Challenges and Opportunities in the New Cycle of Crypto Assets

The current Crypto Assets cycle is facing unprecedented challenges. Each cycle is more difficult than the last, and participants must contend not only with fiercer competition but also with an increasingly complex market environment. This cycle is particularly tough for investors who did not focus on holding Bitcoin or Solana during the bear market.

Reasons for the difficulties in the current period

1. Market Psychological Trauma

In the past two large-scale altcoin cycles, most projects experienced a 90-95% crash. Coupled with the chain reaction from the Luna and FTX incidents, the entire industry suffered a severe blow, with asset prices falling to historic lows. This deep market trauma has seriously affected the psychology of Crypto Assets investors.

Investors are generally unwilling to hold assets for the long term, fearing significant losses again. Market sentiment is more volatile, with everyone constantly searching for potential market peaks. This psychology affects not only trading behavior but also the construction and investment methods of the entire ecosystem. Projects face stricter scrutiny, and the trust threshold has significantly increased. This has both positive effects and negative impacts: while it helps filter out obvious fraudulent projects, it also makes it harder for genuinely valuable projects to gain attention.

2. Innovation Slowing Down

The current cycle of innovation is more reflected in iterative improvements. Although the infrastructure is continuously optimized, it lacks breakthrough innovations from 0 to 1 like decentralized finance (DeFi). This makes it easier for critics to question the progress of Crypto Assets and has also led to the rise of views such as "the uselessness of Crypto Assets."

The innovative landscape has shifted from disruptive breakthroughs to incremental improvements. While this is a natural process in the development of any technology, it undoubtedly poses challenges for a market that heavily relies on narrative-driven dynamics. Currently, we still lack killer applications that can attract hundreds of millions of users to go on-chain.

3. Regulatory Pressure

The misconduct of regulatory agencies has severely hindered the development of the industry, particularly preventing further progress in areas like DeFi that could have gained broader market recognition. They have also restricted the transfer of value from governance tokens to holders, which somewhat validates the assertion that "these tokens are useless."

Regulatory pressure has forced many developers to leave (such as Andre Cronje resigning due to regulatory pressure), hindering the interaction between traditional finance and the crypto industry, ultimately pushing the industry towards venture capital fundraising, resulting in adverse supply and price discovery dynamics, with most of the value being captured by a few.

4. The prevalence of financial nihilism

The above factors have collectively led to financial nihilism becoming a significant feature of this cycle. The "useless governance tokens" and the high fully diluted valuation (FDV) caused by regulation, along with low circulation dynamics, have 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 depreciating, and wages are growing slowly. Young people have to seek wealth growth through high-risk speculation, which makes meme coin lotteries very attractive. The reason lottery-style investments remain popular year after year is that they can bring hope to people.

Crypto Assets have unique advantages in speculation, coupled with better technical support offered by platforms such as Solana and Pump.fun, leading to a surge in the issuance of tokens. This reflects a strong market demand for high-risk, high-return investments.

This nihilistic attitude is mainly reflected in the following aspects:

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

5. Experience Pitfalls

Experience from the past few cycles tells investors that they can buy some altcoins during bear markets and ultimately gain returns by surpassing Bitcoin. This strategy has indeed brought good profits for most non-professional traders in the past. However, this cycle is more suitable for flexible traders rather than long-term holders.

6. Buyer structure changes

The divergence between Bitcoin and other Crypto Assets has never been so apparent. Bitcoin has for the first time garnered strong passive demand from traditional finance, with even central banks considering incorporating it into their balance sheets. In contrast, altcoins lack new buyers. Although some retail investors have returned to the market as Bitcoin reached new highs, overall, the influx of new retail investors is insufficient, and the Crypto Assets industry still faces reputational challenges.

7. Ethereum Role Transition

The decline of Bitcoin's dominance has been largely influenced by the growth in Ethereum's market capitalization. However, the previously held belief that Ethereum's rise would drive the altcoin market has not proven effective in this cycle, as Ethereum has underperformed due to fundamental reasons.

Investment Strategy Recommendations

1. Pay attention to projects with the following characteristics:

   • Clear income model
   • Actual product market fit
   • Sustainable token economic model
   • Strong narrative support (such as AI and tokenization of physical assets)

2. Consider adopting a barbell strategy: allocate 70-80% of the funds to mainstream assets like Bitcoin and Solana, with the remaining funds used for more speculative investments. Regularly rebalance to maintain this ratio.

3. Adjust strategies according to personal time and energy. For ordinary investors who cannot fully commit, do not try to compete with full-time traders.

4. Try diversification strategies:

   • Build a robust foundational investment portfolio
   • Participate in low-risk airdrop activities
   • Pay attention to emerging ecosystems (such as HyperLiquid, Movement, Berachain, etc.)
   • Focus on specific areas

5. Maintain Flexibility: The altcoin market is expected to grow this year, but there may only be a few projects that can truly surpass Bitcoin and Solana. The rotation speed of altcoins may further accelerate.

Despite the challenges of the current cycle, opportunities still exist. Investors need to remain vigilant, adapt to market changes, and adopt more flexible and diversified investment strategies.