Author: Alex Xu, Research Partner, Mint Ventures
introduction
Last week, BTC completed its move up to its all-time high against the U.S. dollar, which means we have entered the official stage of this bull market. Compared with the rebound and recovery starting from the bottom of the bear market, the sentiment in the official stage of the bull market will further heat up and the fluctuations will be more intense.
The official stage of each bull market has some common characteristics, such as:
The situation has gradually transitioned from BTC leading the rise to altcoins leading the rise, and Bitcoin’s market share has declined.
The growth rate and range of various currencies are more violent
Become the darling of social media and search engines, and the public attention is rapidly increasing
The author of this article attempts to logically deduce the possible differences between this cycle and past cycles, and proposes his own thinking and coping strategies.
This article is the author's staged thinking as of the time of publication. It may change in the future, and the views are highly subjective. There may also be errors in facts, data, and reasoning. Please do not use it as an investment reference. Comments and discussions from peers are welcome. .
The following is the main text.
Crypto Bull Market Drivers and Alpha Track
bull market drivers
After the market capitalization of BTC reached a certain size, looking back on the past three cycles, the bull market was driven by multiple factors, including:
BTC’s halving (expected supply and demand adjustment), this round of halving will occur in April
As for the easing or easing expectations of monetary policy, the market has reached a consensus that the high point of interest rates has passed, and there are high expectations that interest rates will begin to decrease in the next quarter.
Relaxation of regulatory policies. This cycle is reflected in the update of US accounting standards, encrypted assets can be reflected in the financial statements of listed companies at fair value, and the SEC's defeat against Grayscale led to the adoption of ETFs.
New asset models and business model innovation
This bull market already has the first three of the above four points.
The Alpha track of each bull market
At the same time, in each bull market cycle, the biggest increases are the new species that were born (or broke out for the first time) in that cycle. For example, in the 2017 bull market ICO was popular, and the ones that rose the most were ICO platforms (smart contract public chains) such as Neo , Qtum, etc.; in the 2021 bull market, Defi, Gamefi & Metaverse, and NFT assets have gained the most. 2020 is the first year of Defi, and 2021 is the first year of NFT and Gamefi.
However, since the development of this bull market, there is still no new asset model or business model with similar weight as smart contract platforms and Defi in the previous two bull market cycles.
The current Defi, Gamefi, NFT, and Depin, whether they are new or old projects, their product form and narrative have not evolved much compared to the previous round. They are more about iteration and repair of product functions. To put it simply, they are all " Old concept".
The relatively new species that have appeared in this cycle are mainly two:
BTC Ecology: Inscription assets represented by ORDI and NodeMonkey, as well as second-tier projects dominated by BTC L2
Web3 AI projects: including distributed computing power projects that already existed in the previous cycle (Akash, Render network), as well as emerging AI projects in this round such as Bittensor (TAO)
But strictly speaking, AI is not a native track of the currency circle. Web3’s AI track is more the result of the penetration of the AI craze started by GPT in 2023 into the encryption industry. It can barely be considered a "new species" for half of this cycle. ".
The deduction and strategy of this bull market
Alpha trackers who may have been misjudged
In many bull market investment portfolio recommendations that the author has seen, Gamefi, Depin, and Alt coins from the Defi track are put into the asset pool. The main reason is that they are crypto assets with smaller market capitalization and greater flexibility. In the official stage of the bull market (after BTC's new high), it can significantly outperform BTC and ETH and achieve Alpha gains.
However, as the author mentioned earlier, "In every bull market cycle, the strongest gains are the new species that were born (or broke out for the first time) in that cycle." Defi, Gamefi, NFT, Depin, etc. do not meet the requirements of this cycle because they do not meet the requirements of this cycle. The characteristics of "new assets or new business categories", as tracks that have gone through the second cycle, do not expect them to reproduce the price performance of the first cycle, because an asset class can only enjoy the first cycle of its emergence. Huge valuation bubble.
Because when a new business model or asset class appears in the first round of a bull market, the main challenge it faces is to be "falsified", which is difficult in the enthusiasm of the bull market. In the second round of the bull market, projects on the same track faced the challenge of "proving", that is, proving that their business ceiling is still very high and their imagination space is still very large. This is also difficult, because the stories that have been told before want to It is not easy for people to believe again. They are still frightened by the experience of being trapped at the high point of the last bull market.
Some people may say that the L1 track was the "most handsome boy" on the growth list in the two bull markets of 2017 and 2021. Isn't this a counterexample?
Not really.
The market demand for the L1 track has experienced exponential explosive growth in the 2021 bull market. The explosion of multiple product categories such as Defi, NFT, and Gamefi has caused a rapid increase in the scale of the bilateral market for users and developers, creating an unprecedented zone. The demand for block space has not only pushed up the valuation of Ethereum, but the overflow demand from Ethereum has also caused the explosion of Alt L1s. The 2021 bull market is the real first year of ALT L1s.
And can this current cycle replicate the previous explosion of Dapp product categories and asset classes, bringing further growth in demand for L1?
Still not visible. Therefore, the prerequisite for L1s to achieve the last round of gains in this round no longer exists, and expectations for Alt L1s in this round of bull market must also be lowered.
BTC and ETH have better odds this round
The biggest driving force of this bull market is still the capital inflow brought by the opening of ETF channels and the optimistic expectations for this long-term inflow. Therefore, the first beneficiaries of this round are mainly BTC and ETH (potential ETF listing targets). Combining the above views on Gamefi, Depin, Defi and L1, it is more difficult to win Alpha in this bull market. The return-to-risk ratio of configuring BTC+ETH in the main position will be better than the previous round.
So, as BTC and ETH also benefit from ETFs, which one is the better choice?
In the author's opinion, the short-term outlook may be ETH, because BTC's ETF expectations have been digested in the existing price, and after the completion of the halving in April, BTC has no other hot spots for the time being. For ETH, the ETH\BTC exchange rate is still at a low level, and ETH's ETF expectations are gradually heating up, which makes ETH's short-term odds better than BTC.
In the long run, BTC may be a better allocation choice. Generally speaking, ETH is now becoming more and more like a technology stock. Its value lies in providing block space services, similar to a Web3 cloud service project. This market is highly competitive, and it continues to suffer from other block space service providers (L1, Rollup As well as DA projects) and various new technology solutions, the narrative and market share are eroded and squeezed. Once Ethereum's technical route goes wrong, or the product iteration speed is too slow, these will become reasons for being voted against by funds.
On the contrary, BTC's "electronic gold" positioning is becoming more and more stable with the steady expansion of market value and the opening of ETF channels. It is gradually gaining consensus as a value reserve asset to combat fiat currency inflation, from financial institutions, listed companies to Adoption in small countries.
The argument that "ETH's value as a store of value can surpass BTC" has become less and less popular.
Summary of strategies for this bull market
Although the author believes that over-allocating BTC+ETH in this round will have a better return-risk ratio than the previous round, this does not mean that we do not need to allocate other Alt coins, but we need to consider it carefully when planning the ratio.
In general, the strategies I am currently considering are as follows:
Higher allocation ratios on BTC and ETH
Control the allocation ratio on old tracks such as Defi, Gamefi, Depin, and NFT
There are new tracks in this round that can be used as a choice for Bo Alpha, such as:
Meme: The best medium for speculation. There will be concept renovations in each round and amazing wealth stories in each round. Therefore, it is also the easiest category of projects to understand and trigger circle-breaking communication.
AI: New web3 business category, external business hotspots continue
BTC ecology: including inscription assets, BTC L2, etc. The author is relatively more optimistic about the former, because it is a new asset category that has emerged in this round, and BTC L2 is actually the concept of Ethereum Rollup, which belongs to "old wine in a new bottle"
The cycle still exists, but it has moved forward significantly
In addition, in terms of cycles, the author believes that unlike previous bull market cycles, the year after the halving was the main rise, the biggest year of the main rise in this bull market should be 2024, not 2025.
The past BTC halving years were 2012, 2016, and 2020. The current halving year is 2024.
Flush Finance last year compiled a comparison of the income of major financial assets in the past 10 years. The details are as follows:
Generally speaking, BTC follows the rule of "rising for three years and falling for one year", that is, rising one year before the halving, the year after the halving, one year after the halving, and then falling one year later.
In the first round of Bitcoin halving cycle, BTC rose by 186% in 2012, the year after the halving, and 5372% in 2013, the year after the halving. It was similar in 2017, so before the bull market cycle in 2017, BTC basically met the "halving" trend. A small increase before the halving, a big increase a year after the halving."
This pattern began to be broken in the last cycle. First, there was a considerable increase in 2019, the year before the halving (93.4%, higher than 40.9% in 2015), and then the increase was 273% in 2020, the year of the halving. , higher than the increase of 62.3% in 2021, the year after the halving.
The forward trend of this "up cycle" in this cycle is further obvious. BTC achieved a 147.3% increase in 2023, the year before the halving, continuing to exceed the increase in the year before the previous halving (2019). , and the first quarter of 2024 has not yet ended, BTC has already achieved an increase of nearly 60%.
The author believes that there is a high probability that 2024 will be the main rising year of this bull market. Don’t delay and wait for the big rise in 2025. It may be a safer strategy to increase positions and seize the moment. Instead, 25 years should be the time for us to reduce our positions. The year of harvest.
Finally, I wish everyone good luck in hunting in this bull market and return home with a full load.
