The harsh reality shows that this cycle once again proves that while there may be some similarities between market cycles, they are by no means complete replicas. Institutional adoption driven by ETFs, changes in the political environment, and the dilemmas of mainstream economics have collectively changed the underlying structure of the crypto market, forcing us to rethink many previous assumptions.
1. Capital flow dynamics.
In previous cycles, capital flow had a more predictable pattern:
New capital first enters the Bitcoin market.
Then flows into Ethereum (Ether) and blue-chip tokens in search of higher returns.
Finally enters the small and micro-cap token market, attracting retail investors to pursue 'life-changing returns'.
However, the capital flow pattern of this cycle has undergone significant changes. The current crypto market can effectively be divided into two ecosystems: institutional tokens and retail tokens.
2. Institutional ecosystem.
Mainly through spot ETFs to access Bitcoin and Ethereum. As of now, capital is primarily flowing into Bitcoin, making its price nearly 40% higher than the last historical high (ATH). As the Bitcoin market becomes saturated, institutional funds may seek higher returns, with Ethereum ETFs becoming almost the only option. In this transition, a significant amount of capital will shift to Ethereum ETFs, and this capital flow could lead to a rapid price reaction in the lower liquidity Ethereum market (similar to when Ethereum spot ETFs were initially approved, which saw a 15% price increase that day).
3. The Ether rotation effect.
The price increase of Ether may further impact the blue-chip token market, as crypto-native companies holding actual Ether will begin to position themselves in anticipation of the token season (Alt-Season). Currently, it seems that the capital rotation of Ether is very close, but the exact timing still needs to be observed.
This leads to the second ecosystem: retail tokens.
4. Retail capital completely skips Bitcoin and Ethereum.
This is the first time in cryptocurrency history that retail investors no longer engage with Bitcoin and Ethereum, and gradually shift their gains to higher-risk assets. They realize that in terms of 'life-changing returns', they have already missed the best opportunities with Bitcoin and Ethereum, so they can only significantly increase their risk appetite.
In the real world, people are struggling: inflation is pressing on them, high taxes, a stagnant job market, and high living costs make it impossible for most to invest or save for retirement. They are indifferent to Bitcoin and Ethereum, instead skipping these 'rich people's coins' (Bitcoin, Ethereum, and blue-chip tokens), downloading Phantom wallets, and diving headlong into the seemingly endless world of 'meme coins', trying to find a 'lottery ticket' that can change their fate. But most will only encounter failure and ultimately exit the crypto industry completely.
(1) The capital flow of the retail ecosystem has been completely overturned:
Capital flows directly into meme coins, completely bypassing considerations of technology or utility. Returns are mainly concentrated in the hands of a few experienced 'veterans', who act like souvenir merchants at tourist attractions, waiting for new retail investors to come along and empty their wallets, tempting them to believe in the dream of overnight wealth ('Look at this person who turned $50 into $1 million, you can do it too!').
Currently, the altcoin market has not generated new wealth inflows; it is merely a 'player-to-player' (PvP) redistribution of wealth, shifting from retail investors to professional scammers. Meme coins initially emerged as fairly launched 'anti-establishment' altcoins, but have now transformed into highly manipulated scams: scammers grab most of the allocation at token issuance and then implement 'rug pulls' or even worse actions. This game is time-limited, with finite capital that can be extracted; once it is exhausted, the funds will seek new homes.
(2) Expectations and impacts.
I expect that the current 'meme coin casino' will self-consume. Leading meme coins may survive and perform well, while the rest will gradually be forgotten, disappearing along with the wealth of retail investors. Even in the best-case scenario, this is just a massive game of 'hot potato', where over 95% of participants will end up with losses.
The impact on the capital flow of major tokens (such as $SOL, $AVAX, etc.) is that they will require massive venture capital, institutional funds, and retail capital injections to trigger a new wave of altcoin rallies. This may happen after funds overflow from Bitcoin and Ethereum, when institutions and retail whales begin to seek higher-risk assets to absorb new profits. Recently, whale wallets have started to net-sell Bitcoin.
5. The 'stubborn virus' of GameFi.
During the early GameFi frenzy of this cycle, many game projects frequently launched 'vapourware', which are projects with poor game quality, excessively high FDV (Fully Diluted Valuation), useless token economics, and many other problems. This chaos has damaged the reputation of the GameFi industry.
Today, high-quality projects that have spent years building and preparing to launch face enormous challenges in overcoming this negative stereotype to gain market attention. Nonetheless, there are indeed some promising projects in the GameFi industry that have potential; once a successful game emerges, its impact could trigger a massive speculative frenzy across the entire GameFi ecosystem.
6. The current state of launch platforms.
Launchpads have almost disappeared, but survivors may welcome a strong recovery.
Venture capital funds (VCs) have attempted to extract maximum value from retail investors, leading to this model being disrupted: long lock-up periods, high FDV, predatory centralized exchange (CEX) listing strategies, and plundering market-making behavior have put launch platforms in trouble.
A new model is emerging, showing significant advantages: projects with low FDV, high unlock ratios, and no CEX listings far outperform the old model VC projects. Investing in top-tier launch platforms will become key, as these opportunities will become scarcer and the entry barriers higher.
It is certain that it only takes a few projects with 50x or 100x returns to make retail investors rush to buy launch platform tokens and compete for entry qualifications.
7. 95% of tokens are unnecessary and useless.
Frankly speaking, the main function of crypto tokens is speculation. Only 5% of tokens truly possess utility, representing partial ownership of revolutionary technologies and platforms. The rest are purely speculative games that will ultimately go to zero. However, choosing the right projects can yield enormous returns.
8. Dilution makes the market crowded and difficult to find direction.
In 2020, the number of tokens in the crypto market peaked at around 10,000. Today, the same number of tokens is being created daily. The vast majority of these projects are worthless but create a 'noise' that obscures truly valuable and innovative projects. Undoubtedly, these revolutionary projects do exist, but ordinary investors find it difficult to discover them, especially those who only understand the crypto industry superficially.
This also explains why many newcomers prefer to invest in meme coins. They do not need to understand complex technologies; they just need to see a cute dog wearing a hat, whose only 'function' is to have no function—combined with a sense of 'winning the lottery', that is enough to attract them.
9. The value output of KOLs is far less than the value they plunder.
Influencers in the crypto industry have degraded to only a handful that can provide value and information. Most have turned to ridiculous clickbait, shameless promotions, and even outright scams.
The rise of meme coins has significantly diminished the role of these influencers in real data; they have instead fully committed to unscrupulous promotions and 'pump and dump'. Be sure to carefully discern useful information and do not blindly follow these 'false shepherds'.
11. MicroStrategy may become the GBTC of this cycle.
MicroStrategy's premium on its net asset value (NAV) is growing rapidly, reflecting strong demand for Bitcoin in traditional financial markets. However, as the cycle nears its end, this premium is likely to reverse and turn into a discount. Pay attention to this indicator; it could signal a cycle reversal. Although there will inevitably be calls for a 'super cycle' at the peak of the bull market, what follows is bound to be a significant bear market decline.
For those who can identify these signals, this may become an excellent shorting opportunity, but it will not appear in the short term.
12. Altcoin season is 'dead', Ethereum is 'dead'... the ultimate contrarian indicator.
The market is filled with pessimistic voices about 'no more action' for Ethereum and altcoins. However, this is precisely a perfect contrarian indicator.
Although Ethereum has underperformed, I still steadfastly hold my position in it while maintaining positions in long-term altcoins (some perform well, while others do poorly). Whenever everyone focuses on the price increase of Bitcoin and abandons their positions in altcoins and Ethereum, it will only be when there is a crazy chase for Bitcoin at the local top that the market for altcoins and Ethereum will truly emerge.
13. ETF options will bring significant volatility—whether up or down.
On the first day of IBIT listing alone, nearly $2 billion in nominal options value was traded, mostly concentrated in call options (betting on the price of Bitcoin rising). The sellers of these call options typically hedge by purchasing the underlying ETFs, thereby driving up prices. This trend may continue to play out over the next few months.
14. Regulatory clarity is a huge positive, eliminating barriers to entry in the crypto industry.
In past cycles, capital entering the crypto industry faced numerous obstacles, such as difficulties in deposits and withdrawals, uncertain regulations, unresolved legal cases, and excessive caution from trading platforms and crypto businesses. Now, this situation has undergone a complete transformation. The launch of spot ETFs and regulatory clarity has not only opened the floodgates for capital entering the crypto industry but also provided opportunities for funds wanting to invest in crypto startups.
Everything is in place... No one could have foreseen that so many positive factors would coincide with such perfect timing. This bull market has the most explosive potential in history, including altcoins and Ethereum. Be patient!
The realized positives include:
Approval of Bitcoin and Ethereum spot ETFs.
Trump's attitude toward cryptocurrency has significantly changed, promoting positive regulation.
Trump wins decisively.
SEC Chairman Gary Gensler resigns.
Sovereign entities of various countries purchase Bitcoin.
China once again 'unbans' cryptocurrency.
The Coinbase and XRP cases have set favorable legal precedents.
Stablecoin minting volume reaches an all-time high.
Bitcoin and Ethereum trading platform balances reach an all-time low.
MicroStrategy plans to purchase $42 billion worth of Bitcoin over the next three years.
Bitcoin ETF becomes the largest product in ETF history, several orders of magnitude larger than gold ETFs.
15. Infrastructure improvements amplify bull market potential.
Trading platforms, wallets, DeFi protocols, and access methods from traditional finance have seen significant improvements. User interfaces and user experiences have become simpler and more user-friendly, continuously optimized under a more favorable regulatory environment. These improvements have greatly reduced friction and will attract more retail capital in; once the bull market begins, the scale of capital inflows will be immeasurable.
16. Summary.
The development of this crypto bull market is filled with unpredictable factors. However, one thing has always been easy to predict in every cycle: the inevitable emotional reactions of retail investors: the latest overhyped project is amazing, buy! The old undervalued projects are too boring, sell! Altcoins are cooling, buy Bitcoin! Ethereum is failing, sell!
This emotional reaction is always comparable to the 'Cramer effect', perfectly serving as a contrarian indicator. In the end, 95% of retail investors will lose. Be sure to be part of that 5%; thinking oppositely is key. Good luck to everyone!
[Disclaimer] The market has risks; invest cautiously. This article does not constitute investment advice; users should consider whether any opinions, views, or conclusions herein align with their specific circumstances. Invest accordingly at your own risk.
This article is reprinted with permission from: (Deep Tide TechFlow).
Original author: Sovereign Crypto.
'95% of tokens are useless! This crypto bull market has undergone significant changes, bringing you an understanding of 2 major ecosystems.' This article was originally published in 'Crypto City'.
