Golden Deep Core丨The Birth of a Bull Market

After entering October, the secondary market began to fluctuate from sideways, which is like the start of the next round of late-stage trading. However, based on the complexity of the current market, thinking about the next round of bull market is not just about the rise and fall of the secondary market, nor is it about the price height of a currency. It is necessary to see the evolutionary direction of people, enterprises, and organizations in the industrial cycle and industrial structure. Clear the fog, cross the bull and bear markets, and see the light of the bull market.

For many people in the industry, although they understand the attributes of the industry, they have never experienced a full financial cycle. Whether you are an industry veteran or a newcomer, we all hope that the industry will be evergreen and look forward to rounds of bull markets. So what factors are needed for a bull market to come? In this article, we try to analyze the birth of a bull market from the perspective of the trend, the secondary market, and the industrial structure.

Supply and demand in the secondary market

The price climax of cryptocurrencies has formed a bull market, which is mainly manifested in the surge in coin prices and the explosion of token listings, but for the secondary market, the foundation is the behavioral process of the main players.

Most people who have participated in the stock market know the terms bull market and bear market. The bull and bear markets of cryptocurrencies are based on the same principles as the stock market, and the main experience is in the price. The essence of stock prices or ups and downs is the change of supply and demand in the trading market.

The logic that supply and demand determine prices is based on the trading method. The buy and sell orders in each exchange are traded from one individual account to another account. Each transaction is an independent transaction process, and the transaction price of this transaction process is the stock price or currency price at that time. Therefore, the rise and fall of the entire market is the synthesis of several buy and sell orders. This is just like the physical trading market, where each single transaction synthesizes the entire market economy.

The logic is the same as that of physical transactions. When the supply and demand relationship between buyers and sellers changes, panic buying will push buyers and sellers to believe that the goods are worth the money, causing prices to rise. However, large-scale selling also means that the goods are not worth the money, causing prices to fall.

Following this logic, the fluctuation of currency price is the change of supply and demand in the whole market. Here we need to know the key factors of supply and demand, which change in real time and transactions occur continuously.

Trading is buying and selling, and only in the process of trading can you realize profits by buying low and selling high or increasing your holdings. Even if you think that rare goods are worth buying and you keep holding them without buying, such a market is a dull market and cannot reflect the value of trading.

From this point of view, the effectiveness of transactions and the frequency of transactions determine the degree of profit. That is, investors must increase the above two points. And who determines the supply and demand of the entire trading market? It is the market makers and small and medium-sized retail investors. To be precise, it is the market makers who determine the basic trend of the market, and small and medium-sized retail investors make profits or losses in the buying and selling behavior of the makers.

In a bull market, prices are bound to rise, and before they rise, they must be in a state of shock or bottoming out. At this time, the judgment, in terms of supply and demand, is that the supply is exhausted and the demand is growing and dominating the market. Simply put, it is impossible for the holders to sell goods, and the main market players cannot receive the goods. Instead, the holders begin to use funds to enter the market. At this time, the supply and demand relationship is obviously that supply is less than demand.

In a large market with a small supply, if there are many retail investors, it is difficult for the market to give quick feedback. Because the main force is the basis for determining price fluctuations, when the main force begins to dominate the market, the market will begin to enter a cycle of rapid exchange and change of supply and demand. That is, it will begin to enter a crazy increase, and the attributes of most retail investors will be affected by the market and chase the rise and high.

At this time, supply and demand are roughly balanced. For institutions, all shipments must be carried out in stages, that is, every rise is the best time to ship. However, due to the increase in demand, supply and demand are basically balanced, and the demand will be even greater. When the demand increases for the second or third time, the price has often experienced several ups and downs tests, and the price line conforms to a relatively high-quality rising channel.

Supply and demand have begun to change, and all positions can only be counted as profits after the transaction is completed. What traders should pay attention to is the efficiency of the transaction. Therefore, the shipment of the main force in the market is the reason for the change in supply and demand.

Under the background of strong demand, the market trading volume has surged because the main players have been continuously selling and cashing in. Most traders would think it is a secondary outbreak, but in fact it may be a process in which supply gradually exceeds demand.

When supply is completely greater than demand, and the main market players do not think that the current price is worth buying again, the price stops, most investors continue to sell, the price no longer rises, the upward channel ends, and enters the oscillation stage. When the market is seriously blunted, the main players will sell again to increase liquidity by shorting, and the bear market will begin. The next cycle begins.

This is the most basic supply and demand relationship when a bull market is formed. In this supply and demand relationship, the main investment method is to buy at the beginning of the cycle and sell at the beginning of the bull market. All behaviors determine the changes in the market. If the market does not enter a bear market after a round of sharp rise, and the demand in the market does not decrease due to price stagnation, this will trigger a second round of spring.

In summary, the increase in demand is the basis for the formation of a bull market, while changes in supply determine the starting point of the bull market cycle. Cryptocurrency is an important part of the blockchain industry and the manifestation of the entire blockchain industry, but where is the foundation, or connotation, of the industry?

The industrial structure of the outlet is formed

The financial ecosystem formed with cryptocurrency transactions as the core has an overly high leverage attribute, which determines that it cannot become the core business of the blockchain industry. The core must still be to form a supply chain ecosystem centered on technology.

Before that, we need to talk about the formation of the industrial structure in the trend.

Technology booms are catalyzed by primary market investment. If you find the right boom, even pigs can fly. This is Lei Jun's wise saying. In every industry boom since 2008, we have seen as much craziness as the cryptocurrency market in early 2018. These ups and downs of booms occur almost once or twice a year, but they came to an abrupt end in 2019.

I have seen every trend: social networking in 2010, taxi-hailing in 2013 and 2014, o2o in 2015, shared bikes and live streaming in 2016, artificial intelligence, new retail and blockchain in 2017.

The trends before the blockchain wave were all based on technological reforms in a big context and the issue of strengthening the underlying technology connection background of the commercial society. Professor Zeng Ming of Lakeside University mentioned the logic of "three waves concurrent" in the Internet wave. Although he used the rise of the retail industry in the context of smart business and consumption upgrades as an example, this is also the situation faced by many industries after the Internet trend.

The three waves are actually in a complex context, not a single model to win and form a mature industrial structure. Because based on the background of the changing times, each rising enterprise has become a giant, mostly because the giants adapt to business changes to form their own industrial chain structure, and around the giants' business, with the help of capital, the giants' industrial structure has expanded again and grown into a stable ecology. It includes the two most important closed loops, the closed loop of services and the closed loop of finance. The industry is also centered on the core massive business and gradually extends.

Therefore, from the mobile Internet to the present, all industries that have become hot spots or even industries are formed based on the financial compounding brought by a core business scenario. The logic is that the needs of one or more generations of users have led to a huge core business, realizing the profit model and stable cash flow of the core business. Then, they occupy the entrance of rigid demand and radiate peripheral businesses.

What we need to focus on here is the profit model of the core business. Most of the companies that can effectively form the industry's trend have already figured out their core business profit model, such as e-commerce, food delivery, express delivery, group buying, live broadcasting and even artificial intelligence.

What is the core business of the blockchain industry?

Blockchain technology, which has come into the limelight due to cryptocurrency, needs to integrate its technical features into various industries. But does the industry need blockchain? Does the current Internet need another revolution?

The emergence of a public chain will revolutionize the business of a giant. As for the blockchain, the trend in 2018 is also a bull market for blockchain. In the next round of bull market, regardless of the profit model, can we find the core business of the blockchain industry?

The first thing we need to understand is what the core business of the blockchain industry should be?

In October 2017, Bitcoin skyrocketed, and Ethereum also began to rise sharply. This was the start of the bull market in 2018. From the background, a number of projects in China have issued white papers and found a certain new entrepreneurial model through Ethereum. The 9.4 ban also moved several major exchanges and public chain foundations overseas.

However, the supporters of blockchain and cryptocurrency in overseas markets have become the "target" pursued by domestic entrepreneurs. The surge in Ethereum is closely related to the irrational issuance of coins at that time. The entire industry has too many financial attributes, and the exploration and application of blockchain technology has been seriously underestimated.

At the same time, most practitioners have been enthusiastic about exploring cryptocurrencies, and the number of exchanges has also skyrocketed, increasing by tens of thousands in a year. All of this proves that cryptocurrencies have the strongest financial attributes, and the main business core is positioned in trading. In two years, the growth of exchanges can also prove that exchanges are indeed the ones with the clearest profit model and the best market expectations in the entire industry.

However, the leverage of finance is too strong. The capital flow of the entire market needs to have a stable cycle. Once investors are indifferent, the secondary market will become an empty shell. In the blockchain industry, which already has a trillion-dollar market value in the secondary market, what kind of framework and chassis can support this trillion-dollar market and a higher market value in the future? What is urgently needed is to have more businesses in addition to the business attributes of transactions to form cash flow.

Mining is a relatively mature business in the industry that has such characteristics. As an extension of the mining business, hardware manufacturers and mining machine manufacturers have emerged. Manufacturers have established traditional sales channels, and mining pools help miners to mine. Since the birth of the mining industry, the mining industry, which has grown from core businesses, has become more and more mature and is becoming more and more decentralized from the monopoly of giants. In every link of the supply chain, more service providers have emerged to improve the industrial structure and accelerate the maturity and standardization of the industry.

This is the best example of stable development and scale formation besides exchanges. From the perspective of exchanges and mining, their core businesses are very stable and can provide stable output for practitioners. What about practitioners in many other industries?

For example, the public chain with the biggest problems.

In the past two years, many public chains have launched their mainnet or testnet, but have stagnated. Many public chains have made 2C products, but they have very few users and basically do not pay attention to the operation of the App. If a team is allowed to go public through the exchange, raise funds, but only make a wallet App and browser, do not promote it, and do not try other applications, how can they form an industrial chain based on blockchain products?

The core of this issue is that if a team working on a public chain launches a test network and makes a C-end App themselves, this is seriously inconsistent with the technical products formed by blockchain. As we all know, the technical core of blockchain is the ledger, that is, information storage, which is the same function as traditional databases or servers. The first thing the public chain team has to do is to promote the product to developers or companies, using their own chains or technologies, and then help others make apps based on the chain to promote the use of C-end users.

When users are not using digital assets, they have basically no connection with the blockchain. In other words, the public chain needs to be an infrastructure service provider and first build an open source community with companies and developers. This is a typical 2B business.

What should an infrastructure service provider do? Tackle technology, promote services, solve industry difficulties, and update industry standards. The most benchmark company is Alibaba Cloud. If Alibaba Cloud's business model cannot be achieved, then it is more efficient to provide developers with more standard and efficient development tools to attract developers to easily develop DApps. For example, improve the development of the blockchain middleware layer. For example, make it easier to adapt DApps on the SDK.

The new industry infrastructure based on blockchain technology is necessary for many enterprises and industries, such as finance and medical care. In this field, practitioners in the blockchain industry need to compete with traditional Internet infrastructure suppliers and technical service providers. Only in this way can the blockchain industry grow solid muscles in the framework.

The next bull market

At present, Bitcoin halving is coming, and people in the industry are looking forward to the bull market, but at present, the blockchain industry has exposed some obvious problems. These include:

1. Funds are concentrated in the industry. As the market changes, the liquidity of funds weakens and the market shows signs of dulling.

2. The pace of development of public chain technology is slow, and there is a large market gap between the underlying technology and scenario applications. As a result, there are very few blockchain products that can be used so far.

3. Public chains and entrepreneurial teams have tried too many financial businesses and have no core business based on blockchain technology.

4. The markets of exchanges, stablecoins, lending, mining, etc. have become a red ocean with fierce competition, and are still isolated from external investors and users.

These problems are the background for the next bull market. Only after these problems are solved can the industrial structure of blockchain be initially formed. The horn of the bull market can be blown loudly. Otherwise, based on the current background, it is certain that the next bull market will not be like the bull market in early 2018, but will be a replica of the small bull market in 2019.

First of all, the benefits brought by Bitcoin halving are a great opportunity for many institutional investors, who can get rich returns through the secondary market. However, judging from the increase and market value of Bitcoin in 2019, a bull market for Bitcoin is inevitable, but it is not a bull market for cryptocurrencies or even the blockchain industry.

The secondary market is not strong enough, mainly because there is no continuous and effective capital inflow. Transactions in the blockchain industry have become an embarrassing situation of inherent capital flow and even mutual cutting. In addition, many cryptocurrency projects listed on the stock exchange have seen their market value shrink and their applications stagnate, thus becoming a "stock" without business support and stable capital flow support.

If there is no large-scale entry of external funds before the next bull market, the bull market in 2020 will inevitably be a replica of 2019, and the main manifestation will be the growth, explosion and decline cycle of capital activity within the industry.

Based on this, there is still a long way to go for the development of the entire industry. In the industry, people who have a clear understanding of the current situation are closely watching external policies and the attitudes of other regional markets towards Bitcoin and cryptocurrencies, because this may be an opportunity to help the industry grow rapidly again.

However, judging from the current progress of blockchain technology, when practitioners realize that "in addition to beauty, we need to exercise our bones and muscles", the industry still has a future.