Is the market stagnant? Don’t worry, the next wave of wealth creation is already surging in secret!

The markets are pretty boring, aren't they?

But recently, I have come to like this feeling of boredom. In this era of information explosion and intense competition for attention, boredom has become a rare kind of rest.

Looking back at the last bull market cycle, I spent almost the entire day online, fearing that I would miss any new high-yield investment opportunities. Although the excitement was very attractive, the long-term high tension did make me exhausted, and I even began to look forward to the bear market coming soon so that I could take a breath.

In fact, feeling bored is a good thing. It means that everything is stable and there are no big problems to be solved, which is good for mental health.

The same is true for the crypto market. In the past two months, the market has seemed a bit dull due to the low volatility of cryptocurrency prices. But compared with the turbulence of the bear market, this stable bull market is more reassuring. The price of Bitcoin is stable near its all-time high in 2021, there are no signs of bankruptcy of crypto companies, USDC remains stable, and the leaders in the industry are also safe.

So where exactly are we now, and where will the coming months take us?

How strong will the market's upward momentum be?

Data from Coinbase's first quarter report for 2024 shows that retail trading has not yet fully recovered.

In the first quarter of 2024, retail investors traded $56 billion, compared with $177 billion in the fourth quarter of 2021.

On the other hand, institutional trading volume is closer to its all-time high (ATH) of $371 billion set in Q4 2021, compared to $256 billion in the most recent quarter.

You could argue that retail traders are now trading more on-chain. But even with the recent meme coin craze, decentralized exchange (DEX) volumes (including Solana ) have not yet reached their all-time highs of 2021/2022.

Despite the angry accusations of venture capitalists abandoning retail investors, the amount of financing is still far from the high point of 2022. (For marketing purposes, project owners may announce financing news before the funds have fully arrived, resulting in a significant time difference between the financing data seen by the outside world and the actual flow of funds.)

In addition, the top meme coins that symbolize the market's FOMO sentiment have not yet appeared, the Coinbase app has not yet dominated the Apple App Store, discussions about cryptocurrency in your circle of friends are not in full swing, cryptocurrency advertisements are not everywhere, and even on social media X, you rarely see posts showing off Lamborghini or Rolex.

So, is this a bullish signal? I think so.

It seems that Bitcoin was pushed to its current price by us (old leeks, haha), ETF speculators and ETF buyers. But retail investors are not aware of this.

The fact that stablecoin supply has reached an all-time high is another bullish signal - there is money on the sidelines ready to enter the market at any time.

Finally, we currently have a positive funding rate, which indicates that traders are bullish on the market and are betting that the market will rise. We have also managed to get rid of the extra leverage in February 2024.

My gut feeling tells me that the market has more to go higher and right now the market is looking for a breakout point to get out of this accumulation phase.

Typically, a crypto bull market is triggered when: 1. We develop new technological innovations; 2. These innovations bring new market narratives; 3. We find new ways to issue tokens.

Even without new inflows, the market may become active due to leverage and FOMO among existing cryptocurrency investors. In fact, the 2017-2018 market cycle started in this way with Ethereum and the initial coin offering (ICO).

The 2020-2021 market cycle was initiated by the excessive issuance of currency during the COVID-19 pandemic, but was intensified and "internally driven" due to the craze for decentralized finance (DeFi) and non-fungible tokens (NFTs).

This time, we went from a $1 trillion cryptocurrency market cap at the beginning of 2023 to a current $2.4 trillion market cap, thanks to Bitcoin Exchange Traded Funds (BTC ETFs), points/airdrop mining, and token issuance at insanely high valuations.

Therefore, for the market to continue to thrive, it requires external or internal catalysts. Some external catalysts include:

• Rate cuts

• Speculation of a Trump victory (which ended with a sell-off in the news after his election)

• Another major market institution adopts cryptocurrencies or Bitcoin exchange-traded funds (BTC ETFs) with a sudden increase in inflows

• Bitcoin halving historical pricing

• Ethereum Exchange Traded Fund (ETH ETF) approved

• Some unexpected circumstances (most likely)

Ideally, I’d like to see 0 to 1 innovations like 2020’s Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs) become internal catalysts, but so far that seems unlikely to happen.

Many of the 0 to 1 innovations in this cycle, such as Bitcoin decentralized finance, restaking, L2, and DePin, lack the oomph to attract retail investors. While meme coin trading may have initially attracted some new users, as retail investors continue to lose money on meme coins, their interest (and money in their pockets) may not last.

A strong driver will be consumer applications that attract users outside the cryptocurrency space, such as Friend Tech , Fantasy Top, certain GameFi games, etc., which could be potential catalysts. They help expand the user base to a wider group, not just the hardcore cryptocurrency users.

However, the influence of airdrop points, the key factor driving user activity and market liquidity in this cycle, is gradually weakening. In short, the incentive effect brought by airdrop points has begun to show signs of fatigue.

The future of points, airdrops, and token issuance

With each market cycle, we find new ways to issue tokens, and these methods become easier and easier with each cycle.

If you have been following my views, some of this may sound familiar, but please bear with me as I explain:

Before Ethereum came to prominence, the issuance of tokens mainly relied on the Proof of Work (PoW) blockchain. The model at that time was relatively fair. On the one hand, Bitcoin holders could obtain airdropped tokens through forks; on the other hand, the threshold for mining was not high.

However, Ethereum's ERC20 token standard completely changed the landscape. Since then, anyone can easily issue tokens at a low cost. But the problem is how to inspire people to buy these tokens. To meet this challenge, initial coin offerings (ICOs) came into being, supplemented by white papers that described a blueprint for changing the world to attract investors.

But over time, many of the teams behind ICOs failed to deliver on their over-the-top promises, and the ICO craze faded as investors saw through the lies.

(I know a number of “industry builders” from the 2017/18 cycle who, after raising money, chose to enjoy a leisurely life in Dubai, Portugal, etc., while doing the minimum work to deal with external skepticism.)

Then, in 2020/21, we ushered in a new era of fair launches and liquidity mining. Although both methods have their own advantages, their heyday has ended. The reason is that the impact of liquidity mining on token prices has proved to be unsustainable because it triggered a large number of mining and selling behaviors.

Fair issuance sounds very attractive in theory, but in practice, there are very few cases where it can be truly fair (the reasons behind this are complicated, but the fact is that insiders are often able to obtain most of the tokens through various means).

The idea of ​​"governance" and participating in the project's revenue sharing is promoted to ordinary investors, which sounds tempting. But the reality is, how many people really understand and can benefit from the so-called #Realyield?

Points meta is the natural evolution of token issuance.

It aims to solve the “mine and sell” problem by extending the Token Generation Event (TGE), adding multiple airdrop mining seasons, and incentivizing users to actually use dApps , thereby keeping users and total locked value (TVL) longer.

This approach has worked for a while: airdrops like Jupiter , Jito, and I think EtherFi have all been successful.

However, like every new token launch, it will eventually lose momentum once the rules of the game become apparent and speculators in the crypto community begin to “game” the system or “exploit loopholes.”

*“Take advantage of” or “take advantage of” may not be the most appropriate words.

My most recent big loss was when I bought the Tensorian NFT, which was really unlucky. I was expecting a good return from the airdrop, but in the end I got nowhere near the amount I paid for the NFT, and I feel like I was ripped off again.

Another major issue is the issuance of low float tokens (high fully diluted valuation, low market cap) and the lack of attractive new stories to get retail investors to buy these low float tokens.

The biggest problem is that people don't believe the technology. They don't believe the stories.

To be honest, I like airdrops of tokens with high fully diluted valuations (FDV) because the allocations in USD are high. I can mine and dump these tokens - we all know the drill.

VCs also like this approach because even if the price drops 80% after the token generation event, their initial investment will still grow 10x.

However, since the influx of new retail investors is limited and crypto veterans from previous cycles have learned not to hold low-floating tokens, the prices of these tokens are bound to fall.

Looking at recently issued tokens alone, we would need $60 billion in capital flows into these tokens just to maintain their current prices!

We were deeply involved in the points game, however, the market seems to have changed due to two major events recently:

The first is the anti-sybil airdrop campaign launched by Layerzero . Layerzero previously used sybil behavior to inflate the number of users in order to increase the project valuation and obtain fees. Now, they have decided to take action to punish these sybils.

Another eye-catching event is the so-called "staking airdrop" by Eigenlayer . Although Eigenlayer has officially announced the token issuance, no further action has been taken. This delay has attracted widespread attention and heated discussions in the market. In the process, we gradually realized that the rules of the points airdrop are extremely complicated, making it difficult to effectively predict and plan the event. This game seems to always manipulate every step of the players.

So, how will the market trend be in the future?

To find the answer, we will closely monitor the results of the Layerzero airdrop event, and pay attention to the follow-up developments of projects such as zkSync Era, Zircuit, Magic Eden , etc.

We often think of things only from the perspective of airdrop recipients, but in reality, every project is eager to attract real users who will learn more about the project through participation and are willing to: 1. continue to participate in it, 2. purchase its tokens after the token generation event because of its bullishness.

Before the Token Generation Event, Sybil wallets are valuable because they can inflate metrics. However, after the TGE, they lose value because Sybils are unlikely to buy tokens after that. Even if they do, a real person managing hundreds of wallets will still only have the purchasing power of one person, not a hundred.

To make airdrops attractive again, project owners can focus on the following aspects:

Identify real users and potential new users by targeting active users of other projects or cryptocurrencies, including:

• NFT holders. Infinex launched by Synthetix is ​​doing this.

• Reward users of competitor projects to entice them to switch sides. For example, issue an initial airdrop where 50% of the airdrop is locked before users use the protocol (e.g. deposit TVL, make transactions, etc.).

• Holders of Proof of Humanity POPs, X accounts with a certain number of followers, individual PoS stakers, etc. This is what Starknet and Avail have already done (although it has caused some damage to some real users).

Increased airdrop allocation:

• The current 5% to 15% airdrop ratio is not enough to attract users. This ratio may work when there are fewer airdrop participants. Friend tech's 100% airdrop without allocating tokens to venture capital or project teams is an interesting attempt, but for this trend to become popular, FRIEND must perform very well.

Issuing tokens with a higher MC/FDV ratio and a lower valuation:

• Increasing the airdrop allocation ratio can alleviate the low floating problem to a certain extent, but it cannot completely eliminate this problem.

• Issuing tokens at a lower fully diluted valuation (FDV) leaves room for new buyers to upside. The good price performance of Kamino’s KMNO could be the catalyst for this change.

My advice is still to use multiple independent wallets. Eigenlayer's giveaway of 100 extra EIGEN tokens is a good example. But be careful not to spread your assets too thin, because most airdrops and mining activities are measured based on two points: 1. Deposited TVL (Total Locked Value) and 2. Trading volume.

If you hold multiple NFTs, please spread them out so that each wallet only holds one well-known NFT.

Final comments

In my market analysis in February of this year, I warned that the potential risks of circulating airdrop mining were quietly growing.

It turns out that my concerns were not unnecessary. The decoupling event of ezETH verified this, resulting in the liquidation of a large number of circulating positions.

This was undoubtedly an expensive lesson, but it was also a necessary step for the industry to develop. Since then, the use of leverage in the decentralized finance (DeFi) field has shrunk significantly.

Currently, all forms of leverage have retreated. As speculators begin to reduce risk and adjust their high expectations for airdrop points, the lending rates of stablecoins are also showing a downward trend.

At the same time, the on-chain lending market remained robust, and no large-scale liquidations occurred until the price of Ethereum fell to $1,500.

However, leverage always re-enters the market in some subtle way.

Currently, the two most obvious areas of leverage include:

• Ethena stablecoin accounts for 4.7% of BTC financing rate and as high as 13.6% of ETH financing rate.

• The area of ​​re-pledge or liquid re-pledge.

As Eigenlayer gradually launches new features, and more AVS projects are launched and slashing mechanisms are implemented, these may bring new risk points to the market.

But the biggest concern remains the issuance of low-float tokens.

Personally, if a token's market cap to fully diluted valuation (MC/FDV) ratio is not at 80%, I usually avoid holding it for the long term. Of course, there are exceptions, for example, when a project like STRK offers up to 20% annualized yield (APY) while accumulating points on the Nostra lending market, such a high-yield airdrop point activity will be more attractive.