What is driving the market up?
1. Creating wealth through innovation (Airdrop)
Airdrops have become a powerful mechanism for wealth redistribution in the crypto market, creating a significant wealth effect that benefits a broad range of participants.
The wealth effect is not limited to direct economic gains. These airdrops have transformed users into stakeholders, enabling them to participate in governance and protocol development. This mechanism creates a virtuous cycle: benefiting participants reinvest their wealth into the ecosystem, further driving market expansion and innovation.
These strategic distributions have proven to be strong market catalysts, triggering broader bull market cycles in their respective domains.
2. Appreciation of wealth (Marginal Buyers)
When the market experiences positive catalysts like strategic airdrops, it attracts previously hesitant participants who bring new capital and enthusiasm. The influx of these marginal buyers creates a virtuous cycle of market expansion and innovation.
Airdrops trigger positive FOMO, pushing both new and existing users to engage more deeply in the market. Observant investors begin to deploy capital after witnessing successful airdrops and subsequent market momentum, transforming from bystanders to active market participants. This shift from cash to crypto assets represents a true influx of new funds into the ecosystem, rather than just a transfer among existing participants.
3. Creating wealth through leverage (Multiplicative Expansion)
At the end of a bull market, leverage becomes a primary driver of price increases, marking the transition from value creation to value multiplication. As the market enters the price discovery phase, traders increasingly use leverage to amplify their positions, creating a self-reinforcing cycle of upward momentum.
When Bitcoin enters a price discovery phase above historical highs, leverage ratios surge as traders seek to maximize their risk exposure. This generates a chain reaction where borrowed stablecoins drive further purchases, pushing prices higher and encouraging more leveraged positions. This multiplicative effect accelerates price volatility.
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