The Alienation Record of the Cryptocurrency Circle: Cycle is Destiny, and Bubble is also Prelude

Author: XinGPT

Since returning from Hong Kong Consensus, I've gradually met some friends in the country, and the familiar laughter still echoes in my ears. Old friends remain active—KOLs, agencies, market makers, traders—people are still around, and the market hasn't collapsed; the only thing that has changed is the "atmosphere" of this market.

This is neither a bull market nor a bear market. It is not a situation dominated by the well-known greed or fear, but rather an indescribable "alienation"—an industry atmosphere that old investors have never experienced, making one feel as if they are in a different world.

In this era, the crypto space has only one business left: selling coins.

Three Pillars: Creation, Discovery, Circulation

Roughly speaking, the crypto space has always operated on three wheels:

Value Creation—Bitcoin, Ethereum, stablecoins, Layer 2, DePIN, AI Agents, etc., meet user needs through technological innovation, creating actual use value.

Value Discovery—VC investments, trading pricing, capturing potential assets, realizing price discovery through market mechanisms, and promoting industry development.

Value Circulation—Market makers, agencies, media, KOLs, etc., build sales channels for coins, assisting projects in reaching retail investors, completing the flow from primary to secondary markets.

These three should ideally be interlocking gears, complementing each other in a market ecosystem. But now, what we see is:

The first two are withering, while the third is thriving.

Projects no longer pursue users and products; VCs no longer study trends and sectors. The entire market is left with one voice shouting: "How to sell coins?"

Coin Selling Economics and Resource Clubs

A reasonable and healthy market should have these three links inseparable: project parties create good products, meet user needs, gain profits, and enjoy capital market premiums; primary and secondary institutions provide capital allocation for project parties, entering during downturns and exiting for profits during peaks; while the circulation parties' sales channels also provide higher capital efficiency for the capital market.

However, in the current crypto space, there are no project parties or VCs discussing which areas still have opportunities for innovation, what kinds of products can be made, or what needs can be met. Even with the general disillusionment of VCs in the second half of 2024, there are still localized industry hotspots like AI Agents that can ignite entrepreneurs' enthusiasm.

Secondary institutions are also generally lying flat; altcoins hit their peaks upon listing, meme coins have almost exhausted their liquidity, and the durability of BSC is still lacking.

In this market, the only active institutions left in the industry are the third type: market makers, agencies, and intermediaries. The topics of discussion revolve around: how to generate good data or secure relationships with major exchanges, how agencies can promote and attract buying pressure, and how proactive market makers can collaborate with buying communities to dump more trading volume.

The market participants are extremely homogenized, all trying to squeeze the increasingly scarce existing funds in the crypto space.

As a result, the top resource parties (top projects, major exchanges and their listing departments, resource-strong market makers and agencies) form an unbreakable interest community, with the blood of the crypto space flowing from LPs to VCs, from VCs to top projects, and the other end being infiltrated by the capillaries of retail investors in the secondary market, feeding these parasitic organizations of the interest community, which then grow larger and larger.

The Disappearance of Entrepreneurs

After the bankruptcy of FTX in 2022, the crypto space experienced a dark moment, with Bitcoin dropping to 18,000 and altcoins falling silent.

But unlike now, a large amount of capital was then trapped in VCs and secondary funds/big players. This capital had the ability to generate new blood; VCs would invest in entrepreneurial projects, and entrepreneurs could create positive externalities, generate value, and attract funds to enter;

Now, a large amount of capital is being drained by intermediaries, and project parties only seek to profit from price differences after listing, becoming intermediaries for VCs and the secondary market, needing to create value only to build "shell" stories. From a traditional business logic perspective, if downstream distribution channels eat up most of the costs, then upstream R&D and operational expenses must be cut.

As a result, project parties directly abandon product development, using all funds to facilitate promotion and listing, as there are many without products and users that can still list, and now promotion can also be packaged as "meme" driven. The less spent on products and technology, the more funds can be used for listing and price manipulation.

The innovation path in the crypto space has turned into:

"Tell a good story → Quick packaging → Find relationships for listing → Cash out and run."

Products? Users? Value? That's just the self-indulgence of romantics.

The Fate of Extraction

On the surface, project parties spend money on listings and price manipulation, everyone is happy, funds get to exit, and retail investors in the secondary market have room for maneuvering, while intermediaries profit handsomely.

But in the long run, the loss of positive externalities leads to only intermediaries growing larger, forming monopolies, and increasing their extraction ratios.

Upstream project parties reduce R&D costs, regulatory pressures and the squeeze from extraction lead to a severely asymmetric risk-return ratio, forcing them to exit. Downstream retail investors face increasingly severe PvP, "always taking the bag," and after the profit-making effect disappears, a large number exit the market;

Essentially, intermediaries, whether exchanges, market makers, agencies, or communities, are service providers. Service providers do not directly create value and positive externalities, and when service providers and extractors become the largest interest groups in the market, the entire market becomes like a cancer patient with tumors, where the final outcome is that cancer cells grow fatter and fatter, and the host withers and dies after being drained of nutrients.

The Power of Cycles and Post-Disaster Reconstruction

The crypto space is ultimately a cyclical market.

Optimists believe that after this liquidity-dried valley, there will one day be a true "spring of value." Technological innovations, new use cases, and new business models will reignite the passion for innovation; innovation does not die, and bubbles will eventually end. If there is a glimmer of light, let it be a lighthouse.

Pessimists, however, believe that the bubble has not fully burst, and the crypto space still needs to undergo a deeper "avalanche reshuffle." Only when the extractors have no coins left to extract, and the market structure dominated by intermediaries collapses, can true reconstruction occur.

In between, practitioners must traverse a chaotic and muddy phase: doubt, internal strife, fatigue, and existential questioning.

But this is the essence of the market—cycles are fate, and bubbles are merely a prelude.

The future may be bright, but the tunnel leading to that brightness will be long.