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 exact replicas. The institutional adoption driven by ETFs, changes in the political environment, and the dilemmas of mainstream economies have collectively altered the underlying structure of the crypto market, forcing us to rethink many of our previous assumptions.
1. Capital flow dynamics
In past cycles, capital flows had a relatively predictable pattern:
1) New capital first enters the Bitcoin (BTC) market.
2) Then flows into Ethereum (ETH) and blue-chip tokens in search of higher returns.
3) Ultimately entering the small and micro-cap token markets, attracting retail investors chasing 'life-changing returns'.
However, the capital flow patterns in this cycle have changed significantly. The current crypto market can effectively be divided into two ecosystems: institutional tokens and retail tokens.
2. Institutional ecosystem
Mainly accessing BTC and ETH through spot ETFs. So far, funds have mainly flowed into BTC, pushing its price nearly 40% above the last all-time high (ATH). As the BTC market becomes saturated, institutional funds may seek higher yields, with ETH ETFs being almost the only option. In this transition, a large amount of capital will shift to ETH ETFs, and this capital flow may lead the illiquid ETH market to react swiftly in price (similar to when the ETH spot ETF was initially approved, the price jumped 15% that day).
3. ETH rotation effect
The price increase of ETH may further impact the blue-chip token market, as crypto-native companies holding actual ETH positions will start to position themselves ahead of the token season (Alt-Season). Currently, the capital rotation of ETH seems to be very close, but the specific timing still needs to be observed.
This leads to the second ecosystem: retail tokens.
4. Retail funds completely skip BTC and ETH.
This is the first time in crypto history that retail investors are no longer involved in BTC and ETH, then gradually migrating their profits to higher-risk assets. They realize that, from the perspective of 'life-changing returns', they have missed the best opportunities with BTC and ETH, so they have to significantly increase their risk appetite.
In the real world, people are struggling: inflation is pressing people down, high taxes, a stagnant job market, and high living costs leave most unable to invest or save for retirement. They are indifferent to BTC and ETH, instead jumping directly into the seemingly endless world of 'Memecoins' with Phantom wallets, trying to find a 'lottery ticket' that can change their fate. But most will only encounter failure and ultimately exit the crypto space entirely.
1) The flow of funds in the retail ecosystem has been completely overturned:
Funds flow directly into Memecoins, completely bypassing considerations of technology or utility. Profits are mainly concentrated in the hands of a few experienced 'old hands', who are like souvenir merchants at tourist attractions, waiting for new retail investors to arrive and empty their wallets, enticing them with the belief that they can achieve overnight riches ('Look at this case of turning $50 into $1 million, you can do it too!').
Currently, the altcoin market has not produced new wealth inflows, only 'player versus player' (PvP) wealth redistribution, transferring from retail investors to professional scammers. Although Memecoins initially emerged as 'anti-establishment' altcoins with fair launches, they have now turned into highly manipulated scams: scammers seize most of the allocation when tokens are issued, followed by 'rug pulls' or even worse actions. This game is time-limited; the capital that can be extracted is finite, and once it's drained, funds will seek new homes.
2) Expectations and impact
I predict that the current 'Memecoin casino' will self-consume. Leading Memecoins may survive and perform well, while the rest will gradually be forgotten, disappearing with the wealth of retail investors. Even in the best-case scenario, this is just a massive 'hot potato' game, where over 95% of participants will end up with losses.
The impact on the capital flow of major tokens (like SOL, AVAX, etc.) is that they will need massive venture capital, institutional funds, and retail capital injections to trigger a new round of altcoin trends. This may happen after capital overflows from BTC and ETH when institutions and retail whales start seeking higher-risk assets to accommodate newly gained profits. Recently, whale wallets have begun to net sell BTC.
5. The 'stubborn virus' of GameFi.
During the early GameFi boom of this cycle, many game projects frequently launched 'vaporware', which had poor game quality, high FDV (fully diluted valuation), useless token economics, and many other issues. This chaos has damaged the reputation of the GameFi sector.
Now, those quality projects that have spent years building and preparing to launch are facing immense challenges, needing to overcome this negative stereotype to gain market attention. Nevertheless, there are indeed some promising projects in the GameFi sector, and once a hugely successful game emerges, its effects could trigger a massive speculative frenzy across the entire GameFi ecosystem.
6. Current state of launch platforms
Launchpads have nearly disappeared, but the survivors may experience a strong recovery.
Venture capital funds (VCs) once tried to extract maximum value from retail investors, leading to a breakdown of this model: long lock-up periods, high FDVs, oppressive centralized exchange (CEX) listing strategies, and predatory market-making behaviors have put launching platforms in a difficult position.
A new model is emerging, showing significant advantages: low FDV, high unlocking ratios, and projects that are not listed on CEXs far outperform the old model VC projects. Investing in top launchpads will become key, as these opportunities will become scarcer, and the entry threshold will be higher.
It is certain that just a few projects with 50x or 100x will cause retail investors to scramble to buy launchpad tokens and seize entry qualifications.
7. 95% of tokens are unnecessary and useless
Frankly, the primary function of crypto tokens is speculation. Only 5% of tokens truly have utility, representing partial ownership of revolutionary technologies and platforms. The remaining tokens are pure speculative games that will ultimately go to zero. But at the same time, choosing the right project can yield huge returns.
8. Dilution makes the market crowded and difficult to find direction.
In 2020, the number of tokens in the crypto market was about 10,000 at the market peak. Now, the same number of tokens is created every day. The vast majority of these projects are worthless, but they create a 'noise' that obscures truly valuable and innovative projects. Undoubtedly, these revolutionary projects do exist, but ordinary investors find it difficult to locate them, especially those whose understanding of the crypto space is limited to the surface.
This also explains why many newcomers tend to invest in meme coins (Memecoins). They do not need to understand complex technology; they just need to see a cute dog wearing a hat, whose only 'function' is to have no function—combined with a sense of 'lottery winning', this is already attractive enough.
9. The value output of KOLs is far lower than the value they plunder.
Influencers in the crypto space have degraded to only a few who can provide value and information. Most have turned to ridiculous clickbait, shameless promotions, or even outright fraud.
The rise of Memecoins has greatly diminished the role of these influencers in real data, as they instead invest all their energy into shameless promotion and 'pump and dump' schemes. 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 ($MSTR) premium on its net asset value (NAV) is growing wildly, reflecting strong demand for Bitcoin in traditional financial markets. However, as the cycle approaches its end, this premium is likely to reverse and turn into a discount. Pay attention to this indicator; it may signal a cycle reversal. Although there will inevitably be calls for a 'super cycle' at the peak of the bull market, what follows will certainly be a major bear market decline.
For those who can identify these signals, this may become an excellent opportunity to short the market, but it won't happen in the short term.
12. The 'altcoin season' is 'dead', Ethereum is 'dead'... the ultimate contrarian indicator.
The market is filled with pessimistic voices about Ethereum and altcoins 'no longer having trends'. However, this is precisely a perfect contrarian indicator.
Despite Ethereum's poor performance, I still firmly hold my position in it while holding long-term altcoin positions (some performing well, others poorly). Whenever everyone focuses on Bitcoin's price increase and abandons altcoins and Ethereum positions, it will truly lead to a surge in altcoins and Ethereum when they madly chase up BTC at a local peak.
13. ETF options will bring enormous volatility—whether up or down
On the first day of IBIT's listing, nearly $2 billion nominal options value were traded, mostly concentrated in call options (betting on rising BTC prices). The sellers of these call options typically hedge by purchasing the underlying ETFs, thereby pushing up the prices. This trend may continue in the coming months.
14. Regulatory clarity is a huge positive, eliminating entry barriers in the crypto space.
In past cycles, capital entering the crypto space faced various obstacles, such as difficulties in deposits and withdrawals, uncertain regulations, pending legal cases, and the excessive caution of trading platforms and crypto companies. Now, this situation has undergone a complete transformation. The launch of spot ETFs and regulatory clarity not only opened the floodgates for capital entering the crypto space but also provided opportunities for funds wanting to invest in crypto startups.
Everything is in place... No one could have predicted that so many positive factors would coincide at such a perfect timing. This bull market has the most explosive potential in history, including altcoins and Ethereum. Be patient!
The positives realized include:
Bitcoin and Ethereum spot ETFs approved
Trump's attitude towards cryptocurrency has shifted dramatically, pushing for positive regulation
Trump wins the election outright
SEC Chairman Gary Gensler resigns
Sovereign entities from various countries purchasing Bitcoin
China 'reopens' cryptocurrency again
Coinbase and XRP cases have set favorable legal precedents
Stablecoin minting volume hits a new all-time high
Bitcoin and Ethereum trading platform balances hit a new 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, dwarfing gold ETFs by several multiples
15. Infrastructure improvements amplify the bull market potential.
Trading platforms, wallets, DeFi protocols, and access to traditional finance have seen significant improvements. User interfaces and experiences have become simpler and more user-friendly, continuously optimized under a friendlier regulatory environment. These improvements have greatly reduced friction and will attract more retail capital when the bull market starts; the scale of capital inflow will be immeasurable.
16. Summary
The development of this crypto bull market is filled with unpredictable factors. However, one thing is always easy to predict in every cycle: the inevitable emotional reactions of retail investors: the latest overvalued projects are amazing, buy! The old undervalued projects are too boring, sell! Altcoins are cold, buy Bitcoin! Ethereum is not doing well, sell it!
This emotional response is always comparable to the 'Cramer effect', perfectly serving as a contrarian indicator. In the end, 95% of retail investors will lose money. Make sure to be part of that 5%, thinking inversely is key. Good luck to everyone!
