Written by: VIKTOR
Compiled by: TechFlow
I have spent considerable time researching the last bull run, the different narratives that were popular at the time, the rotation to maximize profits, the best performing tokens of 2021, and the logic behind their huge gains.
This new cycle will not be exactly the same as the previous one, but there are many lessons we should remember because history is similar, especially in the financial markets, most of the prosperity comes from the way the human brain thinks, which will never change.
Let’s get straight to the point.
General experience of bull market
New coins outperform, old coins underperform
A significant trend in the 2021 bull market is the poor performance of old coins. Almost all coins in the 2018 cycle will perform well in 2021.
Ripple (XRP), Stellar Lumens (XLM), Bitcoin Cash (BCH), NEO, XEM, IOTA, EOS, Dash, Monero (XMR), Zcash (ZEC), and Tron (TRX) have never again reached their previous high prices (in USD terms), and they have largely only fallen relative to BTC since 2018.
Of course, aside from BTC and ETH, the only good performances among the major legacy coins came from BNB, Cardano (ADA), Ethereum Classic (ETC) and of course DOGE.
Here is a screenshot of CoinMarketCap's rankings from December 2017. I highly recommend looking at several dates of these historical snapshots to help you understand how the cryptocurrency market "rotates."
Most cryptocurrencies underperformed BTC before the bull run really started
When we are in the middle of a bear market and think we are close to the bottom, it is obviously the best time to buy BTC and ETH and hold until the next bull market.
But by the same logic, you might also be tempted to buy altcoins because they have a high beta to BTC and should therefore perform better. Even though this is true for some altcoins, it was not entirely the case during the last bull run.
Most altcoins underperformed Bitcoin during the Bitcoin rally at the end of 2020 until early 2021, when they suddenly began to take off.
The good news is that by holding BTC and ETH until the bull run begins, you are not really missing out on excess returns.
If history repeats itself, this is what we should expect: BTC (and perhaps ETH as well) should have a period where BTC (and perhaps ETH) take off on its own while altcoins lag behind, BTC market share rises, and then suddenly the rotation begins, when altcoins start to rise like crazy.
But I don’t think that’s exactly what has happened or will happen: what we’ve seen over the past few months is that $BTC has risen in tandem with BTC dominance, just like in 2020, but this time we’ve seen many tokens outperform BTC from June 2023 to now.
BTC market share
My explanation is:
For long term investors, the bottom to buy in November 2022 is $BTC (and $ETH, even if in hindsight not hitting ETH in 2023 was the best idea), and the time to buy the right altcoins is around June 2023
There is a lot of variation in altcoin performance: $ETH is underperforming $BTC in 2023, some older altcoins are also underperforming $BTC over the past few months, while some altcoins are outperforming the market by a wide margin
Nonetheless, we have not yet seen the altcoin mania phase, which I expect will enter full-blown mania once BTC breaks past its past high (69,000).
Most of the gains are concentrated in a few months
Most of the gains for these cryptocurrencies have been concentrated in a fairly short period of time. Almost all of the performance has occurred within a few months, especially for altcoins.
For example, in the last bull run, it was from January to May 2021, and then from August to November. The market is in a period of "only up and not down", and your new opponents are retail investors who have given up on cryptocurrencies for 3 years.
These are the critical moments when you need to be 100% committed to the market. There is a famous GCR tweet that sums up what you need to do during these times:
Here are a few examples to give you an idea of how rapid and concentrated the rise was:
$CHZ: 30x growth in one month from February to March 2021
$BNB: 8x growth in 20 days in February 2021
$DOT: 8x growth in two months from January to February 2021
$SUSHI: 6x growth in January 2021
$AAVE: 6x growth in January 2021
$HOT: 35x growth in 2 months from February to March 2021
$JOE: 60x growth in two weeks in August 2021
Don’t let bear market PTSD deprive you of the chance to reap crazy gains during bull and alt markets
If this is your first market cycle, you will most likely enter the market too late, let your investments soar in irrational valuations without taking profits in time, and then go back and forth through many gains. However, if you are reading this article, it is likely that you have already experienced the previous cycle and survived the particularly brutal bear market in 2022. In a bear market, you have to be vigilant about every rise and be ready to short every time an altcoin rises due to some catalyst. This behavior will be rewarded. However, in a bull market, all this changes completely: coins rise higher than you think. You must be ready to benefit from it.
Here are a few examples of some tokens that have seen crazy gains in a fairly short period of time in 2021, and the very large valuations they have reached:
In January 2021, $DOGE rose nearly 10x in one day, when it was already a billion-dollar token
$THETA's market cap rose from $1 billion to $12 billion in 3 months
$RUNE's market cap grew from $200M to nearly $5B in 5 months
$FIL once reached a FDV close to $400 billion
$ICP launches with $250 billion in FDV
$AXS’s market cap rose from $200 million to $10 billion in 5 months, and its FDV peaked at $43 billion
$GALA’s market cap peaked at $5.4 billion in 2021, compared to just $5 million at the start of the year.
$TEL’s market cap increased from $10 million to $30 billion (300 times) in 5 months
Evolution of the total cryptocurrency market capitalization during the last bull run
The main narratives of the 2021 cycle, and the best returns:
DeFi 1.0：
DeFi became the new thing in crypto in 2020, it provided new use cases and was something fresh that came from nothing. DeFi was the focus of the market in the summer of 2020, that’s why it was called “DeFi Summer”, we can describe it as the beginning (or pre-beginning) of the bull run.
Add a ponzinomics aspect to the whole thing and you have a recipe for huge gains. The two biggest winners in DeFi with strong fundamentals are $AAVE and $SNX. From bottom to top, these have seen gains between 500x and 1000x. We can also mention $SUSHI, which has grown 30x between November 2020 and March 2021.
Everything L1
L1 trading is the most persistent in crypto and one of the most valuable in the last cycle: the main winners of this trade are $SOL, $LUNA, $AVAX, but also $FTM, $ADA, $BNB, $EGLD.
The market places a very high premium on Alt L1s, meaning that on average they are valued (market cap or FDV) higher than other categories, such as applications. Once you know this, you know you have to get exposure to this narrative. It soon became clear that this was one of the themes of the 2021 bull run, as some of these were pretty much the best performing coins from the start until the Terra-Luna crash in May 2022.
The lesson here is: once you understand what the main theme of the cycle is, you simply go with the flow. The second lesson is: Alt L1 trading will never go away. It is a dominant theme in 2021, but it was in fact the case in 2017 and will be again in 2023-2024.
alt L1 Ecosystem Playbook
In crypto, whenever a coin goes up, traders look for coins that are correlated with the rising coin, or that should logically follow the rise. This is why, when an L1 network coin goes up, people start looking for all the coins in the "ecosystem" of this network, because these coins have a smaller market cap, so they are expected to rise more sharply and serve as "beta" to the L1 coin.
Typically, the primary ecosystem coin is the network’s dominant decentralized exchange (DEX), and this is where some of the crazy gains were made in the last cycle:
For example, BSC ushered in a peak season in the first two months of 2021, so $BNB started a sharp rise from $40 to a maximum of $700, and $CAKE, as the main DEX on BSC, basically rose 50 times in one month. For some traders, $CAKE is their best trade in the entire 2021 bull market.
The second example is in the Avalanche ecosystem: $AVAX, like most coins, had a strong start to 2021, but fell sharply in May (-70%), and then had one of the strongest recovery in August 2021. Naturally, people started looking for beta coins, and Avalanche DEX coin $JOE rose 50x in two weeks. Pangolin ($PNG) is another major DEX on Avalanche, but its price "only" increased 4x in the same time.
In addition to DEXs, you can also think about meme coins, money markets, perpetual DEXs, CDPs (overcollateralized stablecoins), launchpads. I think now in 2024, people are more inclined to "the main meme coin on chain X" than "the main dex on chain X".
original universe
On October 28, 2021, Facebook announced its rebranding to Meta, and that the new company’s focus would be “building the metaverse.” This immediately triggered a wave of extreme speculation in the cryptocurrency market: the metaverse craze began.
There are 3 coins that are leaders in this narrative: $SAND, $MANA, and $GALA. They are all close to 10x gains in a month, and the only thing you need to do is buy them after Meta announced its plans, even though they are already up 20% after the news.
At the time, the market was nearing peak euphoria and with the announcement of Meta came news from traditional finance and the real world, so it was a very strong narrative that lasted for about a month.
What’s more, the Metaverse is closely tied to gaming, and while one major crypto game, $AXS, went completely wild during the summer of 2021, gaming + the Metaverse was another powerful catalyst because then people started looking for the “next Axie Infinity”.
The lesson here is: understand technology and real-world trends outside of crypto, because in a risk-on environment, if a technology trend has some relationship to crypto, it will definitely become a narrative in crypto, as we have seen with this metaverse and gaming craze.
The Metaverse narrative in 2024 that is most like 2021 is AI: the launch of ChatGPT did not happen when the market was in a bull run and the overall AI narrative was concentrated in time, so there was no one-month full-blown AI mania (as opposed to the Metaverse mania), but AI coins performed very well during the bubble in January-February 2023, which was the most risk-on environment of the year, and then AI coins performed well again in October/November 2023, and now again in February 2024.
I think many AI coins are primarily virtual software, but I don’t want to ignore a narrative that is so powerful in the technology world. Some of the wildest gains this cycle will come from the AI sector.
Meme Coin
Meme coins were some of the best performers of the last cycle. $DOGE started 2021 with a market cap of $600 million. Over the next 5 months, thanks to strong promotion by Elon Musk until its peak, $DOGE’s price increased 150x to a massive $90 billion market cap.
A few months later, a great rotation occurred, with another doge-themed meme coin $SHIB reaching a $40 billion market cap, having been valued at less than $5 million at the beginning of 2021.
Many other memecoins reached crazy valuations: $SAFEMOON ($17 billion at its peak), $ELON (over $1 billion), $AKITA ($1.5 billion), $FLOKI ($3 billion).
Memes are definitely here to stay, and it’s likely that some meme coins will be the best performers in the new cycle. In cryptocurrencies, it’s not fundamentals that drive prices, it’s narratives and speculation, and meme coins take this to an extreme.
NFT
NFTs are an entirely new cryptocurrency category and narrative in the 2021 bull run (technically, not new, but new to the market), and are where some of the wildest gains have been made.
When we say “NFT” we mainly mean avatar image collections, the first (and OG) craze was CryptoPunks, whose floor price jumped from 5 ETH in January 2021 to 20 ETH in March, and then rose again to 100 ETH during the summer! A year ago, in the summer of 2020, the floor price was only 1 ETH.
A large number of NFT PFP series have been launched, the most successful one besides CryptoPunks is obviously Bored Apes, but we can also mention Pudgy Penguins, Art Blocks (not a PFP series), Doodles, Cool Cats, etc.
Thinking about cycles: How to play narrative rotation to maximize profits?
Crypto trading is a game of rotation from one narrative to another, and while it is nearly impossible to accurately catch all short-term rotations, there are some lessons we can remember. Some narratives remain strong throughout the bull run, such as L1 network transactions never stopping, but most trends last about 1 month, and that is the first thing to know. The main part of the rally usually happens over a period of a few weeks to a month, after which fatigue sets in and the market's attention shifts to other things. Of course, this is a very rough pattern and some coins manage to perform well for several months in a row, but generally, if people have been talking about something for a month in a row (think Metaverse in November 2021), be aware that the trend may have been exhausted.
As we go through a bull market, people tend to add risk. This means that the main narrative early in the bull market may have some strong fundamentals, but as time goes on, traders will look for more and more things with higher risk and higher returns that make less and less sense.
For example, in 2020-2021, $LINK (strong fundamentals) was the best performer in the bear market, then we had the DeFi Summer, which introduced a new paradigm, which was DeFi (strong fundamentals), then we had the BTC rally, and then in the first part of the bull market, some DeFi coins were the best performers ($AAVE, $SNX, $RUNE, $UNI).
Over the next few months, the market becomes increasingly speculative, virtual items are overvalued to multi-billion dollar FDV (metaverse, games), and ultra-high yield pure ponzi economics are seen as the future of France (Olympus DAO $OHM). At this point, when all of these top signals appear in the market, you may be looking to exit, or at least significantly reduce risk. Seeing a large number of crypto games launched (e.g. via launchpad) with ridiculous valuations (>$1 billion) when they have nothing to offer other than promises is a good sign that we are approaching a top. Of course, take all of this with a grain of salt, as the crypto market is constantly degenerating (DeFi Summer is already a ponzi economics, new meme coins are constantly being launched and traded, etc.), and you can find "top signals" almost at any time in crypto if you are looking.
If a coin performs best in a bear market, it cannot outperform the bear market throughout the bull cycle. At least, this is the case in 2021, but it is a unique bull market because it is clearly divided into two parts (pre-May 2021 and post-July 2021). Many coins that performed strongly in the bear market peaked around May 2021 or even before: $AAVE $SNX $RUNE $THETA $KSM $SUSHI.
In the second half of the bull market, look for new narratives (the metaverse in 2021, NFTs) and be prepared to accept things that are increasingly irrational, introduce new types of Ponzi economics, and have religious beliefs (more on this in the next section).
Signs of a huge rally…and then a huge sell-off
Crypto tends to amplify many human psychological biases and emotions, which are often catalysts for more extreme rallies, but also catalysts for more extreme selloffs. Identifying two such examples of catalysts seems particularly important:
“Protagonists” and the cult of some crypto figures
The crypto market loves "protagonists" who are often idolized and become the reason for the rise of some cryptocurrencies. You can easily find a central figure behind some of the rising coins in 2021:
SBF (Sam Bankman-Fried) is seen as a genius and is one of the reasons for the incredible performance of $SOL (Sam is a bull and supporter of $SOL) and the reason for the rise of $FTT
CZ is the leader of Binance, part of $BNB's success
Su Zhu is considered a god-like investor/trader with billions under management and he is bullish on Avalanche, which is also a catalyst for $AVAX
Elon Musk is one of the main reasons $DOGE has risen to nearly $100 billion market cap
Do Kwon is the founder of Terra Luna, and his “confidence” (to say the least) may have played a role in the (initial) success of $LUNA
Richard Heart, the colorful man behind $HEX, is adored by Hexicans
Charles Hoskinson, the father of Cardano, may be one of the main reasons why $ADA has reached a huge market cap
Andre Cronje, the central figure of Fantom ($FTM) and co-founded a number of other projects, is considered a genius by some
Daniele Sestagalli leads 3 crazy rising projects: $TIME, $SPELL and $ICE
Two types of protagonists stand out: either the “genius” or the “community leader/adored by the community.” Keep this in mind and prepare for the next bull run.
Religion x Ponzi = The upcoming pump and dump
The second and third catalysts are: religion and “Ponzi-like” token economics. Interestingly, these usually appear together. Ponzi economics usually means very high returns that are ultimately unsustainable in some form. Religion is harder to explain, but a few examples will illustrate the point:
Luna is one of the best examples: Do Kwon is the charismatic leader, there is a clear Ponzi economics component, namely the 20% Anchor revenue on UST, and it is a bit like a religion, because for example the community members call themselves "Lunatics", and if you challenge the sustainability of the UST model, you will be opposed and attacked by them
Olympus DAO ($OHM): The main catalyst for this was Ponzi economics, basically a crazy high staking yield, you may remember Olympus had a leader, he was a Twitter anonymous named “Zeus”
Daniele Sestagalli's projects clearly have a "degen flavor": Wonderland is an Olympus fork with higher yields, and Abracadabra has a "degenbox" product that enables people to recycle their UST and get a leveraged Anchor yield, if I remember correctly. The community that gathered around Daniele Sestagalli was called "Frog Nation"...
