introduction
Before discussing this round of crypto market trends, let us review the rules of the previous bull market and the A-share bull market in order to better understand the logic and trends of market changes.
1. Market speculation logic
The speculation logic of the A-share bull market is usually that brokerages first pull the market, followed by high-quality blue-chip stocks such as insurance, real estate, steel, coal and other industries, and finally the crazy speculation of theme stocks. At the end of the bull market, you need to find connections to open an account, students no longer go to class, migrant workers don’t want to go to work, and security guards and aunties start to share their stock trading experiences. Companies are frantically increasing their issuance and reducing their holdings, and stockholders are mindless. After the carnival, only a mess is left.
Looking back at the crypto bull market in 2021, similar characteristics were also shown. Defi Summer kicked off, and the doubling of TVL drove Uni and Aave to rise wildly, followed by a unilateral rise in BTC and ETH. In the middle and late stages of the bull market, Meme sectors such as Doge and Shib saw a big rise, and blockchain games and metaverse sectors such as Axie Infinity (AXS) and The Sandbox (SAND) became popular, and the market was hyped wildly. Subsequently, the market adjusted due to various factors and went downhill.
Bull markets in different fields have one thing in common: high-certainty, high-value assets are hyped first, followed by hot sectors and tracks, and finally junk coins, air coins, and meme coins. However, the rapid development and iteration of blockchain has led to the continuous emergence of new narratives and tracks, such as Ethereum Layer 2, re-staking, inscription runes, AI, etc., making it difficult to summarize the rules from the perspective of subject matter.
The stage of development of a market can be summarized by market capitalization:
- Core assets (BTC and ETH)
- High market value
- Medium Market Cap
- Low market capitalization
- Meme
- NFT / Others
2. Changes and differences in this round of bull market
In this bull market, many investors feel that the liquidity of funds is insufficient and they cannot make money. The track sectors they are optimistic about have a big correction if they are not careful. The performance of value coins is not as good as that of Meme coins, and the income is not as fast as that of speculating on local dogs (low-value coins). GameFi data continues to set new highs, but there are no hot products.
The 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 letting a hundred flowers bloom. The passage of ETFs has injected super liquidity into BTC, but this liquidity has not spread to different tracks and sectors. Despite the expectation of the Fed's interest rate cut, the market situation has not improved significantly. The funds flowing out of the interest rate cut may not be injected into the crypto market at the first time, but will first fill the liquidity of the stock market and the real estate market.
In the case of insufficient liquidity, the approval of ETFs will lead to an increase in core assets, while other market values will remain unchanged or even fall, and Memecoin will rise due to the sentiment of short-term hot money. This rise is not sustainable in the long term, and sometimes can only last for a few days or even hours, reflecting the phenomenon of insufficient funds.
Reasons for insufficient funds
The flow and conduction of funds have undergone structural changes. The funds injected by ETFs can only be conducted to BTC and ETH, and cannot overflow to other sectors and tracks. The crypto market is like a reservoir. Only when the reservoir on the upper layer is filled with water will it overflow to the next layer. The flow of market funds follows this rule: only when the funds in the current field are saturated will the market seek opportunities at the next layer with lower value, and downward flow is often a last resort.
The secondary market leads to the collapse of the primary market
Take the recent ZK as an example, many people's three years of hard work have been reversed. This reflects that the primary airdrop market cannot accommodate so many people. The lack of liquidity and funds in the secondary market has led many people to turn to the primary market to find opportunities, but without the secondary market to take over, what is the meaning of the primary market? At present, it is difficult for ordinary people to survive in the primary market.
In addition, the continuous listing of tokens with sky-high market values has further squeezed liquidity. High FDV (fully diluted valuation) has led to retail investors being unwilling to take high FDV tokens, and instead choosing fully circulated Meme tokens, such as Not. This has led to the market falling into a situation where retail investors do not take VC coins, and institutions do not take Meme coins, and the market cannot form a unified consensus.
High FDV causes failure to connect
According to the Binance Research report in May 2024, the current situation of high valuation and low circulation of tokens has led to the lowest MC/FDV in the past three years. The FDV of tokens issued in the first five months of 2024 is close to the total for the whole year of 2023. It takes $80 billion in liquidity to maintain the current price. With the demand unchanged, low circulation can increase the price of the currency in the short term and push up the FDV, but this high valuation does not attract retail investors to take over.
High FDV is good for project owners, VCs, and exchanges, but bad for retail investors. Retail investors believe that high FDV means that the project will run for a long time and is less likely to run away, but high FDV makes retail investors unwilling to take over.
Conclusion
The current market fundamentals have changed compared to previous years, and the previous investment logic needs to be adjusted and changed. Insufficient funds and high valuations and low circulation are the core reasons for the poor money-making effect in this round of bull market, which leads to poor performance in the secondary market and the primary market. The witch situation and studio clusters further reduce the money-making effect of ordinary investors.
We cannot accurately judge where the current crypto market is headed, nor do we know whether BTC will break through 100,000. However, rational analysis of market problems is the most urgent issue to be resolved. Perhaps only after these issues are resolved and changed, a real crypto bull market will begin.
