Is Locked Token a Slow Bubble? Why Is a High FDV a Red Flag for Traders

When the market is in a vibrant bull run, a series of new projects emerge with enormous FDV (fully diluted valuation), but the total circulating supply remains small. This is a recurring fundraising formula from VCs during this cycle. But behind these impressive numbers, how many traders truly understand what FDV is?

Definition of FDV: Potential Number or Just a Magic Trick?

FDV is an estimated market capitalization that a project could reach if all tokens scheduled for release are put into circulation today. The calculation is very simple:

FDV = Current token price × Total maximum supply

The fundamental difference between FDV and market capitalization is:

• Market capitalization: Only considers tokens currently in circulation
• FDV: Includes all tokens that will exist, including locked tokens, tokens in unlocking processes, or not yet created

Take Bitcoin as an example. With a current price of around $96,390 and a total supply of 21 million BTC, Bitcoin’s FDV is approximately $1.925 trillion. But this number only makes sense if investors understand the underlying logic.

Why Does FDV Make Traders Cautious?

FDV has become a “meme” in the crypto community for a reason. Projects with high FDV are often supported by venture capitalists, promising enormous future growth. But there are two major issues:

First, FDV assumes a perfect future: It assumes all tokens will be released as scheduled and always find buyers. In reality, roadmaps can change, projects may burn tokens to reduce supply.

Second, low circulating supply creates a false sense of scarcity: When circulating supply is small but FDV is large, it creates the illusion that “price is still very low, with plenty of room to grow.” This is a highly effective psychological trap in a bullish market.

Token Unlocking: The Sudden Nightmare

The biggest problem with high-FDV projects is the token unlocking schedule. When large amounts of tokens from VC funds start to be released, what happens?

Answer: massive sell pressure.

Consider the case of Arbitrum (ARB). In March 2024, 1.11 billion ARB tokens were unlocked, accounting for 76% of the circulating supply at that time. This number was nearly double the amount of ARB available for trading on the market. It sent a clear signal: a sell-off storm was coming.

Before the tokens were actually unlocked, ARB had already started to decline from $1.80–$2.00. When these VC tokens finally entered the market, ARB’s price dropped over 50%, with RSI entering oversold territory and a death cross forming on the chart.

Currently, ARB trades at $0.21 with an FDV of about $2.09 billion, reflecting a collapse in confidence after the token unlock event.

What Does the Data Say? The Relationship Between High FDV and Failure

Analyst @dyorcrypto observed a pattern: projects with high FDV supported by VC often experience sharp sell-offs before the tokens are unlocked. There are two reasons:

1. Preemptive selling: Professional traders know that when supply increases without matching demand, prices fall. They sell beforehand to protect profits.

2. Domino effect: When prices start to decline, other traders panic and sell off, creating a self-fulfilling prophecy of a total crash.

Many well-known projects like Filecoin (FIL), currently priced at $1.50 with FDV of $2.95 billion(, Internet Computer )ICP(, priced at $4.24 with FDV of $2.32 billion), and Serum SRM, priced at $0.01 with a FDV of $13.01 million, have experienced gains of thousands of percent in early phases. But as excitement wanes, late investors often face heavy losses.

The Big Picture: Why FDV Is Not the Whole Story

However, FDV should not be considered the sole factor. When analyzing a high-FDV project, consider:

• The project’s fundamentals: ARB is an important Layer-2 for Ethereum with a TVL of around $1 billion. This helps it withstand short-term pressure from token unlocks.

• Roadmap and long-term vision: Projects like DePIN and RWA are gaining VC interest, but it’s unclear whether they will reach hype levels.

• Other criteria beyond token supply: User adoption, real utility, community engagement. A project with high FDV but no real use case will struggle.

Conclusion: Don’t Be Fooled by Numbers

FDV is valuable when used correctly—it helps visualize future potential and compare projects with different token structures. But it’s not the ultimate investment indicator.

Smart traders avoid getting caught up in high-FDV projects during market euphoria. Instead, they dig into token release schedules, project roadmaps, real platforms, and economic mechanisms. Because when locked tokens start unlocking unexpectedly, unprepared traders will be caught off guard.