Filecoin Rising the Ranks After Tripling its Market Cap in 2023

With a market capitalization of $3.04 billion, the FIL token is now the 27th largest cryptocurrency by market cap. In 2023, the token's market cap tripled, surging to $4.5 billion on February 20 from $1.5 billion at the beginning of the year.

As of writing, FIL is trading under $7, up 62% in the past week and 152% YTD, according to CoinGecko. Despite this growth, the coin is still down 96.7% from its all-time high of $240 hit two years ago.

FIL is the native cryptocurrency powering the Filecoin project, a decentralized peer-to-peer file storage network aimed at enabling anyone to store, retrieve, and host digital information. Besides being used to pay for those services, FIL tokens also work as an economic incentive to make sure files are stored reliably over time. Miners can also earn these tokens by offering their storage services to customers in the Filecoin network.

Filecoin (FIL) was founded by Stanford University computer scientist Juan Benet and his team at Protocol Labs, which Benet started in May 2014.

Later on, Filecoin Foundation was created to develop Filecoin. It is an independent organization that facilitates network governance, which was previously the responsibility of Protocol Labs.

Understanding Filecoin (FIL)

Launched on October 15, 2020, the Filecoin network is a peer-to-peer version of Amazon AWS. It's built on top of the InterPlanetary File System (IPFS), which serves as the distributed data storage and sharing layer for the Filecoin network. Filecoin periodically verifies data storage and uses transaction prices for storage that are determined by demand-supply dynamics rather than fixed-price structures.

A storage deal is similar to a service-level agreement (SLA) contract, where users pay fees to storage providers for data storage over a set period. To ensure the data is secure, Filecoin uses a crypto-economic incentive model, which periodically verifies the storage using zero-knowledge proofs (zk-SNARKs). Filecoin rewards them in FIL tokens to motivate storage providers to participate in deals. Storage providers are also cut off if data is not recoverable or storage fails.

Filecoin users pay the recovery provider to recover data. And unlike storage deals, which are executed on-chain, retrieval transactions utilize a payment channel to resolve payments off-chain, which results in faster fetches.

In September 2017, Filecoin raised a massive $257 million through an initial coin offering (ICO). This project was yet another shining presale success, which delivered staggering numbers in the presales after Ethereum, which was the most popular one and sold over seven million ETH (more than $2.2 million) within hours of the presale.

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Playing the Narrative

2023 marks a good start for the cryptocurrency market as coins continue to recover after the collapse of FTX and Terra in 2022, which wiped out billions of dollars from the market.

As the market bounces, many investors are happy to see that crypto assets are starting to show promising signs of increasing momentum. Crypto has been seeing some subsectors exploding in value out of nowhere over the past few months — just last week, significant moves were recorded in coins loosely classified as “artificial intelligence tokens.”

Now, it looks like the time has come for storage tokens to get pumping. Cloud storage is a major sector: having raked in $217B from September 2021 to September 2022, according to a report by Statista.

With Filecoin being a decentralized cloud storage competitor to giants like AWS, Microsoft Azure, and Google Cloud, it speaks well for blockchain-based storage platforms.

But the most important narrative right now fueling the broad crypto market is the “China narrative” that saw not only FIL but also other coins like KLAY, NEO, Conflux (CFX), VeChain (VET), and Qtum (QTUM) gaining in value.

“Filecoin is massive in China,” said Andrew Kang, partner at Mechanism Capital, but of course, in the bear market, narratives are often short-lived, and the focus on China-oriented tokens isn't expected to last any more than a week or so either.

China Narrative Takes Shape

The crypto market has always been big on narratives, and it is no different in bear markets. Following the AI narrative inspired by ChatGPT and the Metaverse narrative inspired by Meta's earnings reports and dedication to building a crypto-metaverse, the ‘China narrative' is now taking hold among the traders.

The rally of Chinese coins was fueled by the announcement that Hong Kong is set to officially make buying, selling, and trading of cryptocurrencies completely legal for all of its residents starting on June 1, 2023.

The narrative has been gaining momentum over the last couple of weeks, with analysts and crypto influencers tweeting about the issue and sharing China's watchlists of coins, driving huge price rallies.

In addition to the crypto plans of Hong Kong, experts in the cryptocurrency Twitter-sphere noted the large injection of liquidity by the Peoples Bank of China (PBoC) coinciding with a surge in the crypto market cap, which stands near $2.2 bln.

According to some on Crypto Twitter (CT), the narrative about Chinese easing could be in effect here, with the Central Bank increasing liquidity injections as early as February 2023. Since such moves are usually followed by crypto-price surges, experts are bullish on Chinese coins and the continuation of their upward trend for a short period.

Filecoin Virtual Machine (FVM) Coming

Besides the ‘China narrative,' a few key developments are coming for Filecoin that could help the project get some traction. For instance, Filecoin is advertising an impending “Filecoin Virtual Machine” (FVM) launch on Twitter.

The Filecoin Virtual Machine (FVM) is the runtime environment for smart contracts, also called “actors,” in the Filecoin network. The FVM extends Filecoins utility and opens up huge possibilities for the open data economy.

Bringing smart contracts to the Filecoin blockchain will potentially open up a plethora of new use cases for the network. The use cases include granularly controlling who has access to certain files, the ability to automate deals to store files, undercollateralized loans to storage providers, decentralized computing, or enabling data-oriented DAOs, according to the FVM's documentation.

These developments came on the heels of a strong fourth quarter in 2022 that saw a surge in the use of Filecoin, with the number of active deals increasing by 117% QoQ and 1,798% YoY. While storage capacity fell 5% from an all-time high (ATH), utilization increased 18x over storage capacity YOY.

FIL's revenue fell 31% (down 49% in USD terms) in Q422, mostly as base fees declined 60% YoQ, even as active storage deals increased 10% YoQ. FIL reward distribution followed the hybrid exponential decay model, resulting in a 1% reduction of the block rewards distributed by the network in the quarter (down 29% in USD terms).

Meanwhile, the number of projects built on the Filecoin, IPFS, and Protocol Labs networks increased to more than 600 in Q422, up from almost 500 in the previous quarter. This shows that, while decentralized storage is still in its early days, the Filecoin ecosystem continues to flourish.

“Should Filecoin continue to onboard demand, it stands a chance of being a prominent provider of decentralized storage and cloud services for Web3 and traditional apps. Filecoin must continue to prove its reliability as a storage provider and potentially become an enabler of a wide range of data-intensive services,” noted Messari in their latest report.

Overall, after rolling out a series of updates to increase the network's storage capacity in 2022, Filecoin continues to improve its minimal viable product (MVP) for its compute-over-data product.

The first step in FVM integration for Filecoin in 2023 is the integration of EVM interoperability with other improvements, including L2 capabilities, hierarchical consensus, and Sealing as a Service.

Through FVMs incentive-based buildernet and testnet, Filecoin hopes to establish new partnerships as well as reinforce the existing ones to better facilitate the product's development in the data infrastructure community. The project, however, has not been immune from the bear market.

Lays Offs & Cool Down

Earlier this month, Protocol Labs, the company behind Filecoin, laid off 21% of its workforce, CEO Bennet announced on its blog. Benet cited the “extremely challenging economic downturn,” especially for companies in the cryptocurrency space, as the reason behind the cuts, forcing the company to reduce costs to survive in a new environment.

High inflation leading to high-interest rates, low investment, and tougher markets have rocked companies and industries globally, said Bennet, adding the macro conditions worsened crypto winter, making it more extreme and potentially longer than the industry expected.

At the time, it was stated that Protocol Labs was cutting 89 roles across several teams but didn't clarify if the team working on Filecoin was affected.

The entire crypto industry continues to be hit hard by layoffs, with almost 29,000 jobs cut since April. January 2023 was actually the second worst month for crypto layoffs, with as many as 2,800 people losing their jobs. This puts 2023 on track to surpass last year's figure of almost 7,000, according to CoinGecko research.

FIL token's positive performance has also started to cool down, with FIL price down 8.2% in the past 24 hours. The market indicators are also painting a bit of a bearish picture, as most are suggesting a further downward trend for the coming days.

Technically, MACD showed a bearish crossover while both the Chaikin Money Flow (CMF) and the Relative Strength Index (RSI) have been at levels close to neutral. Furthermore, the Bollinger Bands suggested FILs price was entering the zone of no volatility, which further reduced the chances for any northward break soon. However, the Money Flow Index (MFI) was close to neutral.

Much like the market indicators, data from crypto behavior analytics platform Santiment shows that FIL's futures demand is falling since it saw a drop in Binance financing rates last week. The drop in FIL prices was accompanied by increased volumes, which further supports this downward trend. As the prices plunge, market participants rush in to sell assets as well, creating a self-reinforcing downward spiral.

However, Filecoin's TVL continues to grow, surpassing $3 million, as per DeFiLlama's data. This means even though the momentum is slowing down, the price can indeed see a positive movement with the Filecoin network growing, especially if the ‘China narrative' persists.