Original Contributor: Uncle Jian
“Is crypto over? Did you make money in this bull market?”
Before talking about this round of market, let’s review the rules of the last bull market and the A-share bull market.
1. Market hype logic
The generally accepted speculation logic of A-shares in the bull market is that securities companies first pull up the market, followed by high-quality blue chips such as insurance and real estate, followed by steel, coal and nonferrous metals, and finally the crazy bull of theme stocks, flooding the market with money and frantically looking for low-value depressions, themes are playing tricks, and small tickets are flying around. At the end of the bull market, you need to find connections to open an account, students no longer want to go to class, migrant workers don’t want to go to work, and security guards and aunties start to share their stock trading experiences. Listed companies are frantically increasing their holdings and reducing their holdings, and investors are mindless to take over, and after the carnival, there is only a mess left...
Looking back at the crypto bull market in 2021, it has a similar flavor. First, the narrative of Defi Summer was launched. The doubling of TVL drove Uni and Aave to rise wildly. Then Btc and Eth ushered in a unilateral rise. During this period, almost all themes and narratives started a round of rise, ranging from several times to ten times or even hundreds of times. In the middle and late stages of the bull market, the crypto market ushered in the rise of the Meme sector, among which Doge and Shib were the most representative. After the rise of Meme ended, new narratives represented by chain games and the metaverse, such as Axs and Sand, became popular, and the market was hyped wildly. After the hype ended, the market was adjusted by various factors and never returned.
Comparing the commonalities of bull markets in different fields, we can find that the core logic is to prioritize the hype of high-certainty and high-value assets, followed by the hype of sectors and tracks with narratives and hot spots, and finally the hype of junk coins, air coins and meme coins. However, with the rapid development and iteration of blockchain, three years have passed and we have more narratives and tracks, such as Ethereum Layer 2, re-staking, inscription runes, AI, etc. These narratives will eventually replace the old narratives of the previous bull market, so from the perspective of subject matter, it is impossible to summarize the rules and what stage the current market has reached and what cycle it is in. Here we can summarize the rules through market value.
Core Assets (i.e. BTC and ETH) — High Market Cap — Mid Market Cap — Low Market Cap — Meme — NFT/Other
2. Changes and differences in this round of bull market
So, have you made money in this bull market?
Do you feel that the capital efficiency is insufficient and the track sectors that you are optimistic about may suffer a sharp correction if you are not careful?
Value coins cannot outperform MEME coins? The returns are not as fast as those from speculating on local stocks?
GameFi’s data keeps hitting new highs and it keeps raising funds, but it still can’t come up with a hit product?
The most direct feeling of this bull market is the lack of liquidity, poor money-making effect, and the lack of a hundred flowers blooming. The passage of ETFs has injected super liquidity into BTC, but this liquidity cannot spread to different tracks and sectors. Although there is an expectation of a rate cut by the Federal Reserve, there is still no guarantee that the rate cut that the market has waited so hard for will significantly improve the current situation of the crypto market. We need to know that the funds flowing out of the rate cut may not be injected into the crypto market at the first time. It may also fill the liquidity of the stock market and the real estate market first, and then flow into the crypto market after the liquidity of these markets overflows.
Therefore, in the case of insufficient liquidity, coupled with the approval of ETFs, an extreme situation will occur, that is, the core assets rise, the market value of other assets remains unchanged or even falls, and MEME rises due to the sentiment of short-term hot money. However, this rise in the Meme sector is not a long-term sustainable rise, and sometimes it can only last for a few days or even hours, which is also a manifestation of insufficient funds.
Insufficient Funds:
Why is there such a shortage of funds? The fundamental reason is that the flow and transmission of funds have undergone structural changes. The funds injected by ETFs can only be transmitted to BTC and ETH, and cannot overflow like a reservoir.
We can understand that the current crypto market is a reservoir, and different sectors and tracks are all reservoirs. Only when the reservoir of the upper layer is full of water will it overflow to the next layer. According to the time node of the last bull market, we can simply analyze the different states of capital flow in a round of market. Only when the market funds can no longer choose or are saturated in the current field, the market will look for lower value and more opportunities in the next layer, and the downward movement of funds is mostly forced or when the market funds are saturated. Because each downward layer means that the money-making effect of the current level is weakened, and the risks brought about will gradually increase.
The secondary market leads to the collapse of the primary market:
Let's take the recent ZK as an example. How many people's three years of hard work were reversed. This is also a manifestation of insufficient funds, that is, the current primary airdrop market cannot accommodate so many people. In the final analysis, with the current liquidity and funds in the secondary market not sufficient, many people come to the primary market from the secondary market to seek opportunities, but many people have not thought about what is the meaning of the primary market without the secondary market? It is really difficult for retail investors to make money in the primary market at present. Short sellers cannot compete with professional studios, and they are also easily witched. It can be said that it is difficult for ordinary people to survive in the current primary market, which has become a technology battlefield.
Secondly, the continuous listing of tokens with sky-high market value has further squeezed liquidity. From the previous BB and Not, to the recent io and zk, including the future Blast, their high valuations squeezed the upside at the very beginning. After the new coins are listed, funds will more or less choose to flow into these coins, further squeezing the liquidity of altcoins. In fact, judging from the performance of the first day of the recent listing of new coins, it can be seen that the market is too short of money. The opening price is lower than expected, and even Not can make a 50% profit on the same day. It can be seen that the market generally doubts the value of the current new coins.
High FDV causes failure to accept the disk:
According to Binance Research's report "Observations and Thoughts on the Current Situation of Highly Valuable and Lowly Circulated Tokens" in May 2024, we can find that its current MC/FDV is the lowest in the past three years, and the FDV of tokens issued in the first five months of this year is close to the total for the whole year of 2023. Binance said that if the token wants to maintain its current price in the future, it will need $80 billion in liquidity.
In the case of unchanged demand, low circulation can easily increase the price of the currency in the short term, thereby pushing up FDV. Take zk, which was launched yesterday, as an example. Its market value is close to 1 billion US dollars, but this is still a large amount of unlocked tokens. Is its valuation a bit too "high"?
So who does high FDV benefit?
From the perspective of the project owner, high FDV may drive up the market value and increase potential profit opportunities in the future.
From a VC perspective, the potential high valuation driven by high FDV represents VC performance and indicators.
From the perspective of the exchange, high FDV does not affect the exchange itself
From the perspective of retail investors, high FDV generally means that the project will continue to operate for a long time and the possibility of running away is low. However, this further leads to retail investors being unwilling to take over tokens with high FDV, and instead turning to more interesting Meme tokens with full circulation, such as Not, which is a good example.
Therefore, we are trapped in a bull market where no one is willing to buy from each other. Retail investors do not buy VC coins because of the huge amount of unlocking caused by high FDV. Institutions do not buy Meme coins because their low value and violent fluctuations lead them to believe that they have no investment value. As a result, everyone plays their own game and the market cannot form a unified consensus.
Conclusion
The current market fundamentals have changed compared to previous years, and the previously used investment logic also needs to be adjusted and changed. We believe that insufficient funds and high valuations and low circulation are the core reasons for the poor money-making effect in this bull market, which has led to poor performance of the secondary market transmitted to the primary market. Coupled with the witch situation and studio clusters in the primary market, the money-making effect is further reduced.
We cannot give an accurate answer to judge where the current crypto market is headed, nor do we know whether BTC will really break through 100,000. However, the market problems we have rationally analyzed are the most urgent problems to be solved at the moment. Perhaps only after these problems are gradually solved and changed, the real crypto bull market will come.
Source: https://jianshu.ghost.io/shudu0618/
Reference: https://public.bnbstatic.com/static/files/research/low-float-and-high-fdv-how-did-we-get-here-cn.pdf
