The alienation of the cryptocurrency world: Cycles are destiny, and bubbles are also a prelude

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

After returning from Consensus in Hong Kong, I have met some friends in China one after another, and the familiar laughter still echoes in my ears. Old friends are still active, KOL, Agency, market makers, traders - people have not dispersed, the market has not collapsed, the only thing that has changed is the "spirit" of this market.

This is not a bull market, nor a bear market. It is not the market dominated by greed or fear as people are familiar with, but an indescribable "alienation" - an industry atmosphere that old leeks have never experienced and makes people feel like they are in another world.

In this era, there is only one business left in the currency circle: selling coins.

Three pillars: creation, discovery, and circulation

Roughly speaking, the currency circle has always been running on three wheels:

Value creation - Bitcoin, Ethereum, stablecoins, Layer2, DePIN, AI Agent, etc. meet user needs through technological innovation and create actual use value.

Value discovery - VC investment, transaction pricing, capturing potential assets, achieving price discovery through market mechanisms, and promoting industry development.

Value circulation - market makers, agencies, media, KOLs, etc. build sales channels for coins, assist projects to reach retail investors, and complete the circulation from primary to secondary.

These three should be a market ecology that meshes and complements each other. But now, what we see is:

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

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

Coin selling economics and resource clubs

A reasonable and healthy market should be inseparable from the three links. The project party makes good products, meets user needs, and obtains profits and capital market premiums; primary and secondary institutions provide capital allocation for the project party, intervene in the trough period, and exit at the peak period to make profits; and the selling channels laid by the circulation party also provide higher capital efficiency for the capital market.

But in the current cryptocurrency circle, there are no project parties and VCs to discuss which areas in the cryptocurrency circle still have opportunities for innovation, what kind of products can be made, or what kind of needs can be met. Even in the second half of 2024 when VC coins are generally falsified, there are still local industry hotspots such as AI Agent that can inspire the enthusiasm of entrepreneurs.

Secondary institutions are also generally flat, the high point of altcoins is reached when they are launched, the liquidity of meme coins is almost exhausted, and the durability of BSC is still lacking.

Under this market situation, there are only the third type of active institutions in the industry, MM market makers, agencies and intermediaries. The topics they talk about are nothing more than: how to brush up good data or get connections to large exchanges, how agencies do publicity and promotion to attract buying orders, and how active market makers cooperate with buying communities to dump more trading volume.

Market participants are extremely homogeneous, and they are all trying to squeeze the increasingly scarce stock funds in the cryptocurrency circle.

In this way, the top resource parties (top projects, large exchanges and their listing departments, MMs and agencies with strong resources) have formed an unbreakable community of interests. The blood of the currency circle is input from the LP end to the VC, from the VC to the top projects, and from the capillaries of retail investors in the secondary market on the other end, feeding the parasitic organizations of these communities of interests, and then growing bigger and bigger.

The disappearance of entrepreneurs

After the bankruptcy of FTX in 2022, the currency circle had a dark moment, Bitcoin fell to 18,000, and the copycats were silent.

But what is different from now is that a large amount of funds in the currency circle are deposited in the hands of VCs and secondary funds/big players. These funds have hematopoietic functions. VCs will invest in entrepreneurial projects. Entrepreneurs can generate positive externalities, create value and attract funds to enter the market;

At this moment, a large amount of funds are sucked by the middle links. The entrepreneurial project party only wants to earn the difference after listing, becoming the middleman between VC and the secondary market. There is no need to create value, only to create a "shell" story. From the traditional business logic, if the downstream distribution channels are to eat up most of the costs, then the upstream R&D and operating expenses must be cut.

The project party simply gave up making products, and all the funds were used to open up the promotion and listing links. Anyway, there are many companies that have no products and users to list on the exchange, and now the promotion can also be packaged as "meme" driven. The less money is spent on products and technology, the more funds can be used for listing and pulling the market.

The innovation path of the currency circle has become:

"Tell a good story → Quick packaging → Find a relationship to list on the exchange → Cash out and run away."

Product? User? Value? That is the self-touching of romanticists.

Pumping is fate

On the surface, the project party spends money on listing and pulling the coin price, which is good for you, me and everyone. The fund has been withdrawn, and the secondary retail investors have room for maneuvering and gambling. The pumping of middlemen has made a lot of money.

But in the long run, the loss of positive externalities has led to only middlemen getting bigger and bigger, and the pumping ratio has become higher and higher after the formation of monopoly.

Upstream project parties cut production and research costs, and the regulatory pressure and the squeeze of pumping water led to a serious asymmetry in the risk-return ratio, so they had no choice but to withdraw. Downstream retail investors' pvp became more and more serious, "taking over every time", and a large number of them withdrew from the circle after the money-making effect was lost;

In essence, middlemen, whether exchanges, MMs, agencies, or communities, are service providers. Service providers do not directly create value and positive externalities. When service providers and pumping water become the largest interest groups in the market, the entire market is like a cancer patient with a tumor. The final outcome must be that the cancer cells grow fatter and fatter, and the host withers and dies after the nutrients are drained.

The power of cycles and post-disaster reconstruction

The currency circle is ultimately a cyclical market.

Optimists believe that after this trough of liquidity drying up, there will be a real "spring of value" one day. Technological innovation, new usage scenarios, and new business models will re-stimulate enthusiasm for innovation. Innovation is immortal, and bubbles will eventually end. If there is a glimmer, it will be a beacon.

Pessimists believe that the bubble has not yet burst, and the cryptocurrency circle will still experience a deeper "avalanche reshuffle". Only when the pumpers have no more coins to pump and the market structure dominated by middlemen collapses, can real reconstruction be ushered in.

In the meantime, practitioners have to go through a chaotic and muddy stage: questioning, internal consumption, fatigue, and doubt about life.

But this is the essence of the market - the cycle is destiny, and the bubble is also a prelude.

The future may be bright, but the tunnel leading to the light will be very long.