, as market momentum can change rapidly.
The good thing about Memes is that they are actually one of the few honest coins. Take a look at $WIF, $PEPE, $DOGE, $POPCAT, and more. The circulating supply and total supply are the same. No one is going to dump your currency on a crazy unlocking plan. It's just plain PVP gameplay.
Finally, let's listen to some words from crypto trader Wazz:
I think his argument is rational and quite plausible. Too many altcoins, too many projects, too many unlocked tokens will enter the market in the future.
If the price of Bitcoin rises significantly in a short period of time, it is almost certain that the price will rise in the period following the initial increase. Vice versa. The low liquidity of the crypto market means that prices are prone to large ups and downs.