Reassessing the Crypto Market: Key Challenges and Changes in the Current Bull Run

Before discussing the current market conditions, let's review the patterns of past bull runs in order to analyze the characteristics of the current market.

The Evolution Pattern of Market Hype

Traditional stock market bull runs usually follow a certain hype logic: starting with brokers and high-quality blue-chip stocks, gradually spreading to various themed stocks, ultimately evolving into a frenzy of public participation. The crypto bull run of 2021 also exhibited similar characteristics, starting with DeFi Summer, experiencing the rise of Bitcoin and Ethereum, then rotating through various thematic sectors, and finally culminating in the explosion of Meme coins and new concept projects.

However, with the rapid development of blockchain technology, new narratives and tracks continue to emerge, such as Ethereum Layer 2 networks, restaking, inscriptions, and AI. These emerging fields are likely to replace the protagonists of the previous bull run. Therefore, it is difficult to accurately determine the stage of the market solely from the thematic perspective. We can try to summarize the rules of market evolution through market capitalization:

Core assets (BTC and ETH) → High market cap projects → Mid market cap projects → Low market cap projects → Meme coins → NFTs and others

The Uniqueness of the Current Bull Run

The intuitive feeling of this bull run is that there is insufficient liquidity in the capital, and the profit-making effect is weakening. Although the launch of the ETF has injected strong momentum into BTC, this liquidity seems difficult to spread to other areas. Even if the Federal Reserve may cut interest rates, it cannot guarantee that funds will flow immediately into the crypto market.

In this context, the market shows an extreme state: core assets are rising, while other projects are stagnant or even declining. Although Meme coins experienced a brief increase, the duration was limited, reflecting a lack of funds.

The Root Causes of Insufficient Liquidity

The current capital flow and transmission mechanism in the crypto market has undergone structural changes. The funds brought in by ETFs are mainly concentrated in BTC and ETH, making it difficult for them to overflow into other areas as they did in the past. In this case, funds will only flow to the next layer when the upper layer is saturated, and with each descent, the risk also increases.

The Impact of the Secondary Market on the Primary Market

The recent zk project is a typical case that reflects the current difficulty of the primary market in accommodating a large number of participants. In the absence of liquidity in the secondary market, many investors are turning to the primary market in search of opportunities, but they overlook that without a secondary market to take over, the significance of the primary market is greatly diminished. For ordinary investors, making a profit in the primary market has become exceptionally difficult.

High FDV (Fully Diluted Valuation) Issues

Tokens with sky-high market values continue to be listed, further squeezing market liquidity. From BB, Not to the recent io and zk, high valuations have limited the upside potential at the project's early stage. After new coins are listed, they attract some capital inflow, further squeezing the liquidity of other tokens.

According to the data, the current MC/FDV ratio of the tokens is at its lowest point in nearly three years, and the FDV of tokens issued in the first five months of this year is close to the total for the entire last year. This suggests that maintaining the current price in the future may require substantial liquidity support.

The impact of high FDV varies among different participants:

• The project party may benefit from the increase in market capitalization.
• VCs can demonstrate better performance metrics
• The exchange is basically unaffected.
• Retail investors may be reluctant to take over due to high FDV, instead favoring fully circulating Meme coins.

Conclusion

The fundamentals of the current market have changed, and the investment logic needs to be adjusted accordingly. Insufficient funds and high valuations with low liquidity are the core reasons for the weakening of the profit-making effect in this bull run, which in turn affects the performance of the primary market. Although we cannot accurately determine the stage of the market, it is only by addressing these issues that a true encryption frenzy may come.