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How to Identify Overvalued Altcoins?
An altcoin is said to be overvalued if its market price far exceeds its intrinsic value. This condition puts investors at risk of buying at high prices, which are prone to correction when the price starts to adjust to fair value. So, how can one recognize altcoins that are considered overvalued?
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1. Valuation Not in Balance with Project Performance
This situation arises when the market capitalization is too large compared to actual revenue, while project development is minimal.
For example, an altcoin has a market cap of $1 billion, but its revenue is only $100,000. This means its P/S ratio reaches 10,000 times.
The following ratios can be used for analysis:
Comparison of FDV to TVL (recommended < 5x).
FDV to revenue ratio (be wary if >1000x).
Low active user count compared to high market cap.
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2. Dense Token Unlock Schedule, But Project Unclear.
Be wary of projects that have not made significant progress but have many tokens set to be released soon.
Tokens with a large vesting schedule in the next 3–6 months may add selling pressure and lower asset prices.
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3. Technical Indicators Show Overbought
Use technical indicators like RSI, MACD, and Stochastic on larger timeframes (weekly or monthly). If all indicators are in the overbought zone, it means the price is too high and at risk of correction.
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4. Community Filled with Excessive Euphoria
When the community becomes overly optimistic and sets unrealistic price targets, it is usually accompanied by a reluctance to sell ("diamond hands"). This excessive euphoria often serves as a sign of price peaks and potential reversals.
How to Identify Overvalued Altcoins?
An altcoin is said to be overvalued if its market price far exceeds its intrinsic value. This condition puts investors at risk of buying at high prices, which are prone to correction when the price starts to adjust to fair value. So, how can one recognize altcoins that are considered overvalued?
---
1. Valuation Not in Balance with Project Performance
This situation arises when the market capitalization is too large compared to actual revenue, while project development is minimal.
For example, an altcoin has a market cap of $1 billion, but its revenue is only $100,000. This means its P/S ratio reaches 10,000 times.
The following ratios can be used for analysis:
Comparison of FDV to TVL (recommended < 5x).
FDV to revenue ratio (be wary if >1000x).
Low active user count compared to high market cap.
---
2. Dense Token Unlock Schedule, But Project Unclear.
Be wary of projects that have not made significant progress but have many tokens set to be released soon.
Tokens with a large vesting schedule in the next 3–6 months may add selling pressure and lower asset prices.
---
3. Technical Indicators Show Overbought
Use technical indicators like RSI, MACD, and Stochastic on larger timeframes (weekly or monthly). If all indicators are in the overbought zone, it means the price is too high and at risk of correction.
---
4. Community Filled with Excessive Euphoria
When the community becomes overly optimistic and sets unrealistic price targets, it is usually accompanied by a reluctance to sell ("diamond hands"). This excessive euphoria often serves as a sign of price peaks and potential reversals.
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