Many people have actually reached their limits in this cycle; small coins rise slowly but fall quickly, returning to square one, repeatedly stressing their mindset!
At the beginning, many comments in the normal cycle were more about emotional expression, more about positions rather than points of view and logic. When prices rise, there’s a surge of happiness and imagination; when prices fall, various pessimistic comments emerge, even ignoring previous trends.
This wave does not have the narrative of an imitation season; it’s like standing in the second half of 2022 and saying there was no bull market in 2021. It’s understandable: we all want to eat meat, but no one wants to be beaten right after eating meat, or even not eat any meat and still get beaten.
The expected imitation season is where all sectors and all projects progress together, hand in hand achieving all-time highs and continuously creating new heights. To be honest, this is truly an imagination; even in the widely recognized bull market of 2021, not all projects experienced incredible gains, and there were many with average performances.
Moreover, the peak times of different sectors differed by several months, so entering at the wrong time could still lead to losses. And the bumps in between were certainly not few.
This cycle will still have a season of imitation, but this imitation season might be milder. Only a few projects can outperform the market and lead the way. (As for the claim that a large influx of money will lead to a big imitation season, it is hard to establish; in 2017, without a large influx, imitation projects averaged a thousand times, and in 2021, with a large influx, imitation averaged out to hundreds of times, the system has grown too large with many new projects diverting attention.)
Another issue is the new versus old problem: there has always been a saying in the crypto market to invest in new rather than old, which was very evident in the last cycle. By the end of 2020, the top twenty in the crypto market were still filled with LTC, BCH, BSV, XLM, XMR, EOS, NEM, and many projects that most people probably no longer understand, so in the last cycle, a large number of new projects quickly emerged and pushed these historical old projects out of the market's forefront.
However, this wave has some different points: on one hand, many new projects have emerged, and good teams with compelling narratives are also making moves. But many projects that shone brightly in the last wave have experienced a cycle of life and death and are now blossoming again, such as SOL, BNB, AVAX, UNI, NEAR, FTM, GALA, YGG, UNI, STX, etc., and they all seem to have captured new narratives, with teams that are active and ambitious, and are also very skilled in market capitalization. So it’s hard to expect that this wave of new projects will replace old projects as obviously as in the last cycle; many old projects are still very competitive.
In the last cycle, DeFi was the main narrative, speculating on DeFi on ETH, then on DeFi on BSC, then on DeFi on MATIC, and in the second half of the year speculating on DeFi on SOL, AVAX, and FTM. At that time, the volume of DeFi funds was large, and the collective group charge was very apparent. Now, there are people optimistic about this and others optimistic about that, leading to severe fragmentation of funds. Each sector has its supporters, and the modes of development vary greatly, resulting in severe fragmentation of funds, which has prevented the emergence of a grand scene where one sector continuously relays and surges.
Without large-scale application landing, it is very difficult to generate value, and naturally, there will be no injection of positive externalities. In the long run, if no applications land, the final result will be increasing skepticism in the market about its long-term value. This is true not just for crypto, but for every wave of technology.
An unreasonable capital structure leads to distorted asset value distribution in a not-so-abundant liquidity environment.
Early institutions gained huge paper profits (many may not have actually exited, just the numbers look good), while project parties dumped tokens for actual profits, leaving the market and retail investors with a mess.
The logic behind this evolution is: the heat of the last cycle from 2020-2021 led the market to have high expectations for the large-scale application of crypto. The market also saw the emergence of primary funds ranging from hundreds of millions to tens of billions of dollars, and a large influx of high-level technology and finance talents, with sufficient imagination bringing long-term high-value expectations for Web3. Thus, VCs and project parties jointly pushed up the valuation system in the primary market (large-scale VCs need high-valued projects, otherwise they can't invest all their money, and project parties are happy to see it). We saw many primary projects with valuations of hundreds of millions and tens of billions, with several typical examples in L2.
This unreasonable capital structure ignores the huge gap and time cycle from crypto's technology to application landing, as well as the potential for tenfold efficiency improvement (without such improvement, it is hard to achieve large-scale migration and influx of users), and naturally also ignores the community, the most inherent fundamental of crypto assets.
Then, in a high-interest-rate and not-so-abundant liquidity market environment, project parties find it difficult to create value, and as time goes by, the imagination of narratives naturally declines (many forget that good narratives also need to be realized step by step). Thus, the unreasonable capital structure of high valuations and low circulation only leads to token dumping, and retail investors and the market went from having high hopes and expectations for these projects to being filled with disappointment, eventually leading to an embarrassing situation where no one is willing to take over.
Of course, this situation is not unique to Ethereum; many public chains and project parties in various fields face similar issues. It’s just that Ethereum, with the most complete technical infrastructure and seemingly the richest ecosystem, faces the most typical predicament.
Moreover, it should be clear that the previously imagined imitation season, where everything rises, may in fact be limited to the leaders of those main narrative logic sectors, while most small coins may just be fleeting, coming fast and leaving quickly.
Returning to the present and the next year or two, the Federal Reserve is expected to cut interest rates several times, but interest rates around three percent may also become the norm in the future (this was also mentioned by Powell last week regarding the situation of the neutral interest rate rising). Moreover, if the economy only weakens without a major recession or large-scale liquidity shock, whether the Fed will return to QE is still uncertain (it does not mean that shrinking the balance sheet and starting to cut rates will immediately lead to expanding the balance sheet). If shocks occur, the scale of another QE may also have limits. Thus, the probability of the zero interest rate + unlimited QE scenario from 2020-2021 happening again is very low; it is more likely to be around 3.5% interest rates + limited QE (whether this will occur also depends on specific circumstances).
Differentiated and structured markets may still emerge, and the market breadth may partially expand from extreme concentration to a few items with certainty and growth potential.
Widespread betting may not be a good choice; lowering expectations and concentrating positions on a few highly consensus and liquid items may be the most prudent choice.
In fact, looking back at 2021, not all projects surged; DeFi heated up DeFi, meme tokens heated up meme tokens, and then the peak of crazy hot money, where even old projects were pulled up for a wave.
Then the focus shifted to GameFi heating up GameFi, the Metaverse heating up the Metaverse, public chains constantly being speculated upon, while meme tokens continued to heat up. Overall, more than half of the projects performed well, while the other half, well, some just had bad luck and got dumped.
This situation reminds us that from 2023 to 2024, although liquidity is not loosening, it is highly likely that the concentration of funds will transmit heat. In terms of sectors, DeFi still has great opportunities. The important point to convey is that there are still opportunities for imitation, but time is needed for differentiation.
If reality slaps you in the face, do not complain everywhere, for complaints will not bring you any benefits, and will only let others see your anxiety, which is meaningless.
If you want to seize this bull market, learning on the fly will definitely be too late; it’s best if someone can guide you for a quick entry.
I am mainly a blogger focused on freshness.
Teaching a person to fish is better than giving them fish.
