New Crypto Tokens Beware: Price Crash May Be Inevitable After Listing

• Token prices may drop over 80% after listing due to tight liquidity and high valuations.  
• Institutions and investors are shorting tokens to hedge against future price drops.  
• Binance is changing listing policies to require regular updates from listed projects.

With the crypto market continuing to stay volatile, analysts are warning of major drops in the prices of tokens after their listing on exchanges. According to AB Kuai Dong, a crypto analyst, he notes that projects that are gearing up to issue tokens should prepare for price drops of more than 80% once they go live.

Related: Crypto Community Repurposes Crypto Token For Speculation

This means a project initially valued at $2 billion might drop its market cap to $300 million, while a $700 million offering may decline below $100 million. These predictions come as market liquidity remains tight as high-value demand projects wait to enter the market.

Adding to the ongoing liquidity issues across the crypto industry, apart from Bitcoin, are the growing challenging conditions for token issuers. Compared to the pre-pandemic era, the pressure is now more intense due to the high number of market-value demand projects awaiting coin issuance.

These projects, many of which have seen inflated valuations, are now forced to launch at higher-than-expected prices to avoid upsetting the community or key opinion leaders (KOLs) who might react negatively.

In addition, Kuai notes that projects that sell tokens or nodes to the community at high valuations are now under pressure to maintain these inflated prices during token launches, even if it leads to post-listing declines.

Institutional Shorting Adds to Downward Pressure

The downward pressure on newly launched token prices extends beyond retail investors to institutions, node buyers, and shareholders. These market participants actively engage in short trading as part of their hedging strategies.

This growing short selling is driven by the need to protect against the risk of losses when tokens unlock in the future. It adds further strain to the market and contributes to the overall decline in token prices.

Related: Binance Revamps Listing Rules After Price Surge Woes

Binance Responds to Listing Concerns

As token listings become more scrutinized, major exchanges like Binance are facing growing criticism regarding the impact on token prices after listing. Therefore, Binance’s co-founder, He Yi, acknowledged the issue of price surges post-listing and outlined plans to adjust its listing policies.

Going forward, Binance will require listed projects to provide regular updates on their information, and if these updates are not provided, warnings or further action may be taken.