This week, the crypto market is showing a downward trend influenced by the Christmas holiday. Although the market sentiment index has slightly risen from 7% to 10%, it is still in the extreme fear zone. Notably, despite the overall market weakness, USDC, which is primarily focused on the US market, has achieved a 1.91% growth, indicating that institutional funds are still continuously entering the market, injecting some confidence.

The market is expected to continue its sluggish trend during the New Year's holiday. It is recommended that everyone maintain a defensive allocation, increasing the proportion of top asset allocation while moderately participating in high-yield gun pool projects. In the long term, the market generally expects a potential upward trend in the first quarter of 2025, making AI Agents and DeFi gun pool projects worthy of close attention.

Altcoins performed weaker than the benchmark index this week, showing a significant downward trend. Due to the Christmas holiday, liquidity has sharply decreased, increasing price volatility, which easily leads to sudden surges and drops. This has resulted in a lack of enthusiasm in market sentiment. Given the current market structure, it is expected that Altcoins will remain in sync with the benchmark index in the short term, with a low probability of an independent market.

When altcoins are in an extreme fear zone, the market often reaches a phase bottom and is poised for an upward reversal at any moment.

Where is the next market breakout point?

AI Agent

This week, the overall market is in a downward trend, with all tracks showing a decline. Although most tokens in the AI Agent track also experienced price declines this week, it remains the most discussed topic in the market. This week, the most talked-about issue is the development of the Aipool model of AI Agent + TEE in the future of Crypto and its impact on DeFi.

One of the boosters for periodic surges in the Crypto market is the emergence of new asset issuance methods. For example, past methods like ICO (Initial Coin Offering), IEO (Initial Exchange Offering), INO (Initial NFT Offering), IDO (Initial Decentralized Exchange Offering), and inscription have rapidly propelled market development and raised Crypto market prices. With the rapid integration of AI and Crypto, Aipool has become a relatively popular asset issuance method, continuing the trend of 'money printing FI' in early 2024. If the Aipool asset issuance method is widely accepted by the market, we can expect a wave of asset issuance driven by the Aipool model in the near future, so we should pay close attention to Aipool-type projects.

DEFI Track

The core driving factors of this round of increase can be summarized in the following transmission path: Due to the recent downward trend in the market, the APY of various DeFi protocols has decreased, while stablecoin income projects have raised yields through token/point rewards, giving the gun pool projects a significant advantage in APY from a market perspective. Specifically:

Market Environment: Although in a bull market cycle, the market is currently in a downward trend, leading to a significant decrease in the base interest rate.

Interest Rate Side: The base lending interest rate is rising, reflecting the market's pricing expectations for funds.

On the income side: the yield of stablecoin income projects has expanded compared to other projects, attracting more user participation.

This transmission mechanism reinforces the value support of stablecoin income projects, creating a positive growth momentum.

Although the market is in a downward trend this week, USDC, which is primarily focused on the US market, has still seen growth, indicating that the market's buying force continues to maintain a steady influx of funds.

The risk-free arbitrage rate in the traditional market continues to decline with the ongoing interest rate cuts, while the arbitrage rate of on-chain DeFi projects is increasing due to the rising value of cryptocurrency assets. Returning to DeFi will be a very good choice.

Funding Situation: The TVL of DeFi projects has risen from $52.9 billion last week to $52.7 billion now. Although it has shown negative growth for two consecutive weeks, the extent of the negative growth is small, at 0.37%. The main reason is that the Western market, led by the US, is in the Christmas holiday, leading to declines in both trading volumes of various tokens and on-chain activities. Next week brings the New Year's holiday, so no significant changes are expected. Therefore, we should closely monitor the overall TVL changes in January and see if the downward trend continues.

Potential Risks:

Due to the recent upward trend in the market, investors are paying more attention to yields and borrowing leverage, while neglecting the risk of decline. Furthermore, this week, due to the Christmas holiday, liquidity in the market has sharply decreased, leading to selling pressure without enough liquidity to absorb it, resulting in continuous price declines and triggering liquidations of long contracts in the market, causing losses for investors. The risk of cascading liquidations caused by these liquidations has significantly increased, further driving prices down and liquidating more assets.

Recently, it is recommended that everyone maintain a defensive allocation, increasing exposure to top assets like BTC and ETH to enhance asset risk-hedging properties. While hedging risks, one can also participate in some high-yield 'gun pool' DeFi projects.