Challenges and Analysis Facing the Current Crypto Assets Market Cycle

This round of the Crypto Assets market cycle is more challenging than ever before. The number of participants has increased, competition has intensified, and there are more experienced players. If you did not hold a significant amount of Bitcoin or Solana during the bear market, it is likely that you did not achieve substantial gains and may even have fallen into difficulties.

Main Challenges Facing the Current Cycle

1. Investor Psychological Trauma

In the past two rounds of large-scale altcoin cycles, most coins experienced a decline of 90-95%. Coupled with the impact of the Luna and FTX events, the entire industry suffered a heavy blow, and coin prices may fall to unreasonable lows. This experience has left a profound psychological shadow on Crypto Assets investors.

Very few people are willing to hold any assets for the long term because they do not want to endure the pain of significant portfolio shrinkage again. The emotional volatility of market participants has intensified, with everyone constantly guessing the top of the cycle. This psychological impact is reflected not only in trading behavior but also affects the construction and investment methods of the entire ecosystem. Projects face stricter scrutiny, and the trust threshold has significantly increased. This has both advantages and disadvantages: it helps filter out obvious scams but also makes it harder for legitimate projects to gain attention.

2. The pace of innovation slows down

Although there are still iterative innovations and infrastructure is constantly improving, there is a lack of breakthrough progress from 0 to 1 like in DeFi. This makes it easier for outsiders to question the development of Crypto Assets and has led to more statements like "Crypto Assets are worthless."

The innovative pattern has shifted from revolutionary breakthroughs to incremental improvements. Although this is a natural process for the development of any technology, it undoubtedly poses challenges for a market that relies on narrative-driven dynamics.

We still lack killer applications that can attract hundreds of millions of users to go on-chain.

3. Regulatory Pressure

The actions of regulatory agencies have severely hindered the development of the industry, especially in areas that could potentially have more product market fit and a broader audience (such as DeFi). They have also limited the ability of governance tokens to convey value to holders, which has to some extent led to the assertion that "all these tokens are useless."

Regulatory pressure has forced some builders to leave (such as Andre Cronje resigning due to regulatory pressure), hindering the interaction between traditional finance and the industry, ultimately forcing the industry to rely more on venture capital funding, resulting in adverse supply and price discovery dynamics, with value primarily being captured by a few.

4. The prevalence of financial nihilism

The aforementioned factors collectively led to financial nihilism becoming a prominent feature of this cycle. The "useless governance tokens" and the high fully diluted valuations caused by regulation, along with low liquidity dynamics, prompted many native players in the Crypto Assets space to turn to meme coins in search of "fairer" opportunities.

In today's society, asset prices are soaring, fiat currencies are devaluing, and wage growth is not keeping up with inflation. Young people have to resort to speculation to accumulate wealth, which makes meme coin lotteries highly attractive. Lotteries always have a market because they provide hope.

Due to the product-market fit of speculation in the Crypto Assets field, combined with our more advanced technology in this area (such as certain high-performance public chains and trading platforms), the number of token issuances has surged. This is because many people wish to engage in high-risk, high-return speculation. There is a demand for this in the market.

The term "trench" has always existed in the Crypto Assets circle, but in this cycle, it has become a widely understood term.

This nihilistic attitude is reflected in the following aspects:

• The rise of "fallen" culture has become mainstream.
• Investment cycle shortened
• Focus more on short-term trading rather than long-term investment
• Normalization of extreme leverage and high-risk behavior
• Holds a "whatever" attitude towards fundamental analysis

5. Past experiences become obstacles

Previous market cycles have told investors that they can buy some altcoins during a bear market and eventually gain returns by surpassing Bitcoin.

Most people are not excellent traders, so this was the best choice in the past. Overall, even the worst-performing alternative coins have opportunities.

However, this round of cycles is more suitable for traders rather than long-term holders. Traders have even gained the largest profits in this round of cycles through airdrops from certain popular projects.

The first hype cycle of artificial intelligence agents is an example. This may be the first time people feel "this is the new thing we have been looking for." Although still in the early stages, the long-term winners may not have emerged yet.

6. Bitcoin has new buyers, while most altcoins do not.

The divergence between Bitcoin and other Crypto Assets has never been so evident.

Bitcoin has first gained immense demand from traditional finance. It has an incredible new source of passive demand, with central banks around the world even discussing adding it to their balance sheets.

Altcoins are facing tougher competition against Bitcoin than ever before, which is understandable given that Bitcoin has a clear target market value comparable to gold.

Altcoins do indeed lack new buyers. Although some retail investors returned when Bitcoin hit new highs (but they purchased other coins), overall, the inflow of new retail investors is insufficient, and the crypto assets still face reputation issues.

7. The Transformation of Ethereum's Role

The decline of Bitcoin's dominance is largely influenced by the growth of Ethereum's market capitalization. Many believe that the trigger for the "altcoin season" is the rise of Ethereum, but this heuristic approach has not worked so far in this cycle, as Ethereum has performed poorly due to fundamental reasons.

Investment Strategy Recommendations

1. Pay attention to projects with the following characteristics:

   • Clear income model
   • The degree of fit between actual products and the market
   • Sustainable Token Economy
   • A strong narrative to complement the fundamentals (such as AI and real-world asset tokenization)

2. Consider becoming a better trader by focusing on short-term trading, as the market offers many consistent short-term opportunities.

3. For most people, a barbell investment portfolio is still viable. Allocate 70-80% of the funds to Bitcoin and certain mainstream public chains, and use the remaining funds for more speculative investments. Regularly rebalance to maintain the ratio.

4. Adjust your strategy based on the time you can invest. If you are a full-time worker, do not try to compete with young people who spend 16 hours a day in the market.

5. Try to combine different fields:

   • Establish a solid asset foundation
   • Participate in low-risk airdrop opportunities
   • Identify emerging ecosystems and layout early
   • Focus on specific categories

Although the altcoin market may see some growth this year, only a few industries and projects are likely to surpass mainstream coins. The rotation speed of altcoins will continue to accelerate. Even under extreme liquidity easing conditions, most altcoins may only be able to provide average market returns. This year, we will still see some large altcoin projects launched, and liquidity will continue to disperse.