According to Foresight News, market conditions and narratives are the primary determinants of asset performance. Over the past few weeks, many have written about the topic of low circulation/high FDV tokens.
In the past three months, tokens with a high percentage of non-circulating supply have shown varying market performance. Interestingly, both old and new Memecoins, such as SHIB, FLOKI, BOME, WIF, and PEPE, have performed exceptionally well. On the other hand, newer VC projects with a high percentage of non-circulating supply (NCS) have performed poorly.
However, there are some outliers. Two projects launched in January 2024 with a high non-circulating supply have shown excellent performance. The reason for their success is the narrative surrounding them.
Upon closer observation, it is found that while projects with high NCS often perform poorly, there is no clear distribution pattern among projects with extremely low or high NCS. For instance, quality projects with low NCS like FXS (NCS 20%), MASK (NCS 4%), and RPL (NCS 0%) have shown market performances of -44%, -10%, and -22% respectively in the past three months.
On a positive note, projects with low NCS generally perform better, regardless of their age. The conclusion drawn is that market conditions and narratives are the main factors determining asset performance. However, high NCS projects often perform poorly and are usually a better choice for hedging or in a bear market.
When comparing low circulation/high FDV with high circulation/low FDV, the former performs quite poorly, with only two notable exceptions: ONDO and JTO. On the other hand, excluding a few Memecoin outliers, high circulation/low FDV projects usually perform better.
In conclusion, while low circulation/high FDV projects often perform poorly, there are a few exceptions. However, finding these exceptions requires a lot of effort and success is not guaranteed. Despite data showing Memecoin performing well in this regard, many may be reluctant to trade Memecoin.
The solution? Become a narrative trader. If a project has enough demand, any selling pressure will be absorbed. This high demand only comes from catalysts and narratives. The other solution is to find the optimal balance. The assumption is that the optimal point is for projects with NCS between 10% and 50%. Recent top-performing projects in this category include FET, FTM, PENDLE, RNDR, AGIX, and AKT. Combining this with some basic narrative trading can yield excellent results.