Four tracks I am optimistic about amid the dramatic changes in market structure

Author: Meng Yan Source: X, @myanTokenGeek

The current state of the Web3 industry and the crypto market, in a nutshell, is that the coin price is okay, but the industry is in a deep bear market. This situation has never appeared in this industry before. In the past, the volume and price always rose or fell together. Now this situation of serious deviation between volume and price is the first time in more than ten years in the crypto market.

Although the situation looks strange, the reason is not complicated. It is still insufficient liquidity. Many people are asking, why the coin price and total market value seem okay, but the industry is so depressed? In fact, this question is asked in reverse. Don't forget that the current US federal funds rate is still at a historical high, and macro liquidity is in a tightening cycle. In this cycle, the stock market and the coin market should be in a bear market. So what is really strange is why the coin price is still okay when the industry is in a deep bear market?

1. Structural changes

There must be something wrong when things are abnormal. Under the appearance of the divergence between the coin price and the industry, there is a huge change in the underlying market structure. Few people realize that the crypto market has undergone a fundamental and structural change at the beginning of this year. The passage of the Bitcoin ETF marks the emergence of a digital currency market with almost completely independent liquidity outside the originally free-flowing crypto market: the US stock market. This is actually a watershed event in the history of crypto development. The current divergence between the coin price and the industry is a new phenomenon that has emerged under this new market structure.

Because two markets have emerged, two seemingly contradictory scenes have emerged. The "okay" coin price was created in the US stock market. And the "not okay" industry occurred in the crypto market.

The rise of Bitcoin since the second half of last year has been mainly driven by ETFs. The funds that entered the ETF basically remained in the hands of Wall Street and did not enter the free crypto market, let alone nourish innovative crypto projects. On the contrary, the crypto market is still in a shortage of funds caused by high interest rates and AI oppression. The lack of external liquidity injection will inevitably lead to industry involution. The various embarrassing scenes that have appeared in the crypto industry now are all manifestations of the shortage of funds.

The real bull market will only come when liquidity becomes loose. Conversely, when liquidity is loose, funds will be re-injected into the crypto market in large quantities, and the bull market will also come.

More and more signals indicate that the Fed's interest rate cut cycle is only a few months away. The federal interest rate is currently at a historical high. Optimistic estimates suggest that this interest rate cut cycle may last for a long time, providing a long period of constant era for the development of the industry. Pessimistic estimates are that after a period of interest rate cuts, inflation will soar, and the Fed will be forced to raise interest rates again, confirming the era of chaos. I personally hold a cautiously optimistic attitude towards the future, but even in the era of chaos, 2025 will most likely be a good year.

In the long run, there will be a big battle between the two markets, but it will only be a showdown, and the two will coexist for a long time.

2. Four tracks with great opportunities

Now many people are guessing what themes will emerge in the next round of bull market. I also give some of my own opinions and reasons here, which do not constitute investment advice and are not responsible for the results.

BTCFi

Why is BTCFi one of the most anticipated tracks in the next round?

First of all, BTC is the only consensus asset that can span the two markets of US stocks and crypto in the next cycle. ETH is not good enough for the time being, and the others have to rank behind. Only BTC has the potential to connect the consensus and liquidity of the two markets.

Secondly, BTC is very large. As long as BTCFi mobilizes 5% of BTC assets in the next cycle and adds some derivatives, the scale may reach hundreds of billions.

Third, the infrastructure problems that have long hindered the development of BTCFi have been basically solved. Whether it is the lightning network, side chain, BTC L2, or bridging BTC to the EVM chain through a cross-chain bridge, whether it is a multi-signature wallet or a BTC Script smart contract, the current technical level is no longer the same as in the previous round. Now in BTCFi, basically there is nothing that can't be done except what you can't think of.

Fourth, the mentality of the BTC community has changed. BTC hodlers and ETH fans are two completely different groups, with very different growth paths, concepts and mentality. In the past, BTCFi could not develop, largely because BTC hodlers had no interest in it. However, with the outbreak of the Inscription Ecosystem last year, two changes occurred in the BTC community. First, a group of active members who had been baptized by DeFi joined the BTC community. Second, a small number of BTC hodlers who were originally very conservative began to change their mindsets and were willing to actively participate in the construction of BTCFi.

In addition to the above four reasons that are easier to understand, I have another deep reason to be optimistic about BTCFi. People who have been in this industry for many years still remember that before 2018, BTC had sufficient liquidity and activity. However, with the tragic collapse of the ICO bubble in 2017-18, especially the rise of stablecoins, BTC basically retreated to the digital gold position, and its activity dropped greatly, so that many people think that BTCFi may be a false proposition. But those who are familiar with the history of world currency and finance know that this is actually a problem that humans have faced and solved perfectly in history.

During the centuries-long gold standard period, gold, as the standard currency, also faced similar contradictions. The core issue is that, on the one hand, gold is credible because it maintains value and resists inflation, which is the consensus basis for it to become the standard currency. But it is also because of this consensus that the public tends to store gold in reserves. And money is to be circulated, and stagnant money is not a good currency. In other words, there is a contradiction between the characteristics of gold as a value reserve of currency and its characteristics as a transaction intermediary. What to do?

In September 1717, Newton, as the director of the Royal Mint of the United Kingdom, proposed to link gold to the British pound. This is actually another great contribution of Newton in addition to mathematics and physics that has gone down in history. Those economically illiterate people fail to recognize it and slander Newton for doing nothing in the second half of his life, which is really ridiculous. Newton actually created a flexible reserve for gold. On the one hand, it satisfied people's desire to properly preserve naked gold, and on the other hand, it used the active British pound as a voucher, and gradually formed a two-tier currency creation system, which not only met security, but also liquidity, driving the high-speed operation of the economy and trade. In this golden age of human economic history, gold rarely appeared directly in economic activities in naked form, but economic activities are inseparable from gold.

I think BTCFi is currently at such a historical turning point. If this round of BTCFi can achieve good development, it will be able to become the mainstay of the entire crypto economy. On the premise of solving its own safe storage, it will actively and actively participate in the crypto economy in the form of "vouchers", and vigorously and continuously promote the growth of the crypto economy. This is the fundamental reason why I am optimistic about BTCFi.

Meme

People who know me know that I am not a fan of memecoin. This is determined by my personal values. But even so, I still want to list meme as one of the four tracks I am most optimistic about.

This is not because meme is almost the only track that is still creating stories in the bear market, but because the underlying logic of meme shows an increasingly strong advantage in the moral dilemma of the crypto world.

Meme coins have two advantages. The first advantage is easy to think of, that is, the low cost of entry. The second advantage is relatively profound, that is, meme coins put fairness and transparency before value commitment.

What is the biggest difference between meme and so-called value coins? It is that value coins promise value first, while meme coins promise fairness and transparency first. I am not saying that meme coins are really fair. In fact, there are many tricks behind them, but in comparison, the information asymmetry of meme coins is generally better than that of value coins.

Which one is more difficult, value or fairness? Wang Yangming said, "It is easy to get rid of the thief in the mountain, but it is difficult to get rid of the thief in the heart." It is relatively easy to give value to an asset, but it is much more difficult to distribute value fairly. Value coins are easy first and difficult later. Since the regulatory mechanism of this industry has not been established, for every value coin team, once the value emerges, the team will face the temptation of opportunism. This is the real test and challenge. Only a few can pass this level. Once a value coin team betrays its promise, the coin will become neither fair nor valuable. On the contrary, a meme coin can have no value and be completely manifested as a gambling game, but some rules are used at the beginning to make information symmetry relatively in place. On this basis, it is even possible to give value to meme coins through secondary development. This is to make it difficult first and easy later, which is much easier than reshaping fairness for a garbage value coin.

Please don't get me wrong, I firmly advocate that crypto should move towards value creation, and I work hard to make a good value coin. But I must also admit that favoring meme coins is a rational choice for many people.

Therefore, I think that in the next cycle, although the probability of an individual betting on a meme coin is still very low, the meme coin sector as a whole will continue to be popular. Moreover, I think that there will be some value creation in the meme sector, that is, some third-party teams will develop applications around existing meme coins to inject value into meme coins.

Stablecoin payment

Blockchain has no applications except for currency speculation? Many people think so, but they are actually wrong. The largest application on the blockchain is payment, and the fastest growing in the payment track is stablecoin payment.

Strictly speaking, I am cheating by putting stablecoin payment in one of the four tracks. Because the outbreak of stablecoin payment is not in the future tense, not a guess, and there is no need to risk any judgment, but an established trend.

Previously, stablecoins have been widely used as the main token assets for investment and incentives in the crypto industry. The new trend that has emerged recently is the gradual penetration of stablecoins in cross-border trade. Especially in the past one or two years, a large number of small and medium-sized cross-border traders have begun to use stablecoins for B2B settlement in their supply chains on a large scale. In this field, the advantages of blockchain payment and settlement, minute-level clearing and settlement, and lifelong traceability of transaction records are fully demonstrated. As long as you are familiar with it, you can't stop, and there is no need to spend time persuading.

The only obstacle at present is supervision.

There is a common misunderstanding in the crypto circle that major countries will suppress and crack down on stablecoin payments for a long time. As the design team of the ERC-3525 digital ticket standard, we have had in-depth exchanges and cooperation with central banks and multinational financial organizations in many countries in the past two years. I can tell you that this is not the case at all. From the Bank for International Settlements to the World Bank, from the central banks of some countries in Southeast Asia and Africa to some international commercial banks with huge cross-border business, they have fully recognized the advantages of stablecoins. Most of them know that this is an unstoppable trend, so they are taking a positive attitude to learn and accept it.

This round is not about the wolf coming, nor about Ye Gonghaolong. It is based on relatively mature theoretical thinking and certain practices. The main problem they are facing now is how to implement anti-money laundering, anti-terrorist financing and other control obligations that any rule of law country and responsible financial institution should fulfill while generally accepting stablecoin payments as a legal means of payment. A large part of the major research in this field that we are currently exposed to revolves around this issue. Once a breakthrough is made in this issue, stablecoin payments will be like a flood that will sweep the entire financial industry.

Stablecoin payments must be the first successful sector among RWA. Many people think that RWA will be popular in the next wave. I think it is not hot enough in general. Only when stablecoin payment, as the pioneer sector of RWA, has achieved great development, other RWA assets can gradually gain momentum. This will take at least another cycle. However, the overall upward trend of the RWA track is not a problem, and patient capital should gradually begin to lay out RWA.

Web3 social

The leader of the Web3 social track will appear in the next wave. This is my boldest prediction. This topic has been hyped for a long time, and every attempt has failed. Why do I think the breakthrough point is in the near future? Mainly because new ideas and solutions have emerged, and the representative cases are Solana Blink and TON.

First of all, we must understand that the so-called Web3 is the value Internet, and the so-called Web3 social network is actually a social network that can perform value operations. In other words, compared with Web2 social, Web3 social is mainly an increment, not a complete overhaul. From a functional point of view, Web2 social networks have done a good job in content, and there is no need for Web3 social networks to start from scratch. If you build a new social platform, 99% of the resources will be used to repeat what Web2 social networks have already done to perfection, and you have to convince users to give up the social assets accumulated over the years and transfer all the social relationships and data assets to the new platform. This is not only very difficult, but also very stupid. Why not add a value layer to the existing Web2 social network, allowing everyone to make payments, transactions and other value operations in the existing social network?

This idea is so simple and natural, but entrepreneurs in the entire Web3 social track could not think of it for several years. Fortunately, with the emergence of TON and Solana Blink, this window paper has finally been broken. What do TON and Solana Blink have in common? It is to add a value layer to the social network in the prime location of the Web2 CBD that has been built, instead of going to the wilderness to rebuild the building and expecting everyone to move collectively for such ideology and value propositions. In other words, let Web3 run and find traffic, rather than let traffic run and find Web3. Many people only see the trees but not the forest, only look at the current situation but not the trend, and are obsessed with analyzing data all day long. Sometimes they accuse TON of having traffic but no value, and sometimes they laugh at Blink for making a lot of noise but not doing anything. These accusations are all right when viewed individually, but they are ignorant of the general trend and fail to see the great significance of the paradigm shift in the construction of Web3 social networks. I am not saying that TON and Blink will definitely succeed, let alone that they will be the final winners. Just like WeChat had MiChat before it, and TikTok had Musical.ly before it. They don’t have to succeed, but they have opened up the right direction and will attract more outstanding innovators later, which is the most important thing.

Social networking must be the king of all applications. This was true in the Web2 era, and it will be true in the Web3 era. There is no logical problem with Web3 social networking. The reason why it failed before was that the way of thinking was wrong. Now that this window paper has been broken, Web3 social payment and social transaction products will surely develop rapidly, which will largely determine the basic structure of the Web3 industry in the next ten years. I have strong confidence in this.