Is encryption over? Coin circle 618? What is the main problem with this market?

Original writer: Uncle Jian

"Is crypto over? Have you made money in this bull market?"

Before talking about this round of market conditions, let us review the rules of the last bull market and the A-share bull market

1. The hype logic of the market

The generally accepted hype logic for A-shares in the bull market is that brokerages are the first to pull the trigger, followed by high-quality blue chips such as insurance and real estate, steel, coal and non-ferrous metals, and finally the mad cows of theme stocks, flooding the market with crazy. Looking for low-value areas, the subject matter is a show, and small tickets are flying around. At the end of the bull market, you need to find connections to open an account. Students no longer want to go to class, migrant workers don’t want to go to work, and security guards and aunts start to share their stock trading experiences. Listed companies are crazy about increasing and reducing their holdings, and investors have no brainers to take over, and after the carnival, there is only a piece of chicken feathers left...

Looking back at the crypto bull market in 2021, it also has the same flavor. First, the narrative of Defi Summer opens, and TVL turns it over The double rise drove Uni and Aave to rise crazily, and then Btc and Eth ushered in a unilateral rise. During this period, almost all themes and narratives started a round of rise, ranging from several times to ten or even hundreds of times. . In the middle and late stages of the bull market, the crypto market ushered in the rise of the Meme sector, the most representative of which were Doge and Shib. After the rise of Meme ended, new narratives such as Axs and Sand represented by blockchain games and Metaverse exploded, and the market After the crazy hype, the market was adjusted by various factors and never looked back.

Comparing the common points of bull markets in different fields, we can find that its core logic is to prioritize high-certainty and high-value assets, followed by hype on sectors and tracks with narratives and hot spots, 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 the second layer of Ethereum, re-pledge, inscribed runestones, AI, etc. These narratives have finally It will replace the old narrative of the last bull market, so from the perspective of the subject matter, it is impossible to summarize the rules and where the current market has developed and what cycle it is in. Here we can summarize the rules through market value.

Core assets (i.e. BTC and ETH) - High market capitalization - Medium market capitalization - Low market capitalization - Meme - NFT / Others

2. Changes and differences in this bull market

So in this bull market, have you made money?

Do you feel that the capital efficiency is insufficient, and the track sector that you are optimistic about has a big correction accidentally?

Can value coins not outperform MEME coins? Earnings are not as fast as speculation?

GameFi’s data continues to hit new highs and financing continues, but it can’t become a hit?

The most direct feeling of this bull market is that capital liquidity is insufficient, the money-making effect is poor, and there is no state of a hundred flowers blooming. The adoption of ETF has injected super liquidity into BTC, but this liquidity cannot spread to different countries. Although there are expectations for the Federal Reserve to cut interest rates, there is still no guarantee that the interest rate cut that the market has been waiting for will significantly improve the current situation of the crypto market. We need to know that the funds flowing out of the interest rate cut may not be injected into the crypto market immediately, but may first fill the liquidity of the stock market and real estate market. After the liquidity in these markets overflows, they will flow into the crypto market.

Therefore, in the case of insufficient capital liquidity and the adoption of ETFs, there will be an extreme situation where core assets rise, other market values ​​remain unchanged or even fall, while MEME is affected by the sentiment of short-term hot money and ushered in a rise. However, this kind of rise in the Meme sector is not a long-term sustainable rise. Sometimes it can only last for a few days or even a few hours. This is also a manifestation of insufficient funds.

Insufficient funds:

Why does this kind of insufficient funds occur? The fundamental reason is that there have been structural changes in the flow and transmission of funds. The funds injected by ETFs can only be transmitted to BTC and ETH, but cannot overflow layer by layer like a reservoir.

We can understand that the current crypto market is a reservoir, and different sectors and tracks are all reservoirs. Only when the reservoir on the upper layer is filled with water will it overflow to the next layer. Based on the time points of the last bull market, we can simply analyze the different states of capital flow in the market. Only when market funds can no longer choose or are saturated in the current field, the market will look for lower values ​​and seek more opportunities at the next level. The downward trend of funds is mostly due to necessity or when market funds are saturated. Because each time you go down a level, it means that the money-making effect of the current level becomes weaker, and the risks involved will gradually increase.

The secondary market collapses the primary market:

Let us take the recent ZK as an example, how many people’s three years of hard work have been reversed. This is also a manifestation of insufficient funds, that is, the current first-level airdrop market cannot accommodate so many people. In the final analysis, when the current liquidity and funds in the secondary market are not sufficient, many people come from the secondary market to the primary market to seek opportunities, but many people have never thought about the significance of the primary market without the takeover of the secondary market. Where is it? It is extremely difficult for retail investors to make money in the primary market. Short-selling is no match for professional studios, and it is easy to be witched. It can be said that it is difficult for ordinary people to survive in the current primary market, and it is already a technological battlefield.

Secondly, the continuous listing of tokens with sky-high market values ​​has further squeezed liquidity. From the previous BB and Not, to the recent io and zk, including the future Blast, its high valuation has squeezed the upside space from the very beginning. . After new coins are listed, funds will more or less choose to flow into these coins, further squeezing the liquidity of altcoins. In fact, judging from the performance of the first day of the recent listing of new coins, we can see that the market is now too short of money, and the opening price is lower than expected. There are even situations where Not bought on the same day can earn 50%, which shows that the market is generally Doubts about the current value of new coins.

High FDV leads to non-acceptance of orders:

According to the May 2024 Binance Research report "Observation and Thoughts on the Current Situation of High Valuation and Low Circulation Tokens", we can find that its current MC/FDV is the lowest in the past three years. The FDV issued in the first five months of this year is close to the total in 2023. Binance said that if the token wants to maintain its current price in the future, it will need $80 billion in liquidity.

When demand remains unchanged, low circulation can easily push up currency prices in the short term, thereby pushing up FDV. Take zk, which was launched yesterday, as an example. Its market value is close to US$1 billion, but this is still a large amount of unlocked money. Is its valuation a bit too "high"?

Who is benefited by such a high FDV?

From the perspective of the project side, high FDV may drive the increase in market value and increase potential future income opportunities

From the perspective of VC, the potential high valuation driven by high FDV represents the performance and indicators of VC

From From the perspective of the exchange, high FDV does not affect the exchange itself

From the perspective of retail investors, high FDV generally means that the project will continue to operate for a long time and the possibility of running away is low. However, this has further led to retail investors being unwilling to buy tokens with high FDV, and instead turning to more interesting Meme tokens that are fully circulated, such as Not, which is a good example.

So we have fallen into a bull market where there is no takeover of orders, that is, retail investors do not take orders for VC coins. The reason is the huge amount of unlocking caused by high FDV. Institutions do not accept Meme coins. Its low value and violent fluctuations lead institutions to believe that there is no investment value. As a result, everyone plays their own game, and the market cannot form a unified consensus.

3. Summary:

The current market fundamentals have changed compared with previous years, and the investment logic used before also needs to be adjusted and changed. We believe that insufficient funds, high valuations and low circulation are the main reasons for this round. The core reason for the poor money-making effect of the bull market is that the secondary market transmits poor performance to the primary market. Superimposed on the witch situation and studio clusters in the primary market, the money-making effect is further reduced.

We cannot give an accurate answer to judge where the current encryption market is going, nor do we know whether BTC will really exceed 100,000. However, the market problems we have rationally analyzed are the ones that need to be solved most at the moment. Perhaps only after the market gradually solves and changes these problems can the real crypto bull market come.

Reference:

Binance Research: High Valuation, Low Circulation Token Current Observation and Thoughts

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