When the post-00s who entered the scene in 2020 are called OGs—looking back at the ten-year three-cycle of the crypto industry

Author: Beichen, The Harsh Whistle

This issue does not specifically analyze the technology and business of the crypto industry, but rather expresses some feelings------ Binance has been established for six years!? Binance has only been established for six years?!

These two completely opposite thoughts emerge simultaneously in my mind. After all, last year I heard that those born in 2000 who entered the space in 2020 due to NFTs were called OGs… So, 2017 is undoubtedly a long time ago, and 2013 is even more ancient.

From 2013 to 2023, ten years is very short in the history of technology or business, but this open drama called "crypto" (or Web3, blockchain, crypto circle) continues to have people entering and leaving, playing out countless stories of gaining financial freedom (like the richest person in the Chinese world) or losing their fortunes and lives (like dying in Bali).

As a crypto industry practitioner who entered the field in 2018, I could easily write twelve issues of "Story Club" based on my own experiences and hearsay stories, but I want to skip the stories and talk directly about the thoughts based on them.

You can think of it as an industry analysis model built over five years, and the parameter model is still being continuously calibrated.

About the Industry Map

A few days ago, I accepted an interview with a Bilibili UP master, and I said there are not many opportunities left for ordinary people in this era, but the crypto industry still has them, not only because it is still growing rapidly, but also because there are many fools here.

I firmly believe that the technology of crypto will reconstruct many things in the classical internet world that make us uncomfortable, and we are just getting started. However, what truly gives me courage is the contrast with my peers (similarly, this is also why I do not enter the AI industry); they even lack basic common sense.

Those lacking common sense about public chains will have a mysterious faith in "high-performance public chains," placing the future of blockchain on various "Ethereum killers." However, what these successive killers can actually do is merely issue a token for high-performance distributed networks.

Those lacking application common sense will have a mysterious obsession with "Web3 products with Web2 product experience," but the solutions are just issuing a token for Web2 products.

Those lacking market common sense will have a mysterious confidence that "crypto has an independent market," and they can only explain all market fluctuations in the secondary market with "the market is being manipulated by whales," without understanding the transmission of risk and return in complex financial markets.

So if you want to make money in this industry lacking common sense, it is actually very easy------ just buy BTC and ETH, and you can avoid many unnecessary pitfalls and enjoy the dividends of the industry's rapid growth. Of course, if you want to truly achieve financial freedom, you also need to combine cognition, luck, and execution, and the latter two are largely determined by cognition.

Although we are in the same industry, everyone's industry map is completely different, mostly just fragments picked up by chance, and then mistakenly taking these fragments as the whole to explain the entire industry, leading to various misjudgments.

A person's industry map often begins to be established at the intersection of the time node when they entered the crypto industry and their entry point into the track, and then continues to move forward along the inertia. This is why many times you can guess from someone's statements which year and which track they entered.

People who entered in 2017 and those who entered in 2020 have completely different perceptions of the industry, and the difference between entering through mining and entering through NFTs or DeFi can even be described as "cross-dimensional."

So when we engage in dialogue (just like at this moment), we are not standing on the same position discussing the same thing, but rather standing on the partial knowledge we each possess to understand the partial knowledge described by the other, making it easy to feel that the other person is foolish. Of course, this is also what makes the crypto industry exciting------ different people occupy different ecological niches and strive to expand their own living space, forming a "multi-dimensional spatial resource" that is both nested and competitive.

We are merely betting based on our own ecological niches and cognitive maps; time is the only standard to test foolishness. Before the answer is revealed, all we can do is to systematically expand our own industry map and continuously iterate it.

About Industry Influence

The crypto industry is still undergoing intense iteration, which means its industry map is destined to be unlike the pig industry that has long been thoroughly researched (to the extent that a summer intern can verify the data and derive a conclusion that is close to the truth like solving an arithmetic problem), and the difficulty lies in the unknown direction of the iteration.

The ultimate direction of industry iteration is determined by utility (for example, the utility of AMM-based DEX far exceeds that of centralized exchanges based on order books), but before the answer is revealed, the entire industry's betting direction is actually just following the trend, such as the call of community leaders or the investment preferences of capital. However, the foolish followers will mistakenly believe it is the result of their independent thinking.

Of course, I do not reject following the trend, because following the trend is also a way to make money. However, the skill of following the trend lies not in accurately predicting utility, but in a profound understanding of behavioral finance------ you need to keenly capture industry signals and follow them, as long as you ensure you are not the last one holding the bag (airdrop farming is the lowest-cost way to follow the trend).

The problem is that many people blindly believe in the leading sheep like lambs, not knowing whether they are heading to a lush pasture or a slaughterhouse. They can only choose the direction to follow based on industry influence, and the industry influence they can see is only hot money. To put it bluntly, they can only be led by hot money and cannot distinguish between different hot money.

Let me ask, the hot money from young people trading coins in rental houses, the hot money from local bosses engaged in multi-level distribution, the hot money just coming out of Web2 giants, and the hot money from a16z, can these hot money form market signals (driving up a token or even a concept) and mobilize industry resources? Do the owners of this hot money have the same investment preferences? And did they really bet on the correct iteration direction of the crypto industry?

Those without an industry map are completely unaware that behind hot money are countless distinct real individuals. In their view, as long as it is hot money, it possesses "the power of capital," and thus they blindly follow the market's shouting.

This is trying to understand the industry with a child's anthropomorphic thinking (just like ancient ancestors could only use myths to explain natural laws beyond their understanding). Although, as Li Xiaolai said, "the consensus of fools is also a consensus," if you want to earn the money of fools, the premise is that you must resonate deeply with them.

It is like the industry maps and investment motivations of Dubai tycoons and token funds in third-tier cities are destined to be worlds apart. If you do not confront them directly, you will not be able to capture this hot money.

My attitude towards hot money is not to say that the grapes are sour because I cannot reach them, but to emphasize that this industry is composed of many individuals from different fields with different demands. This hot money coming in will definitely influence the direction of the industry (after all, it is a fool not to make money), but in the long run, the iteration direction will definitely be determined by whether it can bring real utility. Therefore, do not be easily misled by the shouting in the industry (a typical manifestation last year was the rise of Liangxi, which is enough to illustrate the foolishness in the industry).

In the past decade, very few individuals or institutions have been able to survive more than two or three rounds of bull and bear markets without being eliminated by the crypto industry (for example, how many are left today that were established alongside Binance in 2017?). It is easy to have the idea of "they can be replaced," but this is definitely not a reason to embrace all hot money, because historically, the shouting of hot money rarely lasts more than two or three months…

So we must return to building an industry cognitive map to distinguish between hot money and real utility.

About Industry Cycles

If one has not established an industry map, it is understandable; they may be new entrants who have not yet had the time to build one. However, if someone has been in the industry for a long time but cannot distinguish between hot money in the industry, that is a sign of mediocre cognition. But there is an even worse cognition that can be described as "low"------ they are unaware of the existence of industry cycles.

This is precisely the strongest driving force for me to stay in this industry. As long as there are a constant stream of fools, there will be a constant stream of opportunities in this industry, because they will continuously pay tuition to the market, and this tuition will flow to the real builders in unexpected ways, thereby accelerating truly effective projects and ultimately promoting the development of the industry.

Those who are unaware of industry cycles are like morning mushrooms unaware of the waxing and waning, and naturally, they are summer insects that cannot speak of ice. They repeatedly make low-level mistakes until they are eliminated by the industry. However, before being eliminated, those who lack respect for industry cycles often have a sense of superiority, believing that those who respect industry cycles are conservative or even outdated, unable to keep up with the rapid iteration of the crypto industry.

I have seen countless fools firmly believe that the crypto market can have an independent market, ignoring external financial cycles and unable to understand technological trends. However, it is precisely the resonance between external financial cycles and endogenous technological cycles that forms one bull and bear market after another.

The two key factors determining the financial cycle of the crypto industry are macro liquidity and Bitcoin halving, and the latter largely just coincides with the rise and fall of the former. Therefore, we only need to focus on macro liquidity.

Of course, macro liquidity itself is a more complex field than the crypto industry. We do not need to be as proficient as bond or foreign exchange researchers, but we at least need to follow the most basic common sense (even if we take a step back, we need to understand which stage of macro liquidity we are currently in).

In this industry, you will often hear lack of common sense viewpoints like "the approval of Bitcoin ETF by the US will bring a bull market" or "the Federal Reserve is about to cut interest rates" (for example, a popular saying at the Hong Kong Web3 Carnival in April was: "Four words floating in the air: refuse to look back").

The financial cycle determined by external macro liquidity is relatively clear, but the endogenous technological cycle of the crypto industry is very difficult to judge. However, looking back at the past ten years, we can still find some patterns.

Every round of technological cycle always starts with the explosion of public chains, followed by the blooming of applications (but not necessarily bearing fruit). This is because the narrative of public chains is grand enough to attract capital, while the narrative of applications is easy to understand, making it easy to attract entrepreneurs and retail investors to follow the trend. However, most of these are fleeting phenomena created by hot money, and when macro liquidity enters a recession, it will all fall apart. The truly viable technologies must be components reconstructed with crypto logic and must also align with the historical process of the industry.

How can we understand all this in a simple and understandable way? We might compare public chains to continents, while applications are the buildings on those continents.

Bitcoin is the first new continent on the crypto planet, attracting many geeks dissatisfied with the real order. Later, many found it too boring and went to explore new continents; some created sidechains nearby, while others ventured further to create Ethereum and other public chains, and then began to settle down on the new roads.

The buildings on the crypto planet must be constructed using crypto logic and cannot directly borrow from the Web2 world. Therefore, starting from Bitcoin, construction has been done from 0 to 1, and the most basic public chains and the most basic application layer protocols based on public chains have been built (though not many), and construction is still ongoing from the bottom up.

Although from the historical process of the crypto industry, buildings that have not undergone reconstruction with crypto logic are destined to collapse like a house of cards, this does not prevent the most attractive narratives in the market from always being about high-performance public chains and applications, as these are the easiest for outsiders to understand.

So, regarding the industry cycle, what will happen in 2024?

About Industry Opportunities

In 2013, the only commercial demand in the crypto industry was trading and mining, which were the earliest industry opportunities. Those who realized and captured this opportunity included Zhang Guo, Kaka, Xu Mingxing, and Li Lin.

Additionally, some people, starting from the logic of technology, realized that blockchain actually needed a Turing-complete scripting language (which contradicted Satoshi Nakamoto's original intention), leading to the emergence of Bitcoin sidechains like RSK and Ethereum, becoming the technological driving force for the next round of industry cycles (otherwise, the entire industry would simply repeat the previous bull market).

In 2017, as the industry scale grew tenfold, the demand for trading and mining remained strong, still representing a significant industry opportunity. While previous mining and trading giants surged forward, Zhao Changpeng also captured this opportunity.

Moreover, with Bitcoin sidechains and Ethereum supporting more intelligent scripts, very early applications such as NFTs, blockchain games, and DeFi emerged on these new continents. Although looking back, the applications that truly aligned with the industry's progress at that time must be pure code DeFi.

However, people were dissatisfied with the performance and functionality of blockchain, leading to public chains like EOS, which raised $4 billion, and Filecoin, which sold hundreds of billions in storage mining machines. Polkadot and Cosmos also emerged at this time, but whether they can shine brightly still needs to be verified in the next bull market.

In 2020, the macro market experienced unprecedented liquidity, flowing into various risk markets, including the crypto industry.

As usual, this hot money continued to enrich trading and mining, but by this time, these two businesses had become industry infrastructure, with their ecological niches already occupied by pioneers. Only a very few people captured the limited opportunities (about three types)------ mining new public chains and withdrawing in time (which is extremely difficult, as most miners lost money for various reasons), opening trustworthy exchanges for Wall Street (Coinbase, established in 2012, finally caught up, and the newly born FTX also became a top player), and establishing DEXs on major public chains.

The real incremental growth of this industry still depends on public chains and applications. Ethereum was the first to absorb liquidity, possessing the best developers and the richest underlying protocols (especially in DeFi), so when liquidity first entered, it naturally exploded into DeFi Summer.

However, Ethereum's capacity is indeed limited, and the excess liquidity overflowed from Ethereum. At this point, the once-promising EOS self-destructed, while Polkadot and Cosmos were still immature, so the first to rush in was Tron, which copied and modified Ethereum. The industry's opportunity was given to Sun Yuchen, but within two months, he wanted to take control of the leading DeFi project on Tron, directly scaring away developers.

Sun Yuchen's short-sighted actions directly handed the opportunity to the hastily created public chain BSC, which can be said to have directly made Zhao Changpeng the richest person in the Chinese world.

The unprecedented liquidity allowed this round of bull market to last a bit longer, with concepts like NFT collectibles, blockchain games, and SocialFi taking turns to digest the excess hot money until the Federal Reserve's interest rate hike abruptly ended the chaos.

So, what will be the opportunities in the crypto industry in 2024?

If nothing unexpected happens, 2024 will be a transitional year from contraction to expansion of macro liquidity (it is very likely that interest rate cuts will officially begin in 2025) , and a new round of hot money will flow in.

It will still enrich trading and mining first, but it seems that there is no longer a position for newcomers to make a comeback in these two fields, unless they mine new coins and withdraw in time or develop more compliant trading markets. But this has almost nothing to do with the current players in the industry, as it involves resource allocation far beyond all current crypto industry institutions. Our next article will specifically analyze the matter of RWA.

The public chain field is indeed worth paying attention to, as the performance of technological iteration has been very weak in the two cycles since 2017. However, now the technologies of the cross-chain ecosystems Polkadot and Cosmos are becoming increasingly mature, and the attempts of ZK technology in blockchain are full of imagination.

Additionally, the previous wave of garbage public chains (like Aptos, Sui, etc.) will definitely pump and then cash out, just like the public chains of 2020, such as Gongxinbao and IOST, as it is rare for something like EOS to simply lie down and become a vegetable.

Regarding ZK public chains, it is worth mentioning that many of the hyped ZK public chains are essentially just "adding ZK verification to distributed networks and issuing a token," which can exist but is unnecessary. The real future lies in those public chains that can build advanced smart contracts based on ZK (like Starknet).

As for the application field, every bull market has a large number of fools blindly pursuing applications that can benchmark Web2, regardless of the development process of industry infrastructure. Therefore, the narrative of chain reform in 2017 will definitely become a hot topic in 2024.

However, I am extremely pessimistic about all high-performance public chains or applications realized with Web2 logic, as there is no need to come to blockchain at all. For example, projects like Helium, which essentially only involve order and data transactions, could even directly solve the demand by spending thirty thousand yuan to buy a mini-program from Youzan. But the consensus of fools is also a consensus, and making money is not shameful; this is indeed a very clear (but short-lived) business opportunity.

As for how to construct derivatives, social products, and other applications from the bottom up using crypto logic, "The Harsh Whistle" will continue to track and analyze.

Conclusion

In summary, whether in entrepreneurship or investment in the crypto industry, it is essential to build your own industry analysis model as much as possible, mainly along the following three dimensions:

1. Expand your industry map. Everyone occupies their own ecological niche in the industry and strives to expand their living space, which means that the starting point of their entry into the industry is merely a cut-in point, and they must continuously absorb common sense from new fields. Climbing to the eighth-level fitter in a state-owned enterprise is the optimal strategy, but it does not apply to the ever-changing crypto industry.

2. Distinguish industry influence. Industry influence is equivalent to the shouting in the market. If you lack common sense in unfamiliar fields, it is easy to follow the market's shouting. Of course, following the trend can also make money, but you need to be able to distinguish who the groups behind different shouts are and understand them; otherwise, you may very well become the one holding the bag.

3. Understand industry cycles. The resonance between external financial cycles and endogenous technological cycles forms one bull and bear market after another, so knowing what to do at what stage can help avoid the fate of most retail investors. First, do not have the notion of opposing financial cycles; second, believe in the endogenous technological process of crypto (the reconstruction with crypto logic is currently only at the stage of application layer protocols, so do not expect applications that benchmark Web2).

When you have established your own industry map, have the ability to distinguish industry influence, and understand and respect industry cycles, capturing opportunities will become much easier. Whether it is ambushing future technological trends or capturing hot money and following the hype, you will clearly know what you are doing and will not be confused by the market's shouting.

Finally, returning to the initial sentiment of this article------ "Binance has been established for six years!?"" Binance has only been established for six years?!". There are not many opportunities left for ordinary people in this era, but the crypto industry still has them. I believe that for most entrants, it is like the left-behind children in Daliangshan choosing to fight in an octagonal cage; this is one of the few opportunities to change their fate.

In fact, keeping up with the growth speed of this industry does not require extraordinary decisions; as long as you embrace common sense and accumulate firsthand experience as much as possible, you will not be abandoned by the industry. "The Harsh Whistle" itself is a stone thrown to ask for directions, looking forward to experiencing the upcoming ups and downs with you.