An analysis of Filecoin and its future
On May 10, amidst the overall decline in cryptocurrencies, Filecoin, a leader in the distributed storage sector, also fell in response, reaching a 24-hour low of $10.53.
So far in 2021, Filecoin has fallen from a high of $238 to a low of $10.53, a maximum drop of 95.6%. There has been almost no decent rally in the middle of it, and most Filecoin investors and ecosystem builders have been caught in the middle of it, losing a significant chunk of their investment. In my opinion, the reasons for Filecoin’s continued decline can be summed up in 3 points.
(1) The vicious circle of “mining and selling” caused by the constant pressure of selling
Even at the current rate of US$11, a daily injection of over US$2.2 million would be required to stabilize the market’s decline. This is a massive amount and so far nobody seems to be willing to burn this much money just to keep the price stable. Moreover, the very first group of Filecoin miners’ pledged tokens matured back in mid-April, and a massive amount of Filecoin is thus released to the market, adding up to the selling pressure and putting a further heavy burden on Filecoin’s price.
The total amount of Filecoin in circulation is currently over 290 million, compared to the same data from six months ago which was only 186 million. Filecoin’s average daily output is 527,000 tokens. the constant daily token output and the dumping pressure have directly contributed to the vicious cycle of the Filecoin market “mine and sell” downward spiral.
(2) The development of application scenarios around Filecoin has failed to meet market expectations
The continued increase in new Filecoin production and the overly homogeneous application scenarios have kept Filecoin in an inflationary state in the secondary market, and it is an established fact that the IPFS/Filecoinecoin ecosystem has remained relatively unpopular for a long time. Although the Filecoin project claimed to be a globally oriented, peer-to-peer distributed storage Filecoine system, is designed to complement (or even replace) the traditional HTTP system as being faster, more secure, more robust, and more durable. However, until today, very little valid data is actually stored in the Filecoin system, and it is far from the desired goal for commercial applications.
Furthermore, how does the application of IPFS/Filecoinecoin fit in with the Filecoin token model? This has been a hot topic of discussion in the community, and there is even a proposal in the official Filecoin community that Filecoin should adopt a deflationary mechanism to reduce the amount of circulation. In my opinion, this is not a solution to the problem. It is 100% correct to increase the potential real world utility or application scenarios of Filecoin, but limiting the Filecoin supply in order to increase Filecoin’s price will not benefit the ecosystem in long term, this is a temporary solution at best and it comes with serious side effects at a later time. This measure will harm the interests of committed Filecoin service providers, forcing them to abandon the project altogether. Therefore, whether the Filecoin dev team can develop more application scenarios and make substantial tech progress is the only decisive factor if Filecoin’s value can make a comeback.
(3) The overall environment of the crypto market has negatively affected all tokens, Filecoin is just another collateral damage
The crypto market has experienced a very bullish year last year, and since February this year, the market has gradually cooled down and turned to a more bearish stance, with the top 50 coins in terms of market value falling by more than 50% on average. The intrinsic links in the crypto market and the depressed mindset of investors are also important reasons for the current market downturn, and Filecoin is naturally not immune to this pattern.
However, if you are asking “Is there any hope for Filecoin to return to value?” my answer would be a resounding yes! I am still very confident in Filecoin for a variety of reasons which I will explain below.
(1) Filecoin miners have not left the ecosystem and they are remaining optimistic about Filecoin’s future
In October 2020, there was a two-month “space race” before the main Filecoinecoin website goes online. In other words, the earliest group of Filecoin miners has received all their rewards by February 2022. An even larger number of Filecoin miners also received their tokens in mid-April.
Therefore, it can be observed that in February and April, Filecoin's total pledge amount did have a sudden dip, because a large number of tokens were released to the earliest miners. The February dip took two months to rebound to pre-dip levels, and the April dip took only one day to rebound. The above figures suggest that miners did not immediately sell all their tokens, but instead, many miners actually reinvested their Filecoin and many investors are still buying Filecoin either for mining collateral or for staking and other forms of investments.
It is worth mentioning that Filecoin mining service platforms like DMEX (https://dmex.finance) have been continuously expanding their Filecoin hash power and Filecoin-centered DeFi application. DMEX’s unique Filecoin mining power NFT is fully backed by physical miners, and the mining output is distributed daily by audited smart contracts. The decentralized feature of the platform also allows all users to monitor and verify their fund movements from blockchain transaction records. Platforms like DMEX have made Filecoin mining so much easier, therefore even crypto beginners can mine Filecoin to earn a stable passive income.
I am still optimistic about the future of the crypto market. As long as Filecoin's daily production remains unchanged, more users can join the Filecoinecoin ecosystem, which will increase the number of staked Filecoin and in turn facilitate a price boost. Filecoin mining providers such as DMEX also provide users with a diversified DeFi investment option to counter the risk of market price and increase the earnings of Filecoin holdings.
(2) The upcoming Filecoin Virtual Machine (FVM) will bridge the gap between various Filecoin applications
To kick start the year 2022, the Filecoin Foundation made three important announcements regarding FVM, including the open source implementation of Ref-fvm, the launch of the new FVM website, and the launch of the FVM Foundry and Early Builders program.
This is a milestone step in the development of the Filecoin network, FVM will add powerful computing power to its existing efficient storage capacity, making it a truly efficient and usable application-based public chain. The introduction of FVM will also provide more opportunities for developers to participate and minimise the risk of network outages and improve security.
With the launch of the FVM virtual machine, more applications will emerge in the Filecoin ecosystem. These applications will consume a gas fee, which will accelerate the deflation of Filecoin. FVM is also expected to boost the publicity of Filecoin among the general public, thus creating a stronger consensus and accelerating deflation.
In short, Filecoin is still full of potential, we may witness a comeback from Filecoin sooner than we thought.
This article is contributed by DMEX’s community volunteers. This article consists of personal opinions and/or analyses of the DMEX project. None of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product, or financial instrument, to make any investment, or to participate in any particular trading strategy.
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