Bitcoin has skyrocketed. Is there no hope for altcoin season? How to quickly select projects and grasp the rhythm of altcoins?

Source: Talking Outside the Lines

Today the market continues to be lively, and most people seem to be in an optimistic phase. Many have started to believe that a bull market has arrived again. In the morning, Bitcoin continued to break historical records, reaching around $89,000.

Many analysts attribute today's rapid rise in Bitcoin to the influence of MicroStrategy. Reports indicate that on the evening of November 11, MicroStrategy announced that it purchased 27,200 Bitcoins from October 31 to November 10, at a cost of approximately $2.03 billion, with an average purchase price of about $74,463 per coin. The funds for this purchase came from the company's ATM stock sales. As of now, MicroStrategy's total holdings have reached 279,420 Bitcoins, with a total acquisition cost of about $11.9 billion and an average purchase price of approximately $42,692 per coin. Based on the current Bitcoin price of $89,000, MicroStrategy's Bitcoin holdings have an estimated unrealized gain of about $12.9 billion.

Of course, more people are also paying attention to the market's future trends. If we simply refer to the weekly chart, Bitcoin is generally still bullish, but we must also be aware of short-term volatility risks and try to keep ourselves away from leveraged contracts.

Regarding the topic of Bitcoin's market situation, we have already discussed some perspectives in previous articles. In this issue, let's continue to briefly talk about the issue of altcoins.

As mentioned in our previous article, with the upcoming changes in BTC.D (BTC Dominance), perhaps, combined with the Federal Reserve's further interest rate cut expectations, and under favorable macro conditions, when a large amount of new liquidity flows into the market, altcoins may also experience a new round of growth that lasts for a while.

However, it is also important to note that due to the excessive number of altcoins created in this cycle, there is clearly an oversupply. Even if we welcome a new round of altcoin season, not all altcoins will have the opportunity to grow, or rather, only a small number of altcoins may have significant growth opportunities.

Here we may need to further understand the concept of altcoins:

Many people refer to all cryptocurrencies other than BTC (currently there are millions of cryptocurrencies on-chain) as altcoins, and ETH is often called the king of altcoins.

However, altcoins can still be further categorized. For example, they can be divided into two main types: Alt Cryptocurrencies and Alt Tokens.

Although this classification may seem similar, the underlying logic is different. Alt Cryptocurrencies mainly refer to tokens that can provide developmental support for blockchain networks, while Alt Tokens primarily provide support for the development of protocols or dApps, and these tokens are often issued on different blockchain networks.

Alt Cryptocurrencies:

For example, well-known tokens like ETH and SOL belong to Alt Cryptocurrencies. These tokens can operate on their own blockchain (Ethereum) based on their own protocols, and the tokens can serve as a source of Gas (or payment). Their growth demand is often reflected in actual transactions, active users, and revenue, and having strong token economics may further stimulate their demand and have a lasting impact on prices. This type of token is easy to understand, so we won't elaborate further.

Alt Tokens:

For example, well-known tokens like UNI and LINK belong to Alt Tokens. These tokens are a type of crypto asset issued on specific projects, and they do not necessarily operate on their own blockchain. The uses of tokens corresponding to different protocols may vary; some may be used for payment, but the more common use is for governance in DAOs. To put it bluntly, the main purpose of most of these tokens is to provide early investors in the project with an opportunity to exit with liquidity.

Let's elaborate on Alt Tokens. This type of token is often not friendly to most retail investors. Just look at those friends around you who are stuck in losses. Unless certain situations arise:

The first situation is when a DAO has a large amount of funds, the protocol can generate strong revenue, and the project team is willing to share that revenue with token holders in the form of actual earnings through staking (driven by system incentives). In this case, the corresponding governance token may appear attractive (or have some development potential), and this attractiveness will ultimately be reflected in the token's price.

The second situation is when the market is in an upward trend, such as during a bull market when speculation and FOMO are strong, some tokens may be manipulated by whales to drive up prices.

Of course, many concepts in the crypto space seem to lack unified definitions or classifications. For altcoins, different people may have different understandings. Everyone can think further based on their own understanding; our classification method is just a starting point.

After understanding the basic concept of altcoins, if you want to participate further in trading, we should try to avoid investing heavily in the following three types of altcoins:

First, outdated old projects

Many old projects lack continuous innovation, and their valuations are still somewhat high. It is difficult for such projects to have greater upward potential. From a longer-term perspective, the tokens corresponding to these types of projects currently show no future and seem to have been abandoned by the rapidly changing market. Therefore, stay away from those outdated projects that lack innovation, incentive systems, or marketing capabilities.

Second, high unlock projects

The supply of tokens for these projects is generally controlled by related interest groups of the project team, and token prices can easily be manipulated. If you do not have sufficient confidence or insider information, blindly participating can easily turn you into a bag holder. Moreover, once market conditions reverse, these tokens often drop the fastest and hardest.

Third, outdated narratives

Before this bull market began, many people still held fantasies about narratives like NFTs, P2E, and the metaverse. However, with the popularity of new hot narratives such as BRC20, RWA, AI, and MemeCoin, those once-glorious narratives are now rarely subject to large-scale speculation in the market. Additionally, many projects under past hot narratives have low liquidity and high FDV, which may be accompanied by ongoing selling pressure. Many participants who entered during the last bull market have been stuck for years, and now that they finally see a new bull market, many are unable to break even.

Based on the above understandings, adhering to the principle of "don't touch what you don't understand," the next step is to enter the specific project selection and research work:

Project research can be divided into many aspects. Interested friends can directly access the "Talking Outside the Lines Toolbox" to obtain the "Project Research Template" for categorized understanding. Here we will briefly mention a few key points to pay attention to, including the project's narrative ability, MC/FDV ratio, unlocking situation, and community building, in order to understand and evaluate the project's upward potential.

Here is a simple example (not as any investment advice, just providing a specific analysis thought and method):

For instance, if you believe that with Trump's official inauguration in January next year, there may be some new changes in regulation for the crypto space, and the DeFi narrative may attract some capital and speculation, you want to find some good targets under the DeFi narrative. Then you see AAVE, but you are unsure whether to buy this token. What should you do?

First, through our previous analysis, you should now clearly understand that AAVE is an Alt Tokens type of altcoin project. The use of AAVE tokens is relatively limited, mainly concentrated in two areas: first, as a governance utility token, meaning AAVE holders can vote on proposals or initiate new proposals that can affect the protocol's risk parameters, incentive measures, product improvements, and upgrades; second, as a staking utility token, meaning AAVE holders can choose to allocate tokens to the protocol's security module, and AAVE stakers will receive corresponding incentives (according to the official website, they are currently promoting a new revenue distribution proposal).

Therefore, at present, one of the core driving indicators for the price of this token is Fees (protocol fees), as stakers will be able to earn more AAVE tokens and a certain proportion of protocol fees, which will stimulate the demand for AAVE tokens and generate more attractiveness.

Supplementary Knowledge: What are Fees?

Fees directly translate to the meaning of costs, which may confuse many newcomers. We can simply understand it as the fees paid by users (conversely, this is the revenue of the protocol), mainly used to assess whether users are willing to pay to use the protocol or whether the protocol has product-market fit. If that is still unclear, let me put it simply: you can think of Fees as the total revenue generated by the project. Another concept often associated with Fees is Revenue, which can be understood as the portion of fees retained by the protocol. In simple terms, you can think of it as the income the protocol receives after providing related services, representing the project's actual revenue-generating capability. If we use a simple formula to illustrate: Fees = Revenue + Other Income Items (different projects may have different income design models).

Next, let's further look at AAVE's historical data:

Aave currently holds a 67% market share in the DeFi lending space, making it a leading player in this segment.

During the bull market in 2021, AAVE's total revenue (Fees) was $343 million, and the ATH price of the token that year was $666. As of 2024, AAVE has achieved $320 million in revenue so far, and if we estimate based on last month's (October) revenue of $32 million, their revenue this year will definitely break historical records. As shown in the figure below.

From the token's price perspective, AAVE is currently priced at $188, which is still a 71.7% drop from its ATH. Therefore, if you still believe that Fees is an effective core driving indicator, then theoretically, AAVE may still have about three times the opportunity.

Furthermore, we can combine other indicators to assist in judgment. For example:

AAVE's MC/FDV ratio is currently 0.94. The current circulating supply of AAVE is 14.9 million, accounting for the vast majority of the total supply of 16 million tokens. Additionally, about 1 million tokens are held in the protocol's treasury for security module staking rewards and to provide incentives for liquidity providers. This means that AAVE tokens are currently basically in full circulation, and there will not be large-scale token unlocks in the future.

AAVE's MC/TVL ratio is currently 0.16. Generally, the smaller this ratio, the more undervalued the project may be. Interested friends can create a list to compare it with similar DeFi projects.

Of course, we can also analyze the K-line trends simultaneously. We can even look at some news aspects, such as:

Aave has proposed to integrate BlackRock's tokenized fund BUIDL into its GHO stablecoin module (GSM), which could diversify Aave's revenue sources and increase RWA exposure.

Aave has hinted multiple times in recent months that it will consider expanding to the Solana network.

And so on…

After analyzing from these different angles, you should have a further understanding of the project.

Finally, whether to participate in trading specifically depends on your personal planning and position management. However, it is important to remind again that the above is just an example, not as any investment advice, and only provides a specific analysis thought and method, mainly to inspire further thinking.