Is the crypto market over? Crypto circle 618? What is the main issue of this market trend?

Original Author: Jian Shu

"Has the crypto market ended? Did you make money in this bull market?"

Before discussing the current market, let's review the patterns from the last bull market and the A-share bull market.

1. Market Speculation Logic

The recognized speculation logic in the A-share bull market is that brokerages lead the charge, followed by quality blue chips such as insurance and real estate, steel, coal, and non-ferrous metals joining in, and finally, the speculative stocks go wild, with a flood of liquidity crazily searching for undervalued areas, where themes are played out and small caps soar. At the end of a bull market, opening an account requires connections, students no longer want to attend classes, workers don’t want to go to work, and security guards and aunties start sharing stock trading experiences. Listed companies crazily issue new shares and reduce holdings, while retail investors mindlessly take over, and after the revelry, only a mess remains…

Looking back at the 2021 crypto bull market, there are similar flavors. First, the narrative of DeFi Summer kicked off, with TVL doubling and driving Uni and Aave to soar. Then, BTC and ETH experienced a one-sided upward trend, during which almost all themes and narratives began to rise, with some increasing by several times and others by tenfold or even a hundredfold. In the later stages of the bull market, the crypto market saw a rise in the Meme sector, represented by Doge and Shib. After the rise of Memes, new narratives represented by blockchain games and the metaverse, such as AXS and Sand, exploded in popularity, leading to rampant speculation. After the speculation ended, the market adjusted due to various factors, and it never returned to its former state.

By comparing the commonalities of bull markets in different fields, we can find that the core logic is to prioritize the speculation of high-certainty, high-value assets, followed by sectors and tracks with narratives and hotspots, and finally, 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, inscriptions, AI, etc. These narratives will eventually replace the old narratives from the last bull market. Therefore, from the perspective of themes, it is impossible to summarize the rules or determine which stage the current market is in or what cycle it is in; here, we can summarize the rules through market capitalization.

Core Assets (i.e., BTC and ETH) - High Market Cap --- Medium Market Cap --- Low Market Cap --- Meme --- NFT/Other

2. Changes and Differences in This Bull Market

So, did you make money in this bull market?

Do you feel that the capital efficiency is insufficient, and the sectors you are optimistic about have experienced significant pullbacks?

Value coins can't keep up with MEME coins? The returns are not as quick as trading dog coins?

GameFi data keeps hitting new highs, financing continues, yet no blockbuster emerges?

The most direct feeling from this bull market is the lack of capital liquidity, poor profit effects, and no flourishing state. The approval of ETFs injected strong liquidity into BTC; however, this liquidity cannot spread to different sectors and tracks. Although there are expectations for interest rate cuts from the Federal Reserve, it still cannot guarantee that the long-awaited cuts will significantly improve the current state of the crypto market. We need to understand that the funds flowing out from interest rate cuts may not immediately enter the crypto market; they may first fill the liquidity gaps in the stock and real estate markets, and only after these markets overflow with liquidity will they flow into the crypto market.

Therefore, in the context of insufficient capital liquidity, combined with the approval of ETFs, an extreme situation arises where core assets rise while other market caps remain unchanged or even decline, and MEME coins rise due to the influence of short-term speculative money. However, this rise in the Meme sector is not a long-term sustainable increase; sometimes it can only last for a few days or even a few hours, which is also a manifestation of insufficient funds.

• Insufficient Funds:

Why is there such a lack of funds? The root cause 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 layer by layer like a reservoir.

We can understand that the current crypto market is like a reservoir, where different sectors and tracks are individual reservoirs. Only when the upper layer's reservoir is full will it overflow to the next layer. Based on the timeline of the last bull market, we can simply analyze the different states of fund flows within a market cycle. Only when market funds can no longer choose or are saturated in the current field will the market seek lower-value opportunities in the next layer, and the downward flow of funds is often a last resort or occurs when market funds are saturated. Because each step down represents a weakening of the profit effect at the current level, the risks will gradually increase.

• Secondary Market Crashing the Primary Market:

Let’s take the recent zk as an example; how many people's three years of hard work have been turned against them. This is also a manifestation of insufficient funds, as the current primary market for airdrops cannot accommodate so many people. Ultimately, in the current situation where liquidity and funds in the secondary market are not abundant, many people come from the secondary market to the primary market seeking opportunities, but many have not considered that without a secondary market to take over, what is the significance of the primary market? It is truly difficult for retail investors to make money in the primary market right now. Competing against professional studios is tough, and they are also easily targeted by witches; it can be said that ordinary people find it hard to survive in the current primary market, which has become a battlefield of technology.

Furthermore, the continuous rise of tokens with sky-high market caps has further squeezed liquidity, from the previous BB and Not, to the recent io and zk, including the future Blast, whose high valuations have initially squeezed the upward space. After new coins are listed, funds will more or less flow into these coins, further squeezing the liquidity of altcoins. In fact, from the performance of newly listed coins on their first day, it can be seen that the market is currently very short on cash, with opening prices lower than expected, and there were even cases where buying Not on the same day could yield a 50% profit, indicating that the market generally doubts the current value of new coins.

• High FDV Leading to Lack of Buyers:

According to the May 2024 Binance Research report "Observations and Thoughts on High Valuation, Low Circulation Tokens," we can find that the current MC/FDV is at its lowest in nearly three years, and the FDV of tokens issued in the first five months of this year has approached the total for all of 2023. Binance stated that if tokens want to maintain their current prices in the future, they will need $80 billion in liquidity.

With demand remaining unchanged, low circulation can easily raise token prices in the short term, thus pushing up FDV. Taking zk, which was launched yesterday, as an example, its market cap is close to $1 billion, but this is still under a large amount of unlocked tokens; is its valuation a bit too "high"?

So who benefits from high FDV?

From the project team's perspective, high FDV may drive up market cap, increasing potential future profit opportunities.

From the VC's perspective, the potential high valuation driven by high FDV represents the performance and metrics of VC.

From the exchange's perspective, high FDV does not affect the exchange itself.

From the retail investor's perspective, high FDV generally indicates a longer operational time for the project and a lower likelihood of running away. However, this further leads to retail investors being unwilling to take over high FDV tokens, instead turning to more interesting fully circulating Meme tokens, such as Not, which is a good example.

Thus, we find ourselves in a bull market where no one is taking over, meaning retail investors do not take over VC coins due to the massive unlocks caused by high FDV. Institutions do not take over Meme coins due to their low value and high volatility, leading everyone to play their own game, and the market cannot form a unified consensus.

3. Conclusion

The fundamentals of the current market have changed compared to previous years, and the investment logic previously used also needs to be adjusted and changed. We believe that the lack of funds and the situation of high valuation and low circulation are the core reasons for the poor profit effects in this bull market, resulting in the poor performance of the secondary market transmitted to the primary market, compounded by the witch situation in the primary market and the clustering of studios, further reducing the profit effect.

We cannot provide an accurate answer to determine which step the current crypto market is at, nor do we know if BTC will really break through $100,000. However, the market issues we rationally analyze at present are the most pressing problems that need to be solved. Perhaps only after the market gradually resolves and changes these issues will the true crypto bull market arrive.

Source: https://jianshu.ghost.io/shudu0618/

References: https://public.bnbstatic.com/static/files/research/low-float-and-high-fdv-how-did-we-get-here-cn.pdf