The cryptocurrency market is full of opportunities, but the biggest enemy is not market volatility, but greed and blindness. Knowledge and caution are the keys to success. 🍕
The phenomenon of this round of crypto market is indeed very different from the past. More and more projects have adopted the "high valuation + low circulation" model, using the halo of institutional investment to attract a large number of investors (commonly known as "money-pulling parties") to participate, thereby creating beautiful market data, and then listing through exchanges to realize and profit with a high FDV (Fully Diluted Valuation) but low actual circulation model. This model essentially hopes to complete the harvest through short-term popularity and liquidity, which often puts ordinary investors in a high-risk situation.
The reason for this phenomenon is that the market is highly certain about this round of bull market. Unlike the last round of bull market, more and more investors, including institutions, firmly believe that the bull market will come again and pour in a lot of money. As a result, there has been a serious bubble in the primary market, and the valuation of projects far exceeds their actual value. Looking back at the bear market in 2019, the industry environment and market sentiment at that time were completely different. I had a similar experience at that time and participated in several institutional investment meetings on behalf of the company. At that time, the valuation of project financing was only a few million US dollars, and even one or two million US dollars could obtain financing. This is in stark contrast to today's valuations of hundreds of millions of US dollars.
In 2019 and 2020, when Bitcoin fell sharply, many people were skeptical about the prospects of the cryptocurrency industry, and some media even predicted that the cryptocurrency market would return to zero. Funds in the market were extremely scarce, and only a very small number of investors who dared to take risks invested in the primary market. The financing environment at that time was very cold because the industry prospects were not optimistic.
However, the current bear market environment is very different. Almost everyone in the market is convinced that the bull market will come again, and this belief has attracted a lot of money into the crypto field. The fund size managed by large institutions such as a16z has reached billions of dollars, and these excess funds have directly pushed up project valuations. In my recent project research, financing valuations of hundreds of millions of dollars have become the norm, and some project valuations have even been pushed to more than one billion dollars. Binance's Launchpool project also shows a similar trend, and its market value has increased significantly compared with the previous round. This valuation inflation phenomenon is becoming more and more obvious in the market.
There is no doubt that this situation is irrational. When there is an oversupply of funds in the market and project valuations are artificially pushed up, the accumulation of bubbles is an inevitable result. Although complaining about the current market situation is useless, in the long run, only when the highly valued projects in the primary market begin to suffer serious losses can the market return to rationality. However, due to the long feedback cycle of the primary market, it often takes several years from investment to final unlocking and realization, so it is difficult to see this phenomenon change quickly in the current bull market.
From an investment perspective, we need to be vigilant about the risks of overvaluation and low circulation. Although the excessive optimism and capital influx of institutions may provide projects with bright data in the short term, in the long run, this model may cause latecomers to bear huge risks. Once the market adjusts and the bubble bursts, the most serious losses are often suffered by ordinary investors who take over at high prices. Therefore, in such a market with obvious bubbles, it is particularly important to invest rationally and carefully evaluate the value of projects.
I make a living by trading cryptocurrencies, and cryptocurrencies have long become everything to me.
