Copycat dance, Musk changes sides, is the bull-bear cycle about to start changing?

Wu said author | Colin Wu

Editor of this issue | Colin Wu

During the live broadcast on Sina Weibo on May 12, one of the most frequently asked questions was: When will the bull-bear cycle come? Our previous article discussed whether the rampant spread of junk coins indicates that the bull market is about to end.

Vitalik’s donation on May 13th essentially strengthened the morality of MEME coin, giving it more stories, and it does not necessarily seem to be a negative. But on the other hand, Vitalik’s brutal selling also shows the industry’s elite’s overall protest against MEME and Animal Coin.

However, Musk's criticism of the energy consumption of traditional POW and his claim to find a new cryptocurrency with energy consumption less than 1% of Bitcoin seem to trigger the next wave of altcoins. As we all know, altcoins rarely use POW. Musk's interest in Dogecoin has continued to grow, and he has recently expressed his intention to participate in improving its trading function.

On May 13, the altcoin index increased compared to May 12. Among the top 50 tokens, 43 have outperformed Bitcoin in the past 90 days.

The summer of altcoins is not over yet. Will it accelerate the bull-bear transition?

There is a view that when the bull-bear cycle switches, Crazy Zoo Coin will become an important factor in accelerating the bull-bear conversion, because from an analysis point of view, junk projects generally have three characteristics:

First, apart from the fluctuation of the coin price, these projects do not generate any external additional value, so if someone makes money, someone else must lose money.

Second, people know that junk projects can go to zero at any time, so they all speculate in the short term, holding for a very short time, with extremely low loyalty, and retail investors have extremely low tolerance for losses.

Third, junk projects have strong marketing power, attracting a large number of retail investors outside the circle. Combined with the first two points, when the crash comes, a large number of retail investors outside the circle will suffer huge losses, causing huge pressure at the emotional level and even at the policy level. This is also the logic of the 2017-18 crash.

But: 2017 and 2021 may not be comparable

When chatting with Lu Jiayi, chief researcher of BitDeer, he said: It is actually difficult to make a simple analogy between 2017 and 2021. If we only look at the price trend of Bitcoin, the market may have entered August and September 2017; the garbage coins with no content are flying all over the sky, which is a bit like the second half of 2017; and the start of the Shanzhai season and the downward break of Bitcoin dominance are more similar to the market in the second quarter of 2017.

Therefore, in fact, based on the experience of 2017, the altcoin season is not the tail of the bull market, but is about to peak. From the perspective of 2017, the core reason is that altcoins have attracted many newcomers and funds from the outside world. This is also the reason why many retail investors believe that the peak has not yet been reached.

However, this simple analogy is also wrong.

Can the experience of 2017 be repeated in 2021? We think it is almost impossible. In essence, the driving forces of the two times are completely different. The driving force in 2017 was retail investors, and the altcoin season attracted a large number of retail investors, so the bull market began to climb to a higher peak. After reaching the peak, it fell, and the above-mentioned crash effect occurred.

Let’s get rid of the fog and get straight to the core: the driving force of this bull market is completely different. It essentially comes from the crazy printing of money in the United States under the influence of the epidemic. Therefore, a large number of institutions buy Bitcoin, mining machines, Ethereum, etc. to fight inflation.

Bitcoin has a market value of 1 trillion US dollars, and Ethereum is rising wildly. Its current market value accounts for half of Bitcoin. It is expected that after the completion of EIP-1559 in July, it may even approach or even exceed the market value of Bitcoin. Various animal coins gathered together with great momentum, but they are less than 1/10 of the market value of Bitcoin, including Dogecoin, which is frantically called by the world's "first person".

Therefore, of course, when we talk about the transition between bull and bear cycles, we return to the origin and still point directly to the changes in US monetary policy. The Federal Reserve has proposed many indicators to judge the adjustment of QE, such as 75% vaccine completion rate, 2% inflation, and good new employment for many consecutive months. When the inflation rate in April was released and the growth rate was alarming, global cryptocurrencies and stock markets fell. This is the core reason.

Zoocoin, altcoins, and junk coins all rely on market sentiment, and it is impossible for them to break away from Bitcoin and Ethereum and move independently. This was very clear on the morning of the 13th. Let me ask you: If Bitcoin falls below 30,000 and Ethereum falls below 2,000, won't most of the altcoins return to zero? If you believe this, then it will come true.

When we see the real driving force of the industry, we only need to regard the animals in the zoo as part of the multicultural cryptocurrency culture. There is no need to be too FOMO or panic. One impact is that perhaps all future projects will become more popular and interesting in marketing, and there may not be enough animals.