Preparing for the main bull market uptrend, my thoughts on the current cycle

Last week, BTC reached 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 from the bottom of the bear market, the sentiment in the official stage of the bull market will further heat up and the volatility will be more intense.

The official stage of each bull market has some common characteristics, such as:

• The situation of BTC leading the rise has gradually shifted to altcoins leading the rise, and Bitcoin's market share has declined

• The growth rate and increase of various currencies are more violent

• Becoming the darling of social media and search engines, public attention is increasing rapidly

In this article, the author attempts to logically deduce the possible differences between this cycle and past cycles, and puts forward his own thoughts and response strategies.

This article is the author’s interim thinking up to 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 logic. Please do not use it as an investment reference. Criticism and discussion from colleagues are welcome.

The following is the main text.

What drives the crypto bull market and what drives the Alpha bull market

After BTC’s market value reached a certain size, looking back at the past three cycles, the bull market was driven by multiple factors, including:

• BTC halving (supply and demand adjustment expectations), this round of halving will occur in April

• The market has reached a consensus that the peak of interest rates has passed due to the loosening or expectation of loosening monetary policy, and has high expectations for a reduction in the next quarter.

• The relaxation of regulatory policies. This cycle is reflected in the update of US accounting standards, which allows crypto assets to be reflected in the financial statements of listed companies at fair value, and the SEC 's defeat in the case against Grayscale, which led to the approval of the ETF.

• New asset model and business model innovation

This round of 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 new species that were born (or broke out for the first time) in that cycle have the largest increases. For example, in the 2017 bull market, ICOs were prevalent, and the ones that saw the largest increases were ICO platforms (smart contract public chains) such as Neo and Qtum. In the 2021 bull market, the ones that saw the largest increases were DeFi , GameFi & Metaverse, and NFT assets. 2020 was the first year of Defi, and 2021 was the first year of NFT and Gamefi.

However, as this round of bull market has developed to date, there is still no new asset model or business model of similar weight as the smart contract platform and Defi in the previous two bull market cycles.

The current Defi, Gamefi, NFT, and Depin, whether new or old projects, have not evolved much in terms of product form or narrative compared to the previous round. They are more about iteration and repair of product functions. Simply put, they are all "old concepts."

The new species that appeared in this cycle are mainly two:

• BTC Ecosystem: Inscription assets represented by ORDI and Node Monkey, and second-layer projects mainly based on 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 the native track of the cryptocurrency circle. The AI ​​track of Web3 is more the result of the penetration of the AI ​​craze started by GPT in 23 years into the crypto industry. It can barely be regarded as a "new species" in this half cycle.

The deduction and strategy of this bull market may be misjudged by the Alpha tracks

In many bull market investment portfolio recommendations that I have seen, Alt coins such as Gamefi, Depin, and Defi are included in the asset pool. The main reason is that as crypto assets with smaller market capitalization and greater flexibility, they can significantly outperform BTC and ETH in the formal stage of the bull market (after BTC reaches a new high) and achieve Alpha returns.

However, as the author mentioned earlier, "In each bull market cycle, the new species that have the strongest growth are those that are born (or exploded for the first time) in that cycle." Defi, Gamefi, NFT, Depin, etc. do not meet the characteristics of "new assets or new business categories" in this round. As tracks that have experienced the second cycle, don't expect them to replicate the price performance of the first cycle, because an asset class can only enjoy a huge valuation bubble in the first cycle.

Because when a new business model or asset class emerges in the first round of a bull market, the main challenge it faces is "being falsified", which is difficult in the frenzy of a bull market. In the second round of a bull market, projects on the same track face the challenge of "proving", that is, proving that their business ceiling is still high and there is still a lot of room for imagination, which is also difficult, because it is not easy for people to believe in a story they have told before, and they are still afraid of the experience of being trapped at the peak of the last bull market.

Some people may say that the L1 track was the "most popular one" in the growth list in the two bull markets in 2017 and 2021. Isn't this a counterexample?

Not really.

The market demand for the L1 track in the bull market of 2021 has seen exponential explosive growth. The explosion of multiple product categories such as Defi, NFT, and Gamefi has led to a rapid increase in the bilateral market size of users and developers, and created unprecedented demand for block space. This has not only pushed up Ethereum's valuation, but also the overflow of demand from Ethereum has caused the explosion of Alt L1s. The bull market of 2021 is the real first year for ALT L1s.

Can this cycle replicate the explosion of Dapp product categories and asset categories in the previous round, bringing about further growth in demand for L1?

It is still not visible at present. Therefore, the premise that this round of L1 can achieve the previous round of growth no longer exists, and the expectations for Alt L1 in this round of bull market should also be lowered.

BTC and ETH have better odds this round

The biggest driving force of this round of bull market is still the capital inflow brought by the opening of the ETF channel and the optimistic expectation for such long-term inflow. Therefore, the first major beneficiaries of this round are mainly BTC and ETH (potential ETF listing target). Combined with the above views on Gamefi, Depin, Defi and L1, it is more difficult to bet on Alpha in this round of bull market, and the return-risk ratio of the main warehouse configuration of BTC+ETH will be better than the previous round.

So, as both BTC and ETH benefit from ETFs, which one is a better choice?

In my opinion, in the short term, it may be ETH, because the ETF expectations of BTC have been digested in the current price, and there is no other focus on BTC after the halving in April. As for ETH, the ETH\BTC exchange rate is still at a low level, and the ETF expectations of ETH are gradually heating up, which makes ETH's short-term odds better than BTC.

In the long run, BTC may be a better configuration choice. In general, ETH is 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 is constantly being eroded and squeezed by other block space service providers (L1, Rollup, and DA projects) and various new technology solutions in terms of narrative and market share. Once Ethereum's technical route goes wrong, or the product iteration speed is too slow, these will become reasons for funds to vote against it.

On the contrary, BTC's "electronic gold" positioning is becoming increasingly solid with the steady expansion of its market value and the opening of ETF channels. Its consensus as a value reserve asset to combat fiat currency inflation is gradually gaining acceptance from financial institutions, listed companies to small countries.

The argument that “ETH’s value in value storage can surpass BTC” is no longer mentioned by many people.

Summary of strategies for this bull market

Although the author believes that this round of overweighting BTC+ETH will have a better risk-return ratio than the previous round, it does not mean that we do not need to configure other Alt coins. We just need to consider 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 in old tracks such as Defi, Gamefi, Depin, NFT, etc.

• New tracks have emerged in this round that can be used as the direction of choice for Bo Alpha, such as:

• Meme: The best speculative medium. Each round will have a new concept and an amazing wealth story. Therefore, it is also the easiest project category to understand and spread across the circle.

• AI: A new web3 business category, with constant external business hotspots

• BTC ecosystem: including inscription assets and BTC L2. The author is relatively more optimistic about the former because it is a new asset category that has emerged in this round, while BTC L2 is actually the concept of Ethereum Rollup in a new shell, which is "old wine in a new bottle".

The cycle still exists, but has clearly moved forward

In addition, in terms of cycles, the author believes that unlike the rule of previous bull market cycles that "the year after halving is the main uptrend", the year of the biggest main uptrend in this bull market should be 2024, not 2025.

In the past, the years when BTC halved were 2012, 2016, and 2020, respectively. The current halving year is 2024.

Last year, Tonghuashun Finance compiled a comparison of the returns of major financial assets over the past 10 years, as follows:

In general, BTC complies with the rule of "rising for three years and falling for one year", that is, it rises one year before the halving, half a year after the halving, and then falls one year.

In the first round of Bitcoin halving cycle, BTC increased by 186% in 2012, half a year after the halving, and increased by 5372% in 2013, the year after the halving. The situation in 2017 was similar. Therefore, before the bull market cycle in 2017, BTC basically followed the rule of "small increase before halving and big increase one year after halving".

However, this rule began to be broken in the last cycle. First, there was a significant increase in 2019, the year before the halving (93.4%, higher than 40.9% in 2015). Then, the increase in 2020, half a year after the halving, was 273%, higher than the increase of 62.3% in 2021, the year after the halving.

The trend of this "upward cycle" moving forward in this cycle is even more obvious. In 2023, one year before the halving, BTC achieved a 147.3% increase, continuing to surpass the increase in the year before the previous halving (2019). Before the first quarter of 2024 is over, BTC has achieved a nearly 60% increase.

The author believes that 2024 will most likely be the year of the main uptrend in this bull market. Don't delay and wait for the big rise in 2025. Increasing positions and seizing the present may be a more prudent strategy. Instead, 25 should be the year for us to reduce our positions and reap the rewards.

Finally, I wish you all a smooth bull market hunt and a fruitful return.