Written by: Sovereign Crypto Translation: Vernacular Blockchain

The grim reality shows that this cycle has once again proven , although there may be some similarities between market cycles, they are by no means exact replicas. Institutional adoption driven by ETFs, changes in the environment, and the woes of the mainstream economy have combined to change the underlying structure of the crypto market, forcing us to rethink many of our past assumptions.

1. Capital flow dynamics

In past cycles, capital flows had a more predictable pattern:

1) New capital first enters the Bitcoin (BTC) market.

2) Then flow to Ethereum (ETH) and blue chip Tokens in search of higher returns.

3) Finally enter the small and micro-cap Token market, attracting retail investors chasing "life-changing gains."

However, the capital flow pattern of this cycle has changed significantly. Today’s crypto market can be effectively divided into two ecosystems: institutional tokens and retail tokens.

2. The institutional ecosystem

mainly accesses BTC and ETH through spot ETFs. So far, funds have mainly flowed into BTC, keeping its price nearly 40% higher than its last all-time high (ATH). As the BTC market becomes saturated, institutional money may be looking for higher yields, leaving ETH ETFs as almost the only option. In this shift, a large amount of capital will move into ETH ETFs, and this flow of funds may cause the less liquid ETH market to react quickly in price (similar to what happened when the ETH spot ETF was originally approved, the price increased by 15% that day ).

3. ETH rotation effect

The price increase of ETH may further affect the blue-chip Token market, because crypto-native companies with actual ETH holdings will begin to rush to replace Tokens. Season (Alt-Season). At present, ETH's capital rotation seems to be very close, but the specific time still needs to be observed.

This leads to the second ecosystem: retail Token.

4. Retail funds completely skipped BTC and ETH

This is the first time in the history of cryptography that retail investors will no longer get involved in BTC and ETH, and then gradually transfer their profits Migrate to riskier assets. They realize that they have missed out on the best opportunity for BTC and ETH from a "life-changing yield" perspective and therefore can only significantly increase their risk appetite.

In the real world, people are struggling: inflation is crushing them, high taxes, a stagnant job market, and a high cost of living make most people unable to Invest or save for retirement. They don’t care about BTC and ETH, but directly skip these “rich people’s coins” (BTC, ETH and blue chip tokens), download the Phantom wallet, and plunge into the seemingly endless world of “Memecoin” without looking back, trying to Looking for the "lottery ticket" that can change your destiny. But most people will just fail and eventually quit crypto entirely.

1) The flow of funds in the retail ecosystem has been completely subverted:

Funds flow directly to Memecoin , completely bypassing technical or practical considerations. Profits are mainly concentrated in the hands of a few experienced "veterans" who, like souvenir merchants at tourist attractions, wait for new retail investors to arrive and empty their wallets, luring them into believing that they can realize their dream of getting rich overnight ("Look at this guy"). Turn $50 into $1 million, you can do it too!”

Currently, the altcoin market has not generated new wealth inflows, only a player-versus-player (PvP) wealth redistribution away from retail investors. Go to a professional scammer. Although Memecoin initially appeared as a fairly launched "anti-system" altcoin, it has now transformed into a highly manipulated scam: scammers seize most of the distribution when the token is issued, and then implement a "rug pull" or even more Bad behavior. This game is time-limited, and the capital that can be absorbed is limited. Once it is exhausted, the funds will find a new home.

2) Expectation and impact

I predict that the current "Memecoin Casino" will self- Devour. The leading Memecoin will likely survive and perform well, while the rest will fade into oblivion, disappearing along with the wealth of retail investors. Even in the best case scenario, this is nothing more than aA huge game of "Drumming and Passing Flowers" in which more than 95% of participants will end up losing money.

The impact on the capital flows of major Tokens (such as SOL, AVAX, etc.) is that they will require large-scale venture capital, institutional funds and retail capital injections in order to Triggering a new round of altcoin market. This will likely happen in the wake of the BTC and ETH capital spillovers, when institutions and retail whales start looking for riskier assets to carry their new gains. Recently, whale wallets have started net selling BTC.

5. GameFi’s “Stubborn Virus”

During the GameFi craze early in this cycle, many game projects frequently launched "vapourware". These project games The quality is poor, the FDV (fully diluted valuation) is too high, the token economics are useless, and there are many other problems. This chaos has led to a loss of credibility in the GameFi space.

Today, high-quality projects that have spent years carefully building and preparing to go live face huge challenges and need to overcome this negative stereotype to gain market attention. . Despite this, there are indeed some excellent projects with potential in the GameFi field. Once a successful game appears, its effects may trigger a large-scale speculation boom throughout the GameFi ecosystem.

6. Current status of launch pad

Launchpad has almost disappeared, but the survivors may usher in a strong recovery.

Venture capital funds (VCs) have tried to extract maximum value from retail investors, leading to the destruction of this model: long unlock period, high FDV, exploitative Centralized exchange (CEX) listing strategies and predatory market-making practices have put startup platforms in trouble.

A new model is emerging, showing significant advantages: projects with low FDV, high unlocking ratio, and no CEX listing are far superior to VC projects in the old model . Investing in top launch platforms will become key as these opportunities will be more scarce and have higher barriers to entry.

What is certain is that it only takes a few 50x or 100x projects to come online for retail investors to rush to buy the launch platform Token and seize access. qualifications.

7. 95% of Tokens are unnecessary and useless

Frankly speaking, the main function of crypto tokens is speculation. Only 5% of tokens are truly practical and represent partial ownership of revolutionary technologies and platforms. The remaining tokens are purely speculative games that will eventually belong to Zero. But at the same time, choosing the right project can reap huge rewards

8. Dilution makes the market crowded and difficult to find direction

In 2020, the encryption market. The number of Tokens at the peak of the market was approximately 10,000. Today, the same number of tokens are created every day. The vast majority of these projects are worthless, but they create a kind of "noise" that masks the truly valuable and innovative projects. There is no doubt that these revolutionary projects do exist, but they are hard to find for the average investor, especially those with only a superficial understanding of the crypto space.

This also explains why many newcomers prefer to invest in Memecoin. They don't need to understand complicated technology, they just need to see a cute dog wearing a hat whose only "function" is that it has no function - coupled with the excitement of "winning the lottery", it is attractive enough. .

9. The value output of KOL is far lower than the value of its plunder

Influencers (influencoor) in the crypto field have degenerated to the point where only a handful are left that can provide value and information. Most people turn to ridiculous headlines, shameless promotion, and even outright fraud.

The rise of Memecoin has greatly reduced the role of these Internet celebrities in real data. Instead, they have devoted themselves to unscrupulous promotion and "pump and dump" . Be sure to carefully identify useful information and do not blindly follow these "pseudo-shepherds."

11. MicroStrategy could be the GBTC of this cycle

MicroStrategy ($MSTR) is trading at a crazy premium to its net asset value (NAV), reflecting traditional Strong demand for Bitcoin in financial markets. However, as the cycle draws to a close, this premium is likely to reverse and turn into a discount. Pay attention to this indicator, it may be a signal of a cycle reversal. Although there will inevitably be calls for a "super cycle" at the peak of a bull market, it will inevitably be followed by a large-scale bear market decline.

For those who can identify these signals, this may become an excellent opportunity to short the market, but it will not appear in the short term.

12. The altcoin season is “dead”, EthereumEthereum is "dead"...the ultimate contrarian indicator

The market is filled with pessimistic voices about Ethereum and altcoins "no more market". However, this is a perfect contrarian indicator.

Despite Ethereum's underperformance, I remain firmly committed to a position in it, along with long-term altcoin positions (some outperforming, some not worse). Whenever everyone focuses on the price increase of Bitcoin and abandons positions in altcoins and Ethereum, the market for altcoins and Ethereum will not really usher in until the crazy pursuit of BTC at the local top.

13. ETF options will bring huge volatility - whether it is rising or falling

On the first day of listing of IBIT alone, there were nearly US$2 billion in nominal options Value trading, mostly focused on call options (betting on the rise in BTC price). Sellers of these calls typically hedge by purchasing the underlying ETF, driving the price higher. This trend is likely to continue in the coming months.

14. Regulatory clarity is a huge benefit, eliminating barriers to entry in the crypto field

In the past cycle, capital faced various obstacles entering the crypto field. Examples include difficulties in depositing and withdrawing funds, uncertain regulation, pending legal cases, and excessive caution on the part of trading platforms and crypto businesses. Now, that has completely changed. The launch of spot ETFs and regulatory clarity not only opens the floodgates for capital entering the crypto space, but also provides opportunities for capital that wants to invest in crypto startups.

Everything fell into place...no one could have predicted that so many positive factors would coincide with such perfect timing. This bull market has the potential to be the most explosive in history, including altcoins and Ethereum. Be patient!

Realized benefits include:

Bitcoin and Ethereum spot ETFs were approved< /p>

Trump’s attitude towards cryptocurrencies has changed significantly and he has promoted positive regulation

Special Trump’s overall victory

SEC Chairman Gary Gensler Resign

Sovereign entities of various countries purchase Bitcoin

"Unblocking" cryptocurrencies again

Favorable legal precedents have been set in the Coinbase and XRP cases

Stablecoin minting hits record high

Bitcoin and Ethereum trading platform balances hit record low

MicroStrategy Plans to buy $42 billion in Bitcoin in the next three years

Bitcoin ETF has become the largest product in ETF history, several orders of magnitude larger than gold ETF

p>15. Infrastructure improvements amplify bull market potential

Trading platforms, wallets, DeFi protocols and traditional financial access methods have all been significantly improved. The user interface and user experience have become simpler and easier to use, and are continuously optimized in a more friendly regulatory environment. These improvements have significantly reduced resistance and will attract more retail capital to enter. Once the bull market starts, the scale of capital inflows will be immeasurable.

16. Summary

The development of this crypto bull market is full of unpredictable factors. However, one thing that is always easy to predict in every cycle is the inevitable emotional reaction of retail investors: The latest overvalued project is awesome, buy it! Old undervalued project is too boring, sell! Altcoins are out, buy Bitcoin! Ethereum is dead, sell it!

This emotional reaction is always comparable to the "Cramer effect" (Cramer-like), making it a perfect contrarian indicator. Eventually, 95% of retail investors will lose money. Be one of the 5%, contrarian thinking is key. Good luck to everyone!