Everyone is asking when the altcoin season will come; after all, this is a major concern for everyone in the crypto space. Today, I will discuss the history of crypto venture capital and past altcoin seasons to explain why the crypto industry experiences altcoin seasons, why the altcoin season is currently collapsing, and what conditions are needed for the altcoin season to re-emerge in the future.
Many people are looking forward to the altcoin season bull market, but most people actually don't really understand what the altcoin season is. Simply put, the altcoin season is a market that has a long enough duration and enough tokens rising.
Only in this situation is there a possibility of providing retail investors with profit opportunities. The fluctuations of a few projects do not constitute an altcoin season bull market because retail investors cannot grasp opportunities from it.
So what kind of market qualifies as an altcoin season bull market? Based on past crypto history, there have basically only been three phases: the first is the ICO bull market, the second is the DeFi bull market, and the third is the metaverse & NFT bull market. Of course, there is also the inscription & MEME bull market.
Let me give everyone a conclusion first, and then analyze in detail. My conclusion is that the ICOs, DeFi, the metaverse, and NFTs brought huge capital accumulation to the industry, while the inscriptions & MEME bull market is the 'surface reason' that crushed the altcoin season.
In fact, ICOs, DeFi, the metaverse, and NFTs brought a lot of risk capital to the crypto space. It is crucial to understand that venture capital is a key factor driving the altcoin season.
Therefore, don’t listen to those KOLs and teachers blindly cursing venture capital, VCs, and institutions. Understanding the essence is what matters most.
Why do I say this? First, we need to talk about the logic of venture capital. The essence of venture capital is actually quite simple: a small group of people invests a bit of money into projects that have not yet stabilized in profit.
Because whether these projects can make money is uncertain, venture capitalists usually compensate for the risk by obtaining more equity or dividend rights. If the project eventually succeeds in making money, they can earn more. Conversely, due to uncertainty, they must also bear greater risks.
So why would venture capital invest in a project? Generally, there are two main reasons:
Evaluating people: For example, venture capitalists may look at the founder's background, whether this person has had past success, and assess the likelihood of future success.
Look at the PPT: It means looking at what you are doing, whether there are similar projects in the market that have made a lot of money, and seeing if the hype you are making can hold up.
In the crypto space, to increase the market's market value, the most important thing is to need money—an endless stream of money. As long as money comes in, there will be entrepreneurial teams, and there will be technological development. Then these new technologies can attract more money, creating a virtuous cycle.
However, the money here is not the money of retail investors, but big money. So what kind of big money will come in?
First, stable large money will not come in. Because large assets like Bitcoin are not income-generating assets, they do not conform to the logic of value investing. Those with low risk appetite will not enter.
So who is the remaining big money? It's venture capital.
Everyone compares the explosion of crypto projects and market value from 2016 to 2022 with the money that venture capital brought in.
Especially in 2021 and 2022, the period saw the largest explosion in market value. Early projects from 2017 and 2018 achieved the highest multipliers during this time, such as Theta and AAVE.
During the DeFi bull market, the concept of decentralized finance began to be understood by Wall Street and venture capital institutions, and it made logical sense and had great disruptive potential, attracting top venture capital from the internet and tech fields to experiment, with A16Z being one of the representatives.
During that period, driven by the high-profile internet tactics of these venture capitalists, the entire crypto industry's market value exploded with the first bubble, leading to many projects with a market value of over a hundred billion, such as Dage, dot, Sol, UNI, etc.
Then, the concepts of the metaverse & NFTs suddenly exploded during the internet era, coupled with the super high returns of early venture capital, attracting a large number of top institutions to join, such as Sequoia Capital, SoftBank, and Tiger Global.
These venture capitalists had already reaped the dividends of Web2, and now seeing Web3 arriving, talking about the metaverse and DAOs, with the market frequently saying it could be worth trillions. Then looking at the predecessors who made hundreds or thousands of times returns in funding games like Axie almost overnight, they thought, 'If it's this crazy now, won't it be even crazier in the future?'
However, most people do not really understand these technologies and get overly excited just hearing about a new concept. Therefore, from 2021 to 2022, a large amount of venture capital flowed into the infrastructure track (such as public chains, scaling technologies, developer tools) as well as NFTs, the metaverse, blockchain games, DeFi, CeFi, and social sectors.
At that time, everyone thought the collapse of LUNA was a turning point, but it was not. Even if there was no LUNA, sooner or later projects like LUNB or LUNC would emerge and become the fuse for the bear market.
The root cause is that the current market in the crypto space simply cannot bring these concepts to fruition. Therefore, whether it is the development of these new concepts or applications, they will inevitably go through stages of 'technological innovation' and 'over-investment.'
Once entering the stage of technological surplus, funding will begin to decrease, and many CeFi projects in the crypto industry, accustomed to high leverage and madly distributing high interest, will experience explosions, leading to bubble bursts.
As a result, by 2022, external venture capital funds had almost been destroyed by the bear market by 90%. By 2023, venture capital funding not only significantly decreased from $30 billion a year to $10 billion.
Moreover, the funding structure has undergone fundamental changes.
From 2021 to 2022, venture capital in the crypto market was mainly divided into six categories:
Crypto-native venture capital funds: At this stage, 49 new funds were established, with an average fund size of about $300 million, of which 62% of fund managers had previous fundraising experience, continuing to raise a new round of funds in 2021.
Cross-border technology and traditional VC: Represented by Andreessen Horowitz, these traditional tech VCs have begun to increase their investments in the crypto space. In 2021, they raised $2.2 billion for their Crypto Fund III, and in 2022, they launched a $4.5 billion large fund, indicating that these mainstream VCs are becoming increasingly interested in the crypto market.
Corporate venture capital (CVC): Crypto giants like Binance Labs, Coinbase Ventures, and OpenSea Ventures have begun to establish their own investment departments, providing startups with dual investment opportunities in equity and tokens. For example, FTX Ventures acquired 30% of SkyBridge Capital in 2022, further penetrating the external asset management field.
Institutional investors (LP): University endowment funds like the MIT endowment and pension funds have also started to include digital assets in their portfolios. For example, the MIT endowment plans to invest $200 million in Bitwise in 2024, with a five-year investment lock. Institutions like Yale University and the University of Texas are also increasing their investments to avoid missing potential returns.
Family offices and high-net-worth individuals: A 2021 survey showed that 47% of American family offices and 43% of financial advisors had begun to engage in digital assets, becoming important funding sources for venture capital funds.
Hedge funds and large asset management: Major institutions like Citadel Securities and Soros Fund Management continued to bet on projects like Silvergate and Marathon Digital in the fourth quarter of 2022, maintaining their strategic allocation.
Among these six categories of funds, aside from crypto-native venture capital funds and corporate venture capital, the rest are essentially fresh 'retail' money.
However, by 2023 to 2025, the earliest 'suckers'—cross-border technology and traditional VCs basically disappeared, and traditional institutional investors, asset management giants, family offices, and high-net-worth individuals turned their attention to Bitcoin ETFs. Now, only crypto-native funds and corporate venture capital strategic investments are increasing their investments in ecosystem projects.
At this time, all the money is from within the market.
Everyone thinks about it: the crypto projects themselves are not profitable, venture capital money has been invested, but the new venture capital is no longer taking over; where does the money come from? How do they make a profit?
So, can’t they just leverage the valuation in the primary market, using a high market cap and low liquidity chip structure, and then collude with market makers to manage currency value in the secondary market to 'recover'?
Although retail investors seem foolish, they are not that foolish. To harvest retail, there must be some new tricks. But the problem is that apart from money, what venture capitalists lack the most is innovation and imagination.
After the old tricks no longer worked, they couldn't account to their investors and couldn't harvest retail, and were criticized every day. Large VCs could still barely cope by squeezing some money from small VCs, but small VCs became the scapegoat caught in the middle.
In the end, the bull market of the altcoin season was put on hold. Therefore, you can see that after August 2024, I hardly talk about 'buying altcoin seasons' anymore. Either the projects are bad, or the valuations are too high, simply unworthy.
However, things are not that simple. If it were just like this, retail investors' vigilance towards venture capital would gradually rise, and their wallets would become tighter, leaving some room for development.
Unfortunately, the popularity of Bitcoin inscriptions and MEMEs was like a big fire, draining the last bit of liquidity from the market.
First, in the Bitcoin inscriptions and MEME track, venture capital money cannot come in. So whose money is in there? Of course, it's retail money.
The first wave of retail capital concentrated destruction was the Bitcoin inscriptions. Starting from May 2023, although derivative inscription projects like ORDI saw ten-thousand-fold increases, there were few who cashed out and many who were trapped, ultimately leading retail capital to flow to Bitcoin miners.
By November 2023, the inscription market peaked again, and retail money was again taken away by market makers, early players, speculative funds, and project parties in currency value management. Of course, some were also taken away by fraudulent projects.
The second wave of capital destruction was the MEME craze. This round of MEME bull market was almost the most thorough destruction of retail capital.
Starting from PEPE in 2023, the MEME craze quickly expanded from Ethereum to Solana, with a volatility cycle of about 2 to 4 weeks, almost consuming 90% of retail capital. If Solana hadn’t brought in a new wave of incremental retail capital, the MEME craze might have ended a year earlier.
Finally, by January 2025, the Trump token issued by Trump soared from zero market value to hundreds of billions of dollars in just 36 hours, marking the final 'fireworks.'
So, do you still expect the altcoin season to have a long-lasting bull market? Will there be enough rising tokens? Logically, it doesn’t hold.
Now if you participate in the altcoin season, what can you really gain? Either you're waiting to fill the hole for overvalued projects, or the manipulators are playing MEMEs, setting benchmarks to recover your principal.
Just looking at the trends of Bitcoin and other tokens makes it clear that no matter how much is said, positions and market value are key.
As I write this, Bitcoin has risen again, having surpassed $90,000, and other altcoins have also risen, but which supporting logic stands stronger: Bitcoin's or altcoins'?
In short, in order for a real improvement to occur during the altcoin season or altcoin bull market, there must be a new wave of 'suckers' venture capital entering the market to drive it. However, the problem is that the new suckers are also scared off, and to get them back into the market, a completely new concept must emerge—something that has never been seen before.
Therefore, for the altcoin season, the most important thing is to focus on these 'unprecedented concepts'; other matters should be minimized.
As for the current market rebound, how to operate? I won't elaborate on that. Why was I able to layout concepts like DeFi, the metaverse, and NFTs in advance? Why was I able to avoid the traps of altcoins in this round of the market and grasp the main line of Bitcoin?