Is crypto over? 618 in the cryptocurrency market? What are the main issues in this round of market?

Author: Uncle Jian Source: X, @jianshubiji

"Is encryption over? Have you made money in this bull market?"

Before talking about this round of market, let's review the rules of the last bull market and the A-share bull market

1. Market speculation logic

The generally recognized speculation logic of A-shares in the bull market is that securities companies first pull the market and perform, followed by high-quality blue chips such as insurance and real estate, steel, coal and nonferrous metals follow suit, and finally the crazy bull of theme stocks, flooding the market and frantically looking for low-value depressions, themes are acting, and small tickets are flying around. At the end of the bull market, you need to find connections to open an account, students no longer want to go to class, migrant workers don't want to go to work, and security guards and aunties start to share their stock trading experience. Listed companies are frantically increasing their holdings and reducing their holdings, and investors are mindlessly taking over, and after the carnival, there is only a mess left...

Looking back at the crypto bull market in 2021, it also has a similar flavor. First, the narrative of Defi Summer begins, and the doubling of TVL drives Uni and Aave to rise wildly. Then Btc and Eth usher in a unilateral rise. During this period, almost all themes and narratives have started a round of increases, ranging from several times to ten times or even hundreds of times. In the middle and late stages of the bull market, the crypto market ushered in the rise of the Meme sector, among which Doge and Shib are the most representative. After the rise of Meme ended, new narratives represented by chain games and the metaverse, such as Axs and Sand, became popular, and the market was hyped wildly. After the hype ended, the market was adjusted by various factors and never returned.

Comparing the commonalities of bull markets in different fields, we can find that its core logic is to prioritize the hype of high-certainty and high-value assets, followed by the hype of sectors and tracks with narratives and hot spots, and finally the junk coins, air coins and meme coins. However, with the rapid development and iteration of blockchain, three years have passed, and we have more narratives and tracks, such as Ethereum Layer 2, re-staking, inscription runes, AI, etc. These narratives will eventually replace the old narratives of the previous bull market, so from the perspective of subject matter, it is impossible to summarize the rules and what stage the current market has developed to and what cycle it is in. Here we can summarize the rules through market value.

Core assets (i.e. BTC and ETH) - High market value — Medium market value — Low market value — Meme — NFT / Others

II. Changes and differences in this round of bull market

So, in this round of bull market, have you made money?

Do you feel that the capital efficiency is insufficient, and the track sector you are optimistic about will be greatly adjusted if you are not careful?

The value coin cannot outperform the MEME coin? The income is not as fast as that of the local dog?

GameFi data continues to hit new highs and financing continues, but there is no hot product?

The most direct feeling of this bull market is that the liquidity of funds is insufficient, the money-making effect is poor, and there is no state of flourishing. The passage of ETFs has injected super liquidity into BTC, but this liquidity cannot spread to different tracks and sectors. Although there is an expectation of the Fed's interest rate cut, it still cannot guarantee that the interest rate cut that the market has waited for with great difficulty will significantly improve the current situation of the crypto market. We need to know that the funds flowing out of the interest rate cut may not be injected into the crypto market at the first time. It may also fill the liquidity of the stock market and the real estate market first, and then flow into the crypto market after the liquidity of these markets overflows.

Therefore, in the case of insufficient liquidity, superimposed on the passage of ETFs, there will be an extreme situation that the core assets rise, the market value of other assets remains unchanged or even falls, and MEME rises due to the sentiment of short-term hot money.  However, this rise in the Meme sector is not a long-term sustainable rise. Sometimes it can only last for a few days or even hours, which is also a manifestation of insufficient funds.

• Insufficient funds:

Why is there such a shortage of funds? The fundamental reason is that the flow and transmission of funds have undergone structural changes. The funds injected by ETFs can only be transmitted to BTC and ETH, and cannot overflow like a reservoir.

We can understand that the current crypto market is a reservoir, and different sectors and tracks are all reservoirs. Only when the reservoir of the upper layer is filled with water will it overflow to the next layer. According to the time nodes of the last round of bull market, we can simply analyze the different states of capital flow in a round of market. Only when the market funds can no longer choose or are saturated in the current field, the market will look for lower value and more opportunities in the next layer, and the downward movement of funds is mostly forced or when the market funds are saturated. Because every downward layer means that the money-making effect of the current level is weakened, and the risks brought about will gradually increase.

• Secondary market leads to collapse of primary market:

Let's take the recent zk as an example. How many people's three years of hard work have been reversed. This is also a manifestation of insufficient funds, that is, the current primary market for airdrops cannot accommodate so many people. In the final analysis, in the current situation where liquidity and funds in the secondary market are not sufficient, many people come from the secondary market to the primary market to seek opportunities, but many people have not thought about it. Without the secondary market, what is the meaning of the primary market? It is really difficult for retail investors to make money in the primary market at present. Shorting is not as good as professional studios, and it is also easy to be witched. It can be said that it is difficult for ordinary people to survive in the current primary market, which is already a technology battlefield.

Secondly, the continuous listing of tokens with sky-high market value has further squeezed liquidity. From the previous BB and Not, to the recent io and zk, including the future Blast, their high valuations squeezed the upside at the very beginning. After the new coins are listed, funds will more or less choose to flow into these coins, further squeezing the liquidity of the altcoins. In fact, judging from the performance of the first day of the recent listing of new coins, it can be seen that the market is too short of money. The opening price is lower than expected, and even Not can make a profit of 50% on the same day. It can be seen that the market generally doubts the value of the current new coins.

• High FDV leads to no takeover:

According to Binance Research's report "Observation and Thinking on the Current Situation of High Valuation and Low Circulation Tokens" in May 2024, we can find that its current MC/FDV is the lowest in the past three years, and the FDV of tokens issued in the first five months of this year is close to the total for the whole year of 2023. Binance said that if the token wants to maintain the current price in the future, it will need $80 billion in liquidity.

Without changing demand, low circulation can easily increase the price of the coin in the short term, thereby pushing up FDV. Take zk, which was launched yesterday, for example. Its market value is close to 1 billion US dollars, but this is still a large amount of unlocked tokens. Is its valuation a bit too "high"?

So who does high FDV benefit?

From the perspective of the project, high FDV may drive up the market value and increase potential profit opportunities in the future

From the perspective of VC, the potential high valuation driven by high FDV represents VC performance and indicators

From the perspective of the exchange, high FDV does not affect the exchange itself

From the perspective of retail investors, high FDV generally means that the project will continue to operate for a long time and the possibility of running away is low. However, this further leads to retail investors not being willing to take over tokens with high FDV, and instead turning to Meme tokens that are more interesting to fully circulate, such as Not, which is a good example.

Therefore, we are trapped in a bull market where no one takes over, that is, retail investors do not take over VC coins, the reason is the huge amount of unlocking caused by high FDV. Institutions do not take over Meme coins, and their low value and violent fluctuations lead institutions to believe that there is no investment value. As a result, everyone plays their own games, and the market cannot form a unified consensus.

Three, Summary

The fundamentals of the current market have changed compared with previous years, and the investment logic used before also needs to be adjusted and changed. We believe that insufficient funds and high valuations and low circulation are the core reasons for the poor money-making effect of this round of bull market, which leads to poor performance of the secondary market transmitted to the primary market. Coupled with the witch situation and studio clusters in the primary market, the money-making effect is further reduced.

We cannot give an accurate answer to judge where the current crypto market is going, nor do we know whether BTC will really break through 100,000. However, the market problems we have rationally analyzed are the most urgent problems to be solved at the moment. Perhaps only after the market gradually solves and changes these problems, the real crypto bull market will come.