Starting from the experiences of two market cycles, when will the next bull market begin? What new narratives are there?

Original Title: 《 Echoes of the Past : What the Deja Vu Market Tells Us About the Next Bull Market .

Author: IGNAS, DeFi Researcher

Translation: Luccy & czgsws, BlockBeats

In the crypto space, there is a popular belief that you need to go through three crypto cycles to truly succeed: the first cycle is about being hit hard and learning important lessons about how crypto works; the second cycle is about making some gains and feeling comfortable; the third cycle is when you can achieve wealth that can be passed down. For me personally, this is my second bear market, and the third bull market is about to arrive.

I feel like I am experiencing scenes that are eerily familiar, as I indeed went through the bear market cycle of 2019-2020. But what I’m referring to is not just the trend of falling prices, but the overall atmosphere: official regulatory crackdowns, the general public gradually becoming indifferent to cryptocurrencies or accusing them of being scams, and the existing funds shifting from one token to another in a battle for profits. If you joined the cryptocurrency market during the last bear market or earlier, you might also resonate with this feeling of familiarity, which is a huge advantage that comes from your past experiences in the crypto market and can lay the groundwork for the next bull market.

Every bull and bear market is slightly different, but they are not vastly different in overall circumstances. This article will explore when the next bull market might begin based on my own past experiences.

Familiar Market

First Bull Market & Crash

The feeling of déjà vu usually lasts only a few seconds, but the current cryptocurrency market has created a sense of familiarity that has lasted for years. At the end of 2017, when BBC articles reported that Bitcoin was continuously hitting historical highs, I entered the crypto space driven by FOMO.

I bought some Bitcoin, and before long, the price doubled. I felt very excited, thinking I was very smart for getting into a whole new financial realm early. This excitement quickly turned into confidence, believing that investing more in new coins and cheaper tokens could yield even more profits. Since the first trading platform I used (Bitstamp) didn’t list many altcoins, I searched Google for the best altcoin trading platforms and discovered Gateio. I liked its old user interface, where I could clearly see all the token symbols, and more importantly, I could see the token logos.

I did some "research" by reading their websites and whitepapers, and all these projects seemed revolutionary, with decentralized supply chain management, decentralized storage, and even decentralized banking! The FOMO feeling grew stronger.

I kept pouring more of my scholarship funds into these tokens, but there were too many types, and they all looked similar, so I decided to choose based on the color of the token logos without detailed investigation, convinced that "red tokens" would outperform the market.

Long story short, I ended up losing a lot of money. I didn’t understand why this happened. I diversified my portfolio, read whitepapers, and believed these projects would deliver on their promises when building their products.

But they failed to build anything substantial, leaving only a website and a whitepaper.

This is common for newcomers in the crypto space. Greed, naive faith in new ideas, and a lack of knowledge and experience about how the crypto market operates led to tragedy. Many people lost so much that they gave up on the crypto space. However, those who stayed and learned from their mistakes have a greater chance of success.

I felt disappointed at the time, but I was also curious about what went wrong.

This curiosity became my main motivation for continuing to write about crypto-related content. Although my blog sponsorship might not bring me any profit, it keeps me engaged and informed about the truly important market trends. In this article, I will introduce two of those trends.

Second Bull Market & Crash

Curiosity and greed are powerful motivators that got me up early. After the Bitcoin crash of 2017-2018, I still maintained a strong interest in cryptocurrencies and kept up with all the news. By the end of 2018, this enthusiasm for cryptocurrencies led me to my first job at a Korean CEX, where I spent about four years learning how market makers operate, analyzing hundreds of tokens, talking to their teams, and attending dozens of conferences. But the market at that time was boring and calm, and the relative calmness of the market is one of the similarities to our current market phase, along with other similarities including:

• Regulatory crackdowns on ICOs (especially in Asia), similar to the current regulatory crackdowns in the West.
• So far, cryptocurrencies have been labeled as scams or Ponzi schemes at least 385 times.
• Waiting for institutional adoption: institutions began buying Bitcoin, similar to the current spot Bitcoin ETF (pending approval).
• The games were played between existing funds in the market, with no new funds entering—waiting for mass adoption of cryptocurrencies.

There are more similarities, but unlike the last bear market, there are indeed narratives in the crypto space now. The bear market of 2018-2019 had little to do; there was no DeFi, no NFTs, and all my trades and holdings were on CEXs. The most interesting thing was IEOs and the EOS token sale, which raised a record $4.2 billion but yielded almost no results. The market had almost nothing exciting. However, things seemed to suddenly change in early 2020 when I discovered a new hot token, AMPL (Ampleforth), which completely changed my understanding of token economics. It was the first token with elastic supply.

The AMPL smart contract automatically increases or decreases the total supply based on a target price (between $1.06 and $0.96), a process known as "rebase." If the price exceeds $1.06, at 2 AM, the protocol automatically issues more AMPL to bring the price down to the target level. If the price falls below $0.96, the protocol will burn excess tokens. This means that what you own is not a fixed amount of AMPL, but a certain percentage of the supply. Investors would see their AMPL token count increase or decrease, which is different from how any other currency operates.

It was novel and exciting, and I made money from it. I didn’t fully understand the mechanics (mainly guessing how others would behave during the token rebase), but I was happy to see the number of AMPL tokens in my wallet grow. At that time, it was a new hot concept and very rare.

Soon after, more new hot concepts began to emerge, the most exciting being liquidity mining for BAL and COMP tokens, which rewarded protocol users with free tokens based on the amount they deposited into the smart contract.

This was a surprising moment, and it was exactly the time to focus your attention!

Because now and then, an innovative token model emerges that changes the trajectory of the industry. The originality of new token economics drives the industry forward and could trigger a new round of bull markets.

Why are they giving away tokens for free? Initially, this was really puzzling; before, you either had to buy new tokens in an ICO/IEO or complete millions of tasks to receive a $5 airdrop. The craziest was the issuance of Yearn Finance's YFI token. I could simply deposit my stablecoins into Curve and earn free YFI at a 1000%+ APY.

As SushiSwap liquidity mining progressed, things became even crazier. The mechanism was to deposit ETH/USDT to earn SUSHI, or buy SUSHI and deposit it into ETH/SUSHI LP farms to earn more SUSHI.

This Pool2 token mechanism is a real Ponzi scheme because the price of SUSHI only rises when more people join. Dozens of Pool2 mining projects launch and crash daily. The game theory of winning the race is simple: get in earlier than others, mine as many tokens as possible, and sell the tokens when the new incoming funds are less than the token issuance + exiting funds. Ultimately, as the number of new miners continuously increases, it also dilutes people's attention and the amount of ETH/USDT they invest. When the token price drops, leading to lower APY, and then TVL flows to higher-yielding places, they all crash. However, this crash is an important lesson and a recurring pattern in the crypto space, which ultimately provides the best opportunities in crypto, as long as you know when to exit.

How Bull Markets Start and End

SecretsOfCrypto summarizes in "The Road to Altcoin Season" how funds enter the cryptocurrency ecosystem through Bitcoin and gradually flow to altcoins.

I believe there is another key factor in the bull market story: innovative money printing.

Here, "money printing" does not refer to the central bank's money printing, although this does benefit the price of cryptocurrencies; I mean the inherent money printing machine of cryptocurrencies. In the crypto space, we say we hate the money printing behavior of central governments because it dilutes the purchasing power of fiat currency, exacerbates inequality, and ultimately leads to currency collapse.

However, the crypto industry is the best at money printing, and it becomes easier with each bull market. In fact, it took a few years after Bitcoin's initial launch for new competitors to emerge.

Litecoin was the first altcoin, launched in 2011, followed by Ethereum in 2015. In the following years, Bitcoin forks like BCH and BSV also appeared. This was the original Layer 1 Season. These Bitcoin forks also allowed OG money printers to receive new tokens as BTC holders, profiting if they sold them on the day of release.

However, issuing a new token is costly because these PoW miners require electricity to maintain network security. Thanks to ERC20 tokens supported by Ethereum smart contracts, issuing new coins became easier and cheaper. Now anyone can issue tokens at low cost, launching thousands of new tokens with just a website, a whitepaper, and significant promises.

However, the biggest impact of Ethereum and ERC20 is not technical but social. Before ERC20, tokens were mainly seen as currencies for payment or storing value, but with the emergence of ERC20, tokenization became possible in every way. As cryptocurrency prices rose, the use cases for cryptocurrencies also increased.

Then, suddenly, prices plummeted.

The reason for the crash was that the funds flowing into the cryptocurrency system could not support the exponential growth of new tokens launched daily; we printed too many tokens to meet the demand. As the number of circulating tokens increased, attention became diluted, leading to confusion about investment directions. A similar pattern emerged during DeFi Summer. During this time, protocols airdropped tokens to liquidity providers or users for free, claiming that the airdrops were to align the protocols with the decentralized spirit of cryptocurrencies.

Back in the ICO bust period of 2017, it seemed that everything needed a token to function. Now, in the DeFi space, protocols need a token for governance, and we are still mainly in this phase, but disappointment with DeFi governance is rapidly increasing. However, the real motivation behind these tokens is to activate liquidity. Without liquidity, protocols like Aave, Uniswap, or Curve have no value. Just like in 2017, the DeFi crash occurred because the tokens issued daily exceeded the funds entering the system.

The stories are different, but the fundamental reasons for the crashes are the same. Interestingly, NFTs also experienced crashes for the same reasons. Crypto Punks and BAYC created FOMO for those who missed the opportunity, leading to the birth of new NFTs, and when the inflation of new NFTs could not sustain price levels, the market ultimately collapsed. Currently, only a few NFT series have managed to survive, which makes me feel that the NFT market may be approaching its bottom.

New Bull Market: New Stories, Same Mechanisms

To briefly recap SecretsOfCrypto's "The Road to Altcoin Season," the article states that bull markets begin with new fiat capital entering Bitcoin, and then the funds gradually flow to lower market cap tokens.

But I believe the money-making opportunities in bull markets will begin before new capital enters the system, through innovative leverage and the recycling of existing crypto capital.

A typical example is the DeFi craze: before the prices of Ethereum and Bitcoin skyrocketed, DeFi tokens were already gaining traction. Crypto natives deposited Ethereum and stablecoins to obtain new tokens that told the story of a new financial system. Some people sold these tokens, but many believed in the story and held onto their DeFi tokens.

The pre-bull market bubble and the wealth generated from it in DeFi are enough to attract newcomers into the crypto system to buy Ethereum and Bitcoin. Of course, the impact of a low-interest-rate environment is much greater than the relatively mild effects of money printing; we will discuss this later.

What interests me the most is that before the DeFi craze, the infrastructure for DeFi was already in place, but few cared about DeFi before liquidity mining became a hot topic.

We are currently in a similar pre-DeFi bull market season, laying the groundwork for innovative money printing and compelling narratives, with some top opportunities potentially creating larger echo bubbles than some short-term narratives we saw during this bear market.

Each innovation deserves a separate article, and I will briefly introduce the importance of these innovations for echo bubble money printing.

Re-staking

EigenLayer is at the forefront of this narrative. Simply put, the security of Ethereum can be shared by allowing Ethereum holders to "re-stake" their ETH to simultaneously secure multiple networks. However, this comes with higher risks, and to compensate, re-staking holders can earn higher rewards, namely a new altcoin that promises to change the world we live in.

Many mining Ponzi economic strategies will be invented, each more creative than the last, to prevent you from selling tokens. Our focus is on finding those tokens that can create a flywheel effect, allowing the adoption of decentralized applications (dApps) to grow alongside token inflation. Stader's rsETH is a liquid re-staking token.

However, re-staking is a grander narrative that goes beyond Ethereum. Cosmos was the first to introduce the concept of "shared security," where ATOM stakers "rent" their security to other blockchains, the first being Neutron. I expect more blockchains to adopt the idea of re-staking, just as they pursued liquidity mining rewards during DeFi Summer. Our task is to understand how re-staking works because time is money once the echo bubble begins.

Bitcoin Ecosystem DeFi

This is a brand new narrative, even among EVM DeFi enthusiasts.

I am optimistic about the burgeoning potential of Ordinals and Inscriptions, but currently, they lack the Ponzi token economics to sustain the inflation of newly issued tokens in the market.

Bitcoin Ordinals are the basic units of Bitcoin, namely satoshis or sats that have been minted and integrated with unique information. Therefore, satoshis can become unique, possessing the same identity as underlying NFTs.

However, I believe things will change. Ordinals and Inscriptions indicate a strong demand within the Bitcoin ecosystem for non-fungible tokens (NFTs) and decentralized finance (DeFi). As a platform deeply integrated with Bitcoin and more functional, Stacks is well-suited to meet this demand.

Source: Stacks

Stacks is a Bitcoin smart contract layer where DeFi applications execute and settle in Bitcoin. Stacks is preparing for the important release of sBTC. sBTC is a decentralized Bitcoin-pegged system that facilitates the transfer of BTC between Bitcoin and Stacks. BTC sent to Stacks is converted to sBTC at a 1:1 ratio. Redeeming it back to BTC has trust assumptions that minimize trust but are not trustless. Unlike wBTC or rBTC, sBTC avoids using centralized custodians and instead uses an open user network, enhancing Bitcoin liquidity for DeFi and NFTs on Stacks. I am optimistic about Stacks because Bitcoin will soon enter the Stacks ecosystem, but currently, there aren’t many places to deploy it, and capital and attention will focus on the first few applications that go live. One of them is Alex. ALEX is expanding its lead in Stacks DeFi, emphasizing cryptocurrency trading and lending, and settling in Bitcoin, with an AMM protocol at its core supporting its Launchpad and Orderbook. It also has a cross-chain bridge for BSC/Ethereum USDT linked to the Stacks chain. Alex has also launched an on-chain indexer (wrapper) for BRC20 tokens, allowing BRC20 to be traded on Stacks and adding any desired Ponzi token economics.

When Will the Bull Market Arrive?

The two narratives mentioned earlier have significant advantages in issuing new tokens and controlling inflation, mainly due to the engaging stories (security sharing and decentralized finance on Bitcoin) and innovative token economics.

However, the injection of fresh capital is crucial for sustainability and determining the lifecycle of the echo bubble. Currently, due to a lack of new funds entering the system, the emergence and disappearance of narratives have become quite frequent. But I believe these specific narratives have the potential to attract external capital into the entire crypto market, especially buyers purchasing ETH for re-staking and buyers purchasing BTC for the Bitcoin DeFi narrative.

But remember, these two narratives will also have a day of reckoning, as too many tokens will be minted, leading to demand and attention not keeping up. Don’t blindly buy into the narratives they sell you; have an exit strategy in place. The key is timing, and the most important factor remains the macro situation, which is also improving. Over the past few years, we have been influenced by three heavyweight narratives: the Federal Reserve's liquidity cycle, wars, and new policies. However, there have been some changes recently, with regulatory crackdowns slowing down, China entering deflation, and inflation and interest rates peaking.

If we believe in cryptocurrency cycles, we can predict that in the fourth quarter of 2024, the highest price of cryptocurrencies will reach $69,000, and then before the fourth quarter of 2025, cryptocurrencies will experience a wave of crazy rises until new all-time highs are created.

If it really goes as expected, then these two Ponzi echo bubbles will begin before the new ATH.

Now is the best time to study and learn, because when the joyful times begin, we need to be prepared.