Source: Talking About Li, Talking Outside
Today, the market continues to be lively, and most people seem to be in an optimistic stage. Many have begun to believe that the bull market has arrived. In the morning, Bitcoin continued to break historical records, reaching around $89,000.
Many analysts attribute Bitcoin's rapid rise today to MicroStrategy's influence. Reports indicate that on the evening of November 11, MicroStrategy announced it had purchased 27,200 bitcoins between October 31 and November 10, spending approximately $2.03 billion, with an average purchase price of about $74,463 per coin. The funds for this purchase came from the company's ATM stock sale activities. As of now, MicroStrategy's total holdings have reached 279,420 bitcoins, with a total purchase cost of about $11.9 billion, and an average buying price of about $42,692 per coin. Based on the current Bitcoin price of $89,000, MicroStrategy's bitcoin holdings have an unrealized gain of about $12.9 billion.
Of course, more people are also paying attention to the market's upcoming trends. If we simply refer to the weekly chart, Bitcoin overall is still bullish, but we must also pay attention to short-term volatility risks and try to keep ourselves away from leveraged contracts.
Regarding the topic of Bitcoin's market trends, we have already discussed some perspectives in previous articles of Talking About Li, Talking Outside. In this issue, we will continue to briefly talk about the issue of altcoins.
As mentioned in our previous article, with the changes to BTC.D (BTC Dominance) in the future, perhaps, combined with the Fed's further interest rate cut expectations, and under favorable macro conditions, when a large amount of new liquidity flows into the market, altcoins may also see a new round of growth and continue for some time.
However, it should also be noted that due to the birth of too many altcoins in this cycle, there is clearly an oversupply. Even if we will welcome a new round of altcoin season later, not all altcoins will have the opportunity to grow, or it may only be a small number of altcoins that will have a significant growth opportunity.
Here, we may need to further understand the concept of altcoins:
Many people refer to all cryptocurrencies other than BTC (currently there are about millions of cryptocurrencies on-chain) as altcoins and consider ETH as the king of altcoins.
But altcoins can still be subdivided, for example, altcoins can be divided into these two main types: cryptocurrencies (Alt Cryptocurrencies) and crypto tokens (Alt Tokens).
Although this classification seems to be the same, the underlying logic is different. Alt Cryptocurrencies mainly refer to tokens that can provide development power support for blockchain networks, while Alt Tokens mainly provide power for the development of protocols or dApps, and such tokens are usually issued on different blockchain networks.
Alt Cryptocurrencies:
For example, well-known ETH and SOL belong to Alt Cryptocurrencies. Such tokens can operate based on their own protocols on their own blockchain (Ethereum), and the tokens can serve as a source of Gas (or payment). Their growth demand is often reflected in actual trading, active users, and income, and having strong token economics may further stimulate their demand and continuously impact their price. This type of token is easy to understand, so we will not elaborate too much here.
Alt Tokens:
For example, well-known UNI and LINK belong to Alt Tokens. Such tokens are a type of crypto asset issued on specific projects, and they do not necessarily run on their own blockchain. The utility of tokens corresponding to different protocols may also vary; some may be used for payment purposes, but the more common use is for DAO governance. To put it bluntly, most of these types of tokens are primarily created to provide liquidity opportunities for early investors in the project.
Alt Tokens will be explained here. This type of token is often not friendly to most retail investors. Just look at those who are trapped around you to understand. Unless situations such as the following occur:
The first situation is when a DAO has a large amount of funds, the protocol can generate strong revenue, and the project party is willing to share this income with token holders in the form of actual returns through staking (driven by system incentives), only then will the corresponding governance token possibly have attractiveness (or certain development potential), and this attractiveness will ultimately be reflected in the token's price.
The second situation is when the market is in an upward trend, such as during a bull market, where speculation and FOMO atmosphere are strong, some tokens may be manipulated and driven up in price by speculators.
Of course, many concepts in the crypto space seem to lack unified definitions or classifications. Different people may have different understandings of altcoins, and everyone can reflect further based on their understanding. The classification methods mentioned above are merely for inspiration.
After understanding the basic concepts of altcoins, if you want to participate further in trading, we should try to avoid investing heavily in the following three types of altcoins:
First, outdated projects
Many old projects lack sustained innovation, and their valuations are still somewhat high. Such projects find it hard to have greater upward potential. From a longer-term perspective, tokens corresponding to these types of projects currently seem to have no future and appear to have been abandoned by a rapidly changing market. Therefore, one should avoid those outdated projects that lack innovation, incentive systems, or marketing capabilities.
Second, high unlock projects
The supply of tokens for such projects is basically controlled by relevant interest groups from the project party, and the token price is also easily manipulated. If you do not have sufficient confidence or inside information, mindlessly participating can easily turn you into a bag holder, and once the market situation reverses, such tokens often drop the fastest and hardest.
The third is outdated narratives
Before this bull market started, many people still held fantasies about narratives like NFT, P2E, and the Metaverse, but with the popularity of new hot narratives such as BRC20, RWA, AI, and MemeCoin, those narratives that once flourished are now rarely subject to large-scale speculation in the market. Moreover, many projects under the past hot narratives also have low circulation and high FDV, which may be accompanied by continuous selling pressure. Many partners who entered the last bull market have been trapped for years and are now finally waiting for a new bull market, however, many are even unable to break even.
Based on the understanding of the above, following the principle of 'don’t touch what you don’t understand', the next step is to enter specific project selection and research work:
Project research can be divided into many aspects. Interested friends can directly access the 'Talking About Li, Talking Outside Toolbox' to obtain (project research template) for classification and understanding. Here, we will briefly mention a few key points that may need attention, including the project's narrative ability, MC/FDV ratio, unlocking situation, and community building, in order to understand and assess the project's upward potential.
Here is a simple example (not as any investment advice, merely providing a specific analytical thought process and method):
For example, if you believe that with Trump's official inauguration in January next year, there might be some new changes in regulation regarding the crypto space, and that the DeFi narrative may attract some capital and speculation, you want to find some good targets under the DeFi narrative. Then you see AAVE, but you are unsure whether to buy this token, what should you do?
First, through our previous sorting, you should now clearly know that AAVE belongs to the Alt Tokens type of altcoin project. The use of AAVE tokens is relatively limited, mainly focused on two aspects: first, as a governance utility token, meaning AAVE holders can vote on proposals or initiate new proposals, which can affect the protocol's risk parameters, incentive mechanisms, product improvements, and upgrades; second, as a staking utility token, meaning AAVE holders can choose to allocate tokens to the protocol's security module, and AAVE stakers will receive corresponding incentives (according to the official website, they are currently promoting a new revenue distribution proposal).
Therefore, currently, one of the core driving indicators for the token price is Fees (protocol fees), as stakers will be able to receive more AAVE tokens as well as a certain proportion of the protocol fees, which will stimulate the demand for AAVE tokens and create more attractiveness.
Supplementary Knowledge: What are Fees?
Fees translates directly to 'costs', which may confuse many newcomers. We can simply understand it as the fees paid by users (conversely understood as the protocol's income), mainly used to assess whether users are willing to pay to use the protocol, or whether the protocol has product-market fit. If that is still unclear, I will simplify it further: Fees can be directly considered as the total income generated by the project. Another concept often associated with Fees is Revenue, which can be understood as the portion of fees retained by the protocol. To put it simply, you can think of it as the income that the protocol retains after providing related services, representing the project's actual revenue capability. If we were to illustrate it with a simple formula: Fees = Revenue + Other Income Items (different projects may have different income design models).
Next, let's further look for AAVE's historical data:
Aave currently holds 67% of the market share in the DeFi lending field, making it the leader in this sub-sector.
During the major bull market in 2021, AAVE's total income (Fees) was $343 million, and the ATH price of the token that year was $666. As of 2024, AAVE has achieved $320 million in income, and if we estimate based on last month's (October) income scale of $32 million, their income this year will surely break historical highs. As shown in the figure below.
From the token price perspective, AAVE's current price is $188, which is still a decline of 71.7% compared to its ATH. So, if you still believe that the core driving indicator, Fees, is effective, then theoretically, AAVE may still have about three times the opportunity.
Again, we can further combine other indicators to assist in judgment. For example:
The MC/FDV ratio of AAVE is currently 0.94. The circulating supply of AAVE is 14.9 million, accounting for the vast majority of the total supply of 16 million tokens. Additionally, about 1 million tokens remain in the protocol's treasury for staking rewards in the security module and incentives for liquidity providers. In other words, AAVE tokens are currently in a fully circulating state, and there will not be large-scale token unlocks in the future.
The MC/TVL ratio of AAVE is currently 0.16. Generally, the smaller this ratio, the more undervalued the project may be. Interested friends can create their own list to compare with similar DeFi projects.
Of course, we can also analyze this by combining the K-line trends. We can even combine some news factors to see the current news factors, such as:
Aave has proposed integrating BlackRock's tokenized fund BUIDL into its GHO stablecoin module (GSM), which could diversify Aave's sources of income and increase RWA exposure.
Aave has hinted multiple times in recent months that it will consider expanding to the Solana network.
And so on...
After these different angles of analysis, you should have a further understanding of the project.
Finally, whether to specifically participate in trading depends on your personal planning and position management situation. However, it is important to reiterate that the above is just an example, not as any investment advice, merely providing a specific analytical thought process and method, mainly to stimulate thinking and encourage everyone to draw on this for further reflection.
