Alternative Explanations for Low Flow and High FDV
Low flow is not a bad thing in and of itself, nor does low flow itself lead to an unhealthy market or represent a state of bad behavior - it is just a variable that investors must consider. Many low flow tokens have good launches and healthy market dynamics.
Bitcoin’s issuance schedule is very famous, with halvings every four years, which reduce the supply of new coins on the market every four years. Bitcoin’s “flow” was less than 10% for a full year after the genesis block.
The dynamics of low flow can really get tricky when low flow is combined with other issues. Unwarranted and inflated FDV, improper agreements with other market participants, or active manipulation from bad actors.
When used incorrectly by bad actors, low flow markets are more susceptible to manipulation and distortion - for example, the lower the flow, the lower the USD demand required to price a token at a high valuation.
Yes, low flow can also lead to a disconnect between valuation and reality when flow or FDV are misunderstood or ignored by uninformed token buyers. I think it is very unlikely that there are buyers independent of valuation. It is more likely that token buyers simply do not review or consider these metrics.
To protect and inform themselves, token buyers need to evaluate the balance between circulation, FDV, and demand for tokens being unlocked. They should consider: what is the cost basis for locked supply, what is the OTC demand for locked tokens in private markets, and how willing existing holders are to sell these locked tokens.
Finally, the reported high circulation may itself be low circulation.
In essence, it is not market pricing, and prices are more easily manipulated. The recent Binance lanchpool purchase loss is a clear case. This is an ironclad fact, and it is powerless to defend it at this time. The important thing is that everyone has different costs to acquire tokens, and Binance users may not know the cost of VC (what is the cost of most uncirculated coins). This is an information disadvantage, and we will pay more attention to the ability of investment research in the future
