With the funding rates of a large number of altcoins soaring to the highest level in the past three years, this round of sentiment-led altcoin market has finally ushered in a violent shock after the climax. On December 9, in the absence of any obvious negative factors, altcoins collectively plummeted, resulting in the forced liquidation of approximately US$1.6 billion in positions in the futures market, and the bleeding of leveraged bulls. CoinmarketCap data shows that on December 9, the top 100 currencies by market capitalization fell by a median of 22.3%, and many currencies’ gains in this bull market were wiped out by half. Why did the market suddenly plummet?

Usually, bear markets frequently see sharp increases, while bull markets often see sharp declines. The purpose of the sharp decline is to carry out precise beheading operations on leveraged bulls with lightning speed. At the same time, it cleanses the bulls on the market through a "horror drop" and scares potential bulls outside the market. Vice versa, the same goes for sharp increases.

When a sharp drop occurs, many investors who were originally confident in the bull market will panic and withdraw, while those who originally planned to buy the bottom believe that the market has not bottomed out yet. , thus ending the bargain-hunting plan. Therefore, during the bull market, once a washout technique of squeezing leveraged longs through rapid decline occurs, market adjustment is often in place in one step. The signal that the adjustment has bottomed out is the emergence of Tianliang liquidation. On the contrary, if the decline unfolds slowly, allowing investors enough time to think and judge, then the "bottom" you think is most likely not the real bottom.

The decline on December 9 not only released panic, but also met the conditions for a huge liquidation of positions. Therefore, the nature of the adjustment is still a technical adjustment in the bull market process. .

From a trading perspective, it is too early to talk about a peak in the altcoin market morning. First of all, in the past week, regardless of the rise or fall of the market, the daily trading ratio of altcoins has always remained above 40%. The focus of the capital game has obviously shifted to altcoins, and once this trend is formed, it will not change easily. At the same time, there is almost no shortage of hot spots with money-making effects in the market at any time. Even if the market plummeted on December 9, 5% of the top 150 currencies by market capitalization still bucked the trend and rose. This indicates that market risk appetite remains at a consistently high level.

Secondly, the current bullish enthusiasm and trading congestion in altcoins are far from reaching the levels when they peak in 2021. For example, in March 2021, the daily trading ratio of altcoins was once as high as 70%, and FIL's trading volume exceeded BTC for many consecutive days. The current altcoin market is stillIt is in a state of orderly rotation, and there is no phenomenon where a certain sector or currency continues to siphon market liquidity at a high valuation premium.

However, it needs to be emphasized that with the indiscriminate sweep of funds and the end of the low-lying phase, it is inevitable that the altcoin market will diverge. Although the new main line of the market is still brewing, judging from past experience, adhering to fundamental logic is still the best strategy for defensive counterattack.

According to the division of tracks, fundamental types of currencies can be divided into deep value types and rapid growth types. Deep value currencies usually belong to projects with a stable competitive landscape and a solid industry position. These projects already have certain hematopoietic capabilities, and at the same time, their internal system reform and optimization of market operation strategies are also continuing to advance. Once the industry enters a boom cycle, they are most likely to usher in Davis's double-click opportunity. The most typical examples are the old leading DeFi projects such as UNI, AAVE, and LINK that the author has repeatedly mentioned. Take UNI and AAVE as examples. According to DeFiance Captial data, the former has a market share of 60% in the mainstream asset trading field, and the latter has a market share of 65% in the active lending field. They are the dominant players in the DEX and LEND fields respectively. Since August 5, as the bull market continues to ferment, the TVL of these DeFi projects has generally increased by 3-5 times, and the daily trading volume has also increased by 5-10 times. As leaders in the segmented fields, the hematopoietic capabilities of UNI and AAVE have been unprecedentedly improved.

In addition, as the market scale gradually stabilizes, only leading companies have the ability to improve corporate profits through price increases. Because with the establishment of brand advantages, scale effects and customer stickiness, users' acceptance of price increases for products or services will also increase accordingly. For example, Uniwap started charging a 0.15% exchange fee for certain tokens on its web application and wallet in October 2023, and increased the exchange fee from 0.15% to 0.25% in April 2024. So far, front-end fees have brought more than $100 million in revenue to Uniswap Labs, which means that even if the treasury funds are exhausted, Uniswap still has the source of funds to maintain operations and research and development.

As the industry enters a mature stage, leading companies (projects) will have more income to use to improve shareholders’ investment returns, such as increasing dividends or buybacks intensity. In February this year, the Uniswap Foundation released a proposal to allocate part of the protocol fees to UNI pledgers; in July, the Aave governance team proposed to use part of the protocol fees to repurchase the governance token AAVE. Although the interests of all parties are still at stake, it is only a matter of time before these proposals are implemented. In contrast, small DeFi protocolsEven survival has become a problem, and there is obviously no excess liquidity to improve shareholder returns.

On December 12, the Trump family’s DeFi protocol (World Liberty, Financial) purchased three tokens: ETH, LINK, and AAVE. The amounts are US$10 million, US$1 million and US$1 million respectively. It is worth noting that three days before the Trump family’s DeFi protocol purchased tokens, Trump announced that crypto czar David Sacks would serve as the new crypto director. Sacks is a supporter of asset tokenization. CRV, which has performed well recently, is BlackRock's partner for asset tokenization. According to Bitwise's predictions, with the gradual entry of Wall Street, the scale of RWA assets is expected to grow from US$13.7 billion in 2024 to more than US$50 billion in 2025, which also means that DeFI will usher in new growth points in the future.

In short, the leader in each segment of DeFi is still a clear main line in the altcoin market. For investors who pursue certainty, appropriate allocation of some DeFi assets is also a good choice. As for how to choose fast-growing currencies, we will focus on explaining them in the next issue.

In terms of operation, during the market shift period, adhering to the principle of "the strong will always be strong" is the best way to select the leader in the next stage. In terms of target selection, there are two main criteria for reference: first, the currency price has taken the lead in breaking through the pressure zone in March this year; second, the currency price has the smallest decline during the correction and the largest increase during the rebound.