Anyone who has experienced a cycle in the cryptocurrency circle knows that it is easy to buy at the bottom, but it is difficult to escape at the top. Because the bottom cycle consolidation time period is longer, you have enough time to react, and there is a high probability that you can buy at the bottom; and it is difficult to escape at the top because its time period will not be too long, as long as 2 or 3 months, or as short as less than a month. For example, the bull market opportunity in 2017 was a V-shaped reversal. If you were confused by the increase in the copycat at that time and hesitated for a few days, your account would soon be cut in half. In addition, the greed in the bull market will overwhelm many people's minds, which makes it very difficult for us to escape at the top in terms of time period and psychological construction.
Although investing is an art, we cannot perfectly escape the peak, but we can get closer to the truth, achieving a 'fuzzy' correctness. Below, I want to use this simple method called the 'Market Cap Assessment Method' to help most people find a thread of rationality amid the madness of a bull market, through quantitative indicators, narrative analysis, and several dimensions, to help you build your own escape strategy in an unpredictable market.
1. The Energy Required for Each Market Cap Level:
In the cryptocurrency space, market cap is undoubtedly an important indicator for judging a coin's market position and stability. Let's first take a look at the energy demands of different market cap levels:
1. Micro Market Cap (under $10 million): This basically belongs to the stage of speculative assets, during the grassroots period, relying only on a very few believers and early developers for support, characterized by extremely inactive trading and insufficient liquidity. However, at this stage, due to the concentration of chips, it is like a cloud of marsh gas; it only needs a spark and a lot of patience. As long as emotions can be ignited, it is the embryonic form of a thousandfold coin, but it may also never find that spark and disappear to zero.
2. Small Market Cap ($10 million - $1 billion): This stage belongs to the initial emergence phase. Once the market cap breaks $100 million, the source of funds begins to expand to 'curiosity seekers'—those who have heard of it but do not understand the crypto space. These coins often require relatively little capital momentum to significantly influence prices. This energy mainly comes from collective actions of a small group of investors or manipulation by a single whale. The source of energy typically comes from small teams promoting and gaining initial market recognition. At this stage, the energy source is usually niche capital and some high-risk investment funds, and the narrative begins to possess 'foresight' characteristics, such as 'Bitcoin is digital gold.'
3. Mid-Market Cap ($1 billion - $10 billion): This is gradually entering mainstream attention and requires a larger capital pool to maintain price stability or drive up prices. Here, market energy comes not only from capital inflows but also from news, partner announcements, and other external factors. This range also has a very good balance of risk and return, with future opportunities to surge 10-50 times, but the relative risk is much lower than that of speculative assets.
4. Large Market Cap (over $10 billion): Above $10 billion can basically rank within the top 20 in the crypto space. These coins generally undergo the test of time through market recognition. The energy demand here can no longer be filled solely by internal funds. The market needs a grander narrative to attract external capital, such as Ethereum's 'smart contracts change the world' or Dogecoin's 'universal payment.' The fluctuations of these coins often require large-scale funds and market confidence to drive.
5. Trillion Market Cap: When a coin breaks through a trillion market cap, relying solely on boring concepts and speculation is no longer sufficient; it requires a powerful global narrative behind it, such as Bitcoin's 'anti-inflation asset' and 'decentralized finance revolution.' At this stage, market participants include individual investors, institutional funds, and even national-level wealth sizes.
2. The Narratives Required for Each Market Cap Level:
The pricing in financial markets is driven by future expectations, or what is called risk-driven. Companies that can make money may not necessarily receive high premiums in the capital market. For example, why do retail investors rarely buy shares of Industrial and Commercial Bank of China? It's not because it doesn't make money; clearly, it does, but it is just too stable, stable enough to envision what it will look like in 100 years. The cryptocurrency market, especially the one driven by narrative. The narrative is the guide for the flow of capital, and every breakthrough in market cap requires a grander 'story' to continue attracting people.
1. Small Market Cap: You will hear the phrase 'the next XX' (for example, 'the next Bitcoin'). Here, it relies on dreams and potential.
2. Mid-Market Cap: The narrative shifts towards practical applications and collaborations, addressing a real pain point may revolutionize an industry or be news of collaborations with large companies.
3. Large Market Cap: At this point, the narrative becomes more grandiose, potentially a tool that could change the global financial system or the widespread application of blockchain technology worldwide.
3. The Number of Community Members Needed to Drive Each Market Cap Level:
1. Small Market Cap: It may only require a few thousand to tens of thousands of active users to drive up prices. The community plays the role of grassroots marketers here.
2. Mid-Market Cap: Requires hundreds of thousands to millions of user support. The role of the community begins to shift towards brand promotion and ecosystem building.
3. Large Market Cap: Here, what is needed is a user base of millions or even globally. The community needs not only quantity but also quality, with participants ranging from individual investors to enterprises and institutional investors.
4. How to Use Market Cap to Build Your Strategy:
1. Determine Your Exit Market Cap Goal: Determine the current situation of your purchased asset and whether it can support the next market cap level. Combine historical data and current narratives to estimate the possible limits of the market cap.
2. Narrative Assessment: If a coin's narrative starts to become difficult to justify, has not been realized, or if the market consensus on its future development begins to collapse, under such circumstances, if emotional speculation occurs, it is a very good time to sell.
3. Community Sentiment Indicator: The number of community members begins to increase slowly, and even gradually, some people start to express differences and sell, or newcomers begin to ridicule long-time holders, indicating that the market cap is likely difficult to maintain and is a signal of reaching the peak.
Finally, let me take the relatively popular meme of Pepe as an example: Pepe is currently ranked 19th, with a market cap of just $10 billion. Let's compare several key points to see if they meet the current market cap:
Large Market Cap (over $10 billion): Above $10 billion can basically rank within the top 20 in the crypto space. These coins generally undergo the test of time through market recognition. The energy demand here can no longer be filled solely by internal funds. The market needs a grander narrative to attract external capital, such as Ethereum's 'smart contracts change the world' or Dogecoin's 'universal payment.' The fluctuations of these coins often require large-scale funds and market confidence to drive.
Large Market Cap: At this point, the narrative becomes more grandiose, potentially a tool that could change the global financial system or the widespread application of blockchain technology worldwide.
Large Market Cap: Here, what is needed is a user base of tens of millions or even globally. The community needs not only quantity but also quality, with participants ranging from individual investors to enterprises and institutional investors.
We can easily find that Pepe cannot meet many criteria, such as grand narratives or institutional participation. Let’s attribute Pepe's success to: a strong community + favorable timing + trends + speculation + celebrity endorsements. Even so, this stage is undoubtedly filled with bubbles, but if it expands to a market cap of $50-$100 billion without changing its fundamentals, then one should leave immediately, not to be greedy for that last bit of profit.
For example, many people say that Dogecoin's narrative could break through $1 trillion, but a bit of rational thinking reveals that breaking through $1 trillion is nearly impossible, as there is currently no super global consensus or global application. This means that when the bubble reaches the range of $200 billion to $500 billion, it is an absolute signal that we must leave.
Emotions have warmth, but data is cold; observing data is an important tool for us to remain calm in a bull market. 'Knowing when to stop allows for stability.' The wisdom of escaping a peak is not greedily seeking higher, but knowing where your limits are and leaving calmly. The frenzy of a bull market comes from the collective illusion of a desire to get rich quick. When that illusion collapses, it is extremely tragic, and those who can escape unscathed are often very few.
That's how this world works: some sink while others reach the top; some fall while others stand up. As I often say, the essence of this world is a massacre of low-cognition individuals by high-cognition individuals. It is precisely because of these people losing everything that there are stories of underdogs transforming into A8A9. This wealth effect attracts countless people to go all-in, seeking to conquer the heavens and change their destiny! This is not survivor bias; this is the real operation rule of this world. I've said my piece, and I hope you don't fall; I welcome like-minded friends to join my community.
