The competition intensifies, and the industry development enters a new pattern

Author: DaPangDun

Please note: This article is written based on personal market data, personal understanding, and logical reasoning, and may not be correct. It is for reference only.

1. This Bull Market is Different

Many people should feel that this bull market is significantly different from the previous one, mainly reflected in:

• The wealth effect is insufficient; there is no broad-based rally like the last round, making the selection of assets very important. A careless move can lead to losses, and the vast majority of cryptocurrencies cannot outperform BTC.

• The performance of value coins often lags behind that of Memecoins, with many value coins listed on exchanges experiencing a continuous decline.

• There is severe fragmentation among sectors, with funds only circulating within their own ecosystems, and rotation is not smooth, giving the market a sense of lack of synergy.

• The airdrop industry has become highly competitive due to the scripting and clustering development, leading to various impacts.

• The narrative led by BTC is not as "rapid and brutal" as before, presenting a relatively cold state, and DEFI seems to be less favored in the BTC narrative.

• Although Web3 games received massive funding in the previous round, they have not produced blockbuster hits.

• ……

After observing these phenomena, I tried to explore the reasons behind them. We referred to the last bull market as the "water release bull" because of the significant overflow effect of funds due to global (mainly U.S.) monetary easing. In this round, we can clearly feel that "funds are not as abundant," is this feeling correct? We can find clues from the following sets of data.

2. Changes in Funds

2.1 U.S. M2 Data

First, let's look at the five-year M2 data for the U.S. The green shaded area represents the M2 changes during the last bull market, while the yellow area represents the M2 changes in this round.

Combining the price changes of BTC during the corresponding periods, we can see:

1) During the last bull market, M2 showed a continuous growth trend, corresponding to a sustained rise in BTC prices (some phase corrections are market corrections and short-term fluctuations). Before M2 supply approached its peak, the market entered a downward channel due to "exhaustion of potential" and gradually entered a bear market.

2) During this bull market, M2 has hardly changed, and even showed a downward trend in the early stages. Therefore, this round is indeed not a "water release bull," and funds have not shown an increase. Thus, the viewpoint that the market feels insufficient funds is correct. Currently, BTC prices are reaching new highs, which, in my view, resemble a process of "value return," rather than a part of market FOMO.

2.2 Stablecoin Data

The changes in stablecoins usually reflect the inflow and outflow of external funds. Due to the special attribute of stablecoins being "active money," when stablecoins are continuously increasing, it indicates that they are attracting external funds, which will produce a noticeable price effect.

Through Defillama, I retrieved data from 2021 to the present, and we can clearly see:

The current amount of stablecoins within the ecosystem is only about $10 billion more than the last BTC peak, still about $28.7 billion short of the previous peak of $187 billion.

Of course, we need to be more rigorous. The SEC approved the BTC ETF on January 11, 2024, which is believed to bring significant incremental funds to Crypto. Therefore, we need to consider this part of the incremental funds that have not yet been reflected in stablecoins, as they represent real purchasing power.

I compiled the holdings of Grayscale's GBTC and the total holdings of all larger BTC ETFs as follows:

From the overall holdings, the increment is about 850991 - 655800 = 195191 BTC. If we calculate the holding price at $50,000 - $60,000, the incremental funds are approximately between $9.8 billion and $11.7 billion.

If we express the incremental purchasing power of ETFs in the form of stablecoins, we can see that the current number of stablecoins in Crypto has still not reached the peak of the last bull market, but the difference is not significant. Considering that ETFs have only been around for four months, from a long-term perspective, we can indeed maintain a certain degree of optimism.

2.3 Crypto Market Cap Data

The market cap of Crypto generally reflects the "funding heat" of the entire industry, that is, the market's attention and interest in the industry.

From the chart below, we can see: The last peak was $3.009 trillion, and the current market cap is $2.439 trillion, accounting for 81%. Although this bull market is clearly not over, from a data perspective, the market is still very cautious.

We need to deeply realize: Although we can have optimistic expectations for future "interest rate cuts and monetary easing" and ETF incremental funds, the current on-site funds are indeed not abundant!

In a market where funds are not so abundant, using limited money to do more things and allocate to different roles will inevitably intensify the competition in the market. This is also the inherent reason we can see various "changes." In this scenario, the development status and logic of various parts of the industry have changed, and the industry will enter a new pattern.

3. Industry Observation

3.1 Almost No Broad-Based Rally

Although funds have not reached the previous peak, they are still relatively close. Why are many cryptocurrencies performing poorly, and why is there no significant broad-based rally?

I attempted to analyze the market caps of various cryptocurrencies (mainly the top 100) at the last peak and the market cap proportions of cryptocurrencies in this round, resulting in the following data:

Based on the corresponding total market cap data of Crypto at that time, we can create a comparative chart of proportions:

From the chart above, we can see: In this round, the tendency for funds to "focus on the top" is more pronounced.

If we think more carefully, we will also find:

1) This round has added many high market cap low circulation cryptocurrencies, which on one hand siphon off funds, and on the other hand increase the degree of market cap bubble;

2) Many "old coins" still maintain a relatively high market cap under the operations of market makers;

In this situation, where is the funding to create a broad-based rally?! And due to the lack of a broad-based effect, in the competition, people tend to be conservative and choose more stable top cryptocurrencies, further exacerbating the lack of funds for other cryptocurrencies.

New Pattern Judgment

We need to wait for the sustained increment brought by ETFs to gather more consensus within the ecosystem, and we also need to wait for a new era of monetary easing to boost liquidity within the ecosystem.

3.2 No One is Picking Up the Pieces

The phrase "no one is picking up the pieces" has become very popular recently. The vast majority of "VC coins" peaked upon listing, and Binance recently published an article titled "Low Float & High FDV: How Did We Get Here?" which highlighted:

1) Aggressive valuations have overdrawn potential, leaving little profit space for retail investors.

2) Continuous unlocking has made it almost impossible for tokens to rise.

These factors have led to a lack of motivation for retail investors to pick up the pieces.

The chart below shows the FDV situation of Binance's recent listings and the performance of those coins:

From the above table, we can derive the following data:

The average FDV of listed coins is $4.2 billion, which far exceeds the FDV data of Binance's listed coins during the last bull market.

It seems we have found the reason for "no one picking up the pieces," but if we change our perspective and look at it from the angle of "competition," we may see another layer of reason behind "Low Float & High FDV."

In "Low Float & High FDV," High FDV is key; Low Float is merely a way to control the market, alleviating short-term selling pressure through long-term continuous unlocking.

For a project's token, the main parties involved include: the project team, VCs, exchanges, market makers, and secondary market users (I have not included airdrop participants here to simplify the structure).

Consider this question: Who benefits from High FDV?

1) For the project team, they obviously hope for a high FDV, as it represents future value and returns;

2) VCs also hope for a high FDV, as it can generate sufficient investment returns and an excellent portfolio; some VCs may sell their invested portions at a discount through over-the-counter methods to realize profits, as most people are still very interested in "discounts," and a high FDV allows for decent profits even after discounts;

3) Exchanges are a "complex" part; from a trading perspective, the level of FDV is not particularly important; however, many exchanges are also investment institutions for projects, especially large exchanges that can obtain early undervalued tokens, so they may also hope for a high project FDV, unless this phenomenon severely affects their trading aspects (a significant portion of exchanges' profits comes from trading fees);

4) Market makers typically operate according to a given plan and may not care about the level of FDV; their model is to earn profits through quantitative programs, etc.;

5) For secondary market users, a high FDV is clearly a bad thing, as it overdraws future expectations, and after purchasing, they still have to bear the risks brought by continuous unlocking.

This constructs "a world where only retail investors are likely to get hurt," so "why should they pick up the pieces?!"

New Pattern Judgment

For project tokens, it is evident that blindly pushing up the project's FDV is not a good strategy. The project team needs to have a more reasonable FDV positioning and token release/distribution plan to demonstrate greater vitality.

Exchanges need to save themselves by allocating limited customer resources to higher-quality project tokens to maintain more active trading data and better market performance.

VCs need to have more reasonable valuations for projects, especially when researching project testing or participation data, they need to fully consider the "witch factor" in the data to achieve more accurate valuations. (In the future, TO VC project witch data analysis services may become a startup point.)

3.3 Memecoin > Value Coins

The phenomenon of no one picking up the pieces has led to a series of impacts, causing users to change their previous logic of participating in Crypto. For example, instead of choosing value coins (usually referred to as "high FDV coins"), they prefer to choose Memecoins, which have three clear advantages over value coins:

1) Memes usually have low valuations, providing higher potential space.

2) Memes are generally fully circulated, so there is no need to worry about unlocking pressure. Therefore, once market makers push them up, there will generally be people following.

3) The token distribution of most Memes is very fair, giving ordinary users a chance to participate early.

However, we also need to recognize that:

1) The short-term hype of Memes is not a new phenomenon; there was also a Meme craze in the last round, giving birth to globally renowned Memes like Doge and Shib. However, most Meme coins provide emotional value, which has issues such as "fast transfer, high volatility, and lack of durability." The vast majority (or 99.9%) of Memes are fleeting;

2) Among the current top 50 cryptocurrencies, Memecoins occupy four positions (DOGE/SHIB/PEPE/WIF), while the vast majority are still firmly held by value coins.

New Pattern Judgment

The hype of Memes is limited; truly valuable value coins will still experience a "value return" after addressing some of their own issues.

3.4 Airdrop Anomalies

The airdrop industry was not booming in the last round. After several major airdrops, especially after Arb, airdrops entered the "multi-account era," and the airdrop track became one of the hottest tracks, with about 50% of KOLs on Twitter involved in this track. Subsequently, the industry changed rapidly, with specialization, clustering, and automation gradually evolving and maturing, giving rise to dedicated studios, automated interaction systems, and proxy interaction services, among other derivatives. Due to the uniqueness of airdrops, it has become the most fiercely contested track.

1) "Airdrop farming" has become an essential skill for users.

Let's look at a few charts, showing: Arb daily new address cross-chain numbers / Starknet daily new address cross-chain numbers / L0 daily transaction numbers / Zksync daily new address cross-chain numbers.

It is evident that after the project team releases snapshots or suspected snapshot information, the data shows a significant decline, proving that most participating addresses are involved in the project solely for the airdrop. Based on estimates of actual active users in Crypto, it is clear that individuals are using multiple accounts.

2) Specialization, automation, and strategization have become mainstream.

When an industry has excess profits, it will inevitably attract competition. For airdrop farming, individual multi-accounts have their limits, so automation has become the first development direction. Automated clicking, automated simulation operations, automated contract interactions, etc., have quickly become development priorities, leading to the emergence of many studios. Subsequently, participants found that blind interactions not only lacked sufficient dimensions but also had low cost-effectiveness, leading to the emergence of "professional interaction solutions" and "professional dimension analysis." In this context, the "witch" has become the "sword of Damocles" hanging over every airdrop user, prompting deeper strategic theories such as "simulating real users" and "effective interaction."

3) The game of spear and shield.

In the airdrop track, there are two related parties: the project team and users. Among users, there are "ordinary users" and "clustered users."

For the project team, they need farmers to "provide" good project data to facilitate project financing, but they also hope to incentivize airdrops to "real users." On one hand, this rewards genuine participants, and on the other hand, it can reduce early selling pressure after airdrop distribution (because clustered users typically sell immediately upon receiving).

For users, since they have no opportunity to participate in the primary market, one possible way to obtain tokens is to compete for project airdrops. They need to farm to earn profits; although clustering has a high threshold (some proxy farming services significantly lower this threshold), once successful, they can achieve several times, dozens of times, or even hundreds of times the manual profits, which motivates them to develop clustering.

However, the emergence of clustered users is detrimental to ordinary users, as it leads to the generation of a large number of accounts (you can observe that many projects now have millions of participating addresses), significantly reducing the profits for ordinary users. Therefore, they are motivated to see project teams investigate and eliminate clustered users.

Thus, the "mutually beneficial" relationship between project teams and users in the low-volume, immature stage has evolved into a "love-hate" relationship.

In this process, due to the increasingly strong dominant position of project teams, they have gained an advantage in the competition, leading to many "anomalies."

1) Early projects tended to use "standard screening" to eliminate some low-quality interaction addresses and then "distribute evenly," trying to ensure a high level of satisfaction for participants;

2) Hop has boldly started analyzing "batch addresses" on GitHub, initiating the "witch-hunting era";

3) Some project teams have adjusted the distribution of airdrops by increasing airdrops for other dimensions (such as developers and contributors);

4) Project teams have gradually become more aggressive: some projects continuously PUA users but ultimately provide very low distribution amounts, while some projects even exploit user data and "break promises," and some projects have initiated "community reporting" (mobilizing the masses) tactics to address witch issues. Some project teams are even unwilling to disclose screening criteria… Such "anomalies" will continue.

5) During this period, data analysis methods have also gradually upgraded, transitioning from manual screening and standard filtering to cluster AI analysis, spanning multiple chains.

The competition continues, and the airdrop track has entered deep waters.

New Pattern Judgment:

Clustering has indeed had a huge impact on this track, leading to extreme internal competition in the airdrop industry. The difficulty of obtaining airdrops will continue to increase; this track will certainly still exist, but excess returns will gradually decrease until they approach the industry average level.

For project teams, it is essential to collaborate deeply with "truly professional witch analysis teams" (a professional data analysis team is not necessarily a professional witch analysis team) to discover clustering traces from multiple dimensions.

For clustered users, they need to conduct in-depth research on participation strategies while fully considering risks, forming small clusters, diversifying, and meeting the screening standards.

For ordinary users, they need to conduct project research, participate in projects with better cost-effectiveness given limited time/funds, and extend strategies based on a "symbiotic approach" that deeply binds them to the project (a community of interests), while fully exploring blue ocean sub-tracks within the airdrop track.

3.5 The Coldness of BTC Ecosystem Narrative

The most important mainline in this round is the narrative of the BTC ecosystem, which includes not only ETFs but also the resulting ecological demands. However, unlike the narratives brought by DEFI + NFT in the last round, we see many BTC-L2s and various DApps based on BTC, but the narrative of BTC in this round still feels relatively cold, reminiscent of "loud thunder but little rain." After conducting in-depth research, I have made the following "reasonable" analysis of the reasons:

1) Different quality. BTC holders are significantly different from ETH holders, as they have a high demand for "security" and "fund control," which makes them wary of various L2s and lowers their acceptance. Many even only recognize BTC's value storage attribute and do not believe BTC should participate in financial activities. This requires a long educational process, such as Babylon's "Time-Lock based BTC staking plan," which is doing such education.

2) High technical difficulty. Due to the complexity of BTC technology and the lack of scalability of the BTC mainnet, developing based on BTC, especially native development, is particularly challenging. Therefore, many projects' development cannot be launched quickly or elegantly, and various issues may arise during the process, leading to a lack of user experience.

3) Path dependency in sanDEFI. Many people believe that as long as DEFI is built on BTC, it can replicate the glory of the last round. This is an illusion created by "path dependency." Let's look at a few sets of data:

This is the TVL distribution chart on ETH. We can see that the main part has shifted from "MakerDAO + Uniswap + Opensea" to "Eigenlayer + Lido Finance."

The former represents DEFI + NFT, which are on-chain activities generating a lot of fees and are very active funds, while the latter consists entirely of "staked funds," which are inactive funds.

We can also verify the activity of funds from the fees:

It is already evident on ETH that users' investment tendencies have shifted from active investment to passive investment. Therefore, expecting the BTC ecosystem to thrive simply because there is DEFI is unrealistic in the short term.

New Pattern Judgment:

The BTC ecosystem narrative needs time to develop; DEFI is just foundational infrastructure but may not necessarily lead this round's development.

Activating BTC holders to use BTC is of utmost importance. The staking and restaking tracks will be key to achieving this. Native staking solutions will enable the secure use of BTC, and the yields from restaking will attract the continuous development of this process.

3.6 Exploration in the Gaming Industry

Games were a star track in the last round, receiving massive funding and once considered one of the keys to achieving Web3 mass adoption. However, even now, we have not seen such effects. While there are factors like "good game development takes time," I believe the core issue of "Web3 game economics" has not been resolved.

The most eye-catching game in the last round was the wildly popular "running shoes," but its lifecycle of only about "2-3 months" makes this economic model unsustainable.

Of course, we can see many explorations in the gaming track, such as:

1) Emphasizing the combination of "playability" and "economics." Excessive pursuit of economics will inevitably turn games into short-lived Ponzi schemes. Moreover, Crypto users particularly value "economics," and once the economics decline, they will shift their focus. At the same time, the number of people in the ecosystem is limited, so attracting more outsiders through "playability" is essential for the long-term development of games.

2) No longer excessively pursuing data, with more prudent designs for token economic models. Various methods are used within games to control the release and consumption of tokens, striving to extend the game's lifecycle.

Taking Big Time and Pixels as examples, the former has seen participation and profitability even after six months, while the latter has seen similar results after three months.

New Pattern Judgment

The gaming industry is continuously exploring, and with many games set to launch in the second half of the year, it may welcome an explosion in the gaming track in the current market's lack of hotspots.

The simple "buying the native token strategy" is likely to fail in this round because game projects will focus on maintaining long-term sustainability. Therefore, allowing game participants to profit during the gaming process may be a better strategy than pushing up token prices. However, at the same time, the profit margins for single accounts will also be significantly compressed, giving studios a greater advantage.

4. Conclusion

In my limited understanding, the fundamentals (main tone) of this round of the industry have changed, and the intrinsic logic of many tracks has undergone significant changes. What we can do, and must do, is to "adjust our understanding" to adapt to the new pattern of industry development. Here, "we" not only refers to ordinary users like you and me but also includes participants of other identities within the industry.

As the industry matures, the degree of competition will further intensify. Stagnation and complaints are meaningless; considering from the perspective of competition may help find that "balance point."