Author: tzedonn

Compiled by: Deep Tide TechFlow

After experiencing a crazy fourth quarter, it's time to calm down and reflect. In just three months, many significant changes have occurred in the market.

This situation is different from the past.

Everyone is looking forward to the arrival of the "altcoin season" (the moment when the blue line surpasses the orange line), just like in 2021-2022 when all altcoin prices saw explosive growth. However, since the launch of the Bitcoin ETF in January 2024, the gap between Bitcoin (BTC) and the TOTAL2 index (which represents the total market cap of altcoins) has been continuously widening.

In past altcoin seasons, investors typically transferred their Bitcoin gains into higher-risk assets, driving the altcoin market up as a whole. This phenomenon formed a classic flow of funds pattern.

But now, Bitcoin's flow of funds has completely decoupled from other cryptocurrencies, forming an independent ecosystem.

The inflow of funds into Bitcoin is mainly driven by three factors:

• ETFs: Currently, ETF funds hold a total of 5.6% of the world's Bitcoin;
• Microstrategy: This company holds 2.25% of Bitcoin and is a continuously buying institution;
• Macroeconomic factors: Including interest rates and political situations (e.g., U.S. sovereign wealth funds or other countries potentially buying Bitcoin).

On the other hand, the outflow of funds from Bitcoin mainly includes:

• The U.S. government: Currently holds about 1.0% of Bitcoin and has indicated it may not sell;
• Bitcoin miners: Miners regularly sell some Bitcoin for operational needs;
• Bitcoin whales: These investors hold large amounts of Bitcoin, and since the market low in 2023, the value of their assets has increased by about 5 times.

Clearly, the driving factors behind these fund flows are completely different from those in the altcoin market.

Altcoin Market: Are There Enough Players?

The altcoin market can be likened to a casino.

It is only a good time to participate when there is ample flow of funds in the casino (i.e., high net inflow of funds). Choosing the right table (i.e., investment target) is equally important.

The sources of inflow into the altcoin market are as follows:

New Fund Inflows

For example, in 2021, a large number of retail investors entered the crypto market, bringing in new funds. However, currently, the inflow from Phantom/Moonshot or TRUMP token issuance, as well as the market cap growth of USDT/C, seems insufficient to support the market.

Additionally, certain specific assets may benefit from fund rotation. For instance, some investors who never invest in Memes may start paying attention to "AI Memes," as these investments are easier to rationalize.

Leverage funds obtained through decentralized finance (DeFi) platforms (like Aave, Maker/Sky) or centralized finance (CeFi) platforms (like BlockFi, Celsius). From an institutional perspective, the CeFi market has become less active after the collapse in 2021. In the DeFi space, the IPOR index (which tracks USDT/C borrowing rates) shows that this rate has dropped from about 20% in December 2023 to around 8% now.

Token Buybacks and Burns: Making Players' Chips More Valuable

The "buyback and burn" mechanism in crypto projects is similar to how the house in a card game uses its income to enhance the value of players' chips.

A typical example is the HYPE insurance fund, which repurchased 14.6 million HYPE at a price of $24 each, worth about $350 million.

However, most crypto projects have not achieved sufficient product-market fit (PMF), making it difficult to conduct buybacks at a scale that significantly impacts token prices (e.g., the buyback case of JUP).

Outflow of Casino Funds: Who is Cashing Out Chips?

Large Fund Withdrawal Events

In January, there were two "once-in-a-lifetime" large fund withdrawal events in the market:

• Trump event: Funds grew from $0 to $75B, then quickly dropped to $16B;
• Melania event: Funds grew from $0 to $14B, then fell to $1.5B.

These two events conservatively estimated to have withdrawn over $1B in liquidity from the crypto market ecosystem. In other words, if someone made over $10M in a transaction, they are likely to transfer more than 50% of their profits to the over-the-counter market.

Tool-Driven Continuous Fund Withdrawals

In addition to large events, some tools are continuously extracting market funds:

• Pump.fun: Accumulated revenue of about $520M over approximately one year;
• Photon: Accumulated revenue of about $350M;
• Bonkbot, BullX, and Trojan: Each tool has accumulated revenue of about $150M.

These tools gradually remove large amounts of funds from the market through small, decentralized withdrawals.

Cabal Withdrawals and Presale Models

Cabal withdrawals and presale models often signify the end of a market cycle. This is because a few individuals will extract large amounts of funds at this stage and transfer them to the over-the-counter market. As the cycle nears its end, the duration of these events becomes increasingly shorter:

• Pasternak: Lasted only about 10 hours;
• Jellyjelly: Lasted about 4 hours;
• Enron Pump: Lasted only 10 minutes.

This rapid outflow of funds is vividly referred to as the "euthanasia rollercoaster," as it causes the market to experience brief but intense fluctuations.

VC Fund Unlocking

Venture capital firms unlock funds to convert crypto assets into dollars to return distributed investment profits (DPI) to their limited partners (LPs). For example, in the TIA project, VCs withdrew a large amount of funds from the crypto market in this manner.

Deleveraging

There is also a phenomenon of deleveraging in the market, such as lowering the borrowing rates of USDT (Tether). This behavior leads to a gradual reduction of leveraged funds in the market, further affecting liquidity.

Choosing Altcoins: How to Find Your Table?

In the crypto market, choosing the right investment target is key to success. This process can be likened to selecting a suitable poker table.

When the market is active (i.e., with many players participating), your potential returns will be higher, but only if you choose the right token.

This type of investment is referred to as a "poker game" because it is essentially a zero-sum game.

In this game, projects either:

• Fail to generate income or value;
• Allocate the generated value to the tokens.

The only possible exceptions are the following two types of projects:

• Frequently used L1s, such as SOL and ETH;
• Products capable of generating high income, such as HYPE.

It is important to note that some investors bet on the team's ability to create sustainable income based on "fundamentals," but in the short term, I hold a more pessimistic view on this.

The situation in 2025: Too many tables, but too few players.

By 2025, competition in the crypto market will become even fiercer, making it more difficult to find suitable investment targets. This is because there are simply too many "poker tables" (i.e., token projects) existing simultaneously in the market.

Here are some data points:

• About 50,000 new tokens are launched daily through Pump.fun;
• Since the launch of Pump.fun, over 7 million tokens have been launched, of which about 100,000 eventually entered the Raydium platform.

Clearly, there are not enough investors in the market to support all these token projects. Therefore, the investment returns in altcoins show a strong trend of differentiation.

Choosing the right investment target has become an art, often requiring consideration of the following aspects:

• The strength of the team and product;
• The narrative behind the project;
• Spreadability and marketing effectiveness.

Kel once wrote an excellent article detailing how to choose altcoin investment targets.

What Does This Mean?

Altcoins are no longer "high beta Bitcoin." The past investment theory that "holding altcoins instead of Bitcoin" could yield higher returns may no longer apply.

The importance of asset selection has increased. With the threshold for token issuance on the Pump.fun platform lowered to nearly zero, choosing the right altcoin has become more important than ever. The inflow of funds in the market can no longer uniformly drive up the prices of all tokens.

Investing in altcoins is more like a poker game. While likening altcoin investment to a poker game may sound somewhat pessimistic, it truly reflects the current state of the market. Perhaps in the future, I will write an article exploring the true long-term use cases of cryptocurrencies.

Have we reached a peak? Currently, the market may have reached a temporary peak, but future trends remain to be seen.

When Will the Next Altcoin Season Arrive?

The traditional "four-year cycle" theory may have become obsolete, as the trends of altcoins are gradually decoupling from Bitcoin (BTC).

In the future, the altcoin market may be triggered by some unexpected events, such as a phenomenon similar to "GOAT."

In the long term, the prospects for the crypto market remain very promising, especially under the influence of U.S. sovereign wealth funds (US SWF), supportive governments for Bitcoin, and the introduction of stablecoin-related legislation.

The future is full of uncertainties, but also full of opportunities. Good luck and have fun!

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