The triple dilemma of size, leverage, and internal driving force behind the sharp decline of the cryptocurrency market during the Spring Festival

Before the festival, the crypto ecosystem was dragged down by DeepSeek, which also affected the U.S. stock market.

As a result, during the Spring Festival, the crypto ecosystem was again dragged down by Trump's tax increase, which affected the U.S. stock market once more.

Although I previously speculated that Trump might be the biggest "black swan" for the crypto market, I didn't expect this black swan to appear so quickly, nor did I anticipate that it would be triggered by tariffs that seemed unrelated to the crypto market.

According to estimates based on information currently revealed by some exchanges, nearly $10 billion in assets were liquidated during this significant drop in the crypto market.

This would result in severe losses for users who used leverage, but for those holding spot assets, the losses can still be controlled. I hope our readers try to avoid using leverage to limit their losses in this downturn.

Regarding the future market development, I still hold hope and believe that the market has not yet run its course, as innovations within the ecosystem continue to emerge.

However, we retail investors need to strengthen our mental resilience and enhance our ability to withstand such extreme volatility, preparing for potential new "black swan" events that may occur.

If we carefully observe the various conditions exhibited during the two market fluctuations before and during the Spring Festival, we will find that, on one hand, the crypto market continues to be disturbed and influenced by the traditional U.S. stock market, while on the other hand, the crypto market appears to be more fragile and sensitive than the U.S. stock market.

The U.S. stock market often manages to recover significantly after a deep drop in subsequent rebounds. However, the crypto market does not, as it typically recovers quite weakly after a deep drop, requiring a longer time and greater positive news to achieve any level of recovery.

If we acknowledge that the current crypto market is increasingly influenced by traditional capital and traditional investors, then, to put it bluntly, the current crypto market seems to resemble a "chamber pot" among "risk assets"—taken out when needed and tossed aside when not in use. When mainstream risk assets (like U.S. stocks) are performing well, crypto assets follow suit; when mainstream risk assets are impacted, crypto assets suffer even more severe consequences.

This phenomenon began to show some signs in the previous cycle but has become very evident in this cycle.

I always try to think about the reasons behind this phenomenon because I believe that the crypto ecosystem is still quite different from traditional financial markets; it is another parallel world with its unique development path and rules.

Just like gold and U.S. stocks, although both are financial assets, their intrinsic properties are completely different, and often their trends and underlying logic are not strongly correlated.

The crypto ecosystem is similar; it should not always play the role of a "chamber pot" but should carve out its own market.

However, the reason why crypto assets are so heavily influenced by traditional financial markets at present may be related to three current situations:

First, the overall size of the crypto market is still not large enough; any slight "stir" can cause significant volatility due to a certain amount of capital flow.

Second, the lack of regulation in the crypto market leads to uncontrolled leverage risks, which can easily amplify risks during market fluctuations and exacerbate market volatility.

Third, the crypto market has yet to form its unique internal driving force and development model. In the eyes of traditional capital that already holds dominance, it is merely a supplementary theme rather than an ecosystem capable of developing its own market. Therefore, when risks arise, the first assets to be abandoned may be those of this ecosystem.

Upon further reflection, I believe that these three situations ultimately stem from the third one.

The so-called crypto ecosystem has not yet formed its unique internal driving force and development model, meaning that this ecosystem has not created applications and scenarios that can attract a large number of users from outside the circle.

Setting aside Bitcoin's positioning as "digital gold," from the earliest ICOs to the last round of DeFi, NFTs, and blockchain games, the vast majority of applications they spawned still serve users within the ecosystem—those who truly use these services through crypto wallets.

For the many users trading on centralized exchanges (CEX), they are not the real users of this ecosystem but merely investors.

Thus, these applications essentially have not reached a large audience or brought in a massive user base.

This is in stark contrast to what we see with internet applications in reality—almost everyone uses WeChat and Alipay, but very few have invested in Tencent or Alibaba.

From this comparison, if the crypto ecosystem does not produce applications that can rival the massive user base of the internet, I estimate that the current "chamber pot" role of the crypto ecosystem may continue.

But when will such crypto applications emerge?

From the ICO era to now, we have seen too many various applications combining blockchain with "physical" or "off-chain" elements, but 99.99% of them are pseudo-demand and pseudo-applications, and so far, it seems that none have truly broken out or become popular.

In this market cycle, can we see such applications emerge?