The future may be bright, but the tunnel leading to the light will be long.
Author: XinGPT
After returning from Hong Kong Consensus, I have gradually met some friends in the country, and the familiar laughter still echoes in my ears. Old friends remain active—KOLs, agencies, market makers, traders—the people have not dispersed, the market has not collapsed, but what has changed is the "atmosphere" of this market.
This is neither a bull market nor a bear market. It is not a market dominated by the familiar emotions of greed or fear, but an indescribable "alienation"—an industry atmosphere that old investors have never experienced, making one feel as if they are in a different world.
In this era, the cryptocurrency circle has only one business left: selling coins.
Three Pillars: Creation, Discovery, Circulation
Roughly speaking, the cryptocurrency circle has always operated on three wheels:
Value Creation — Bitcoin, Ethereum, stablecoins, Layer 2, DePIN, AI Agents, etc., meet user needs through technological innovation, creating actual use value.
Value Discovery — VC investments, trading pricing, capturing potential assets, achieving price discovery through market mechanisms, and promoting industry development.
Value Circulation — Market makers, agencies, media, KOLs, etc., build sales channels for coins, assisting projects in reaching retail investors and completing the flow from primary to secondary markets.
These three should be interlocking gears, complementing each other in a market ecosystem. But now, what we see is:
The first two are withering, while the third is thriving.
Projects no longer pursue users and products, VCs no longer study trends and sectors, and the entire market is left with one voice shouting: "How to sell coins?"
Coin Selling Economics and Resource Club
A reasonable and healthy market should have three inseparable links: project parties should create good products, meet user needs, earn profits, and gain capital market premiums; primary and secondary institutions provide capital allocation for project parties, intervening during downturns and exiting for profits during peaks; and the selling channels laid out by circulation parties also provide higher capital efficiency for the capital market.
But in the current cryptocurrency circle, there are no project parties or VCs discussing which areas still have opportunities for innovation, what kinds of products can be made, or what needs can be met. Even in the second half of 2024, when VC coins are generally discredited, there are still localized industry hotspots like AI Agents that can ignite entrepreneurs' enthusiasm.
Secondary institutions are also generally lying flat, with altcoins hitting peaks upon launch, meme coins' liquidity nearly drying up, and the durability of BSC still lacking.
In this market, the only active institutions left in the industry are the third type: market makers, agencies, and intermediaries, discussing topics such as: how to generate good data or secure relationships with major exchanges, how agencies can promote and attract buying pressure, and how proactive market makers can collaborate with buying communities to dump more trading volume.
The market participants are extremely homogenized, all trying to find ways to extract the increasingly scarce existing funds in the cryptocurrency circle.
As a result, the top resource parties (top projects, major exchanges and their listing departments, resource-strong market makers and agencies) have formed an unbreakable interest community, with the blood of the cryptocurrency circle flowing from LPs to VCs, from VCs to top projects, and the other end being permeated by the capillaries of retail investors in the secondary market, feeding these parasitic organizations of the interest community, which then grow larger and larger.
The Disappearance of Entrepreneurs
After the bankruptcy of FTX in 2022, the cryptocurrency circle experienced a dark moment, with Bitcoin dropping to 18,000 and altcoins falling silent.
But unlike now, a large amount of capital in the cryptocurrency circle was deposited in VCs and secondary funds/big players, and this capital had the ability to generate blood. VCs would invest in entrepreneurial projects, and entrepreneurs could create positive externalities, generate value, and attract funds to enter;
At this moment, a large amount of capital is being drained by intermediaries, and project parties only seek to profit from price differences after listing, becoming intermediaries for VCs and the secondary market, needing to create value only to build "shell" stories. From a traditional business logic perspective, if downstream distribution channels are to consume most of the costs, then upstream R&D and operational expenses must be cut.
As a result, project parties directly abandon product development, using all funds to facilitate promotion and listing, as there are many without products and users that can still get listed, and now promotion can also be packaged as "meme" driven, using less on products and technology, while more funds can be used for listing and price manipulation.
The innovation path in the cryptocurrency circle has turned into:
"Tell a good story → Rapid packaging → Find connections for listing → Cash out and run."
Products? Users? Value? That is the self-indulgence of romantics.
Water Extraction is Destiny
On the surface, project parties spend money on listings and price manipulation, everyone is happy, funds get to exit, and secondary retail investors have room for maneuvering, while intermediaries profit handsomely.
But in the long run, the loss of positive externalities leads to only intermediaries growing larger, forming monopolies, and the extraction ratio becoming increasingly high.
Upstream project parties reduce R&D costs, regulatory pressures and the squeeze from extraction lead to a severely asymmetric risk-return ratio, forcing them to exit. Downstream retail investors face increasingly severe PVP, "always picking up the tab," and after the profit-making effect disappears, a large number exit the market;
Essentially, intermediaries, whether exchanges, market makers, agencies, or communities, are service providers. Service providers do not directly create value and positive externalities, and when service providers and extractors become the largest interest group in the market, the entire market becomes like a cancer patient with a tumor, and the final outcome is that cancer cells grow fatter and fatter, while the host withers away after being drained of nutrients.
The Power of Cycles and Post-Disaster Reconstruction
The cryptocurrency circle is ultimately a cyclical market.
Optimists believe that after this liquidity-dried valley, there will come a day of true "spring of value." Technological innovations, new use cases, and new business models will reignite the passion for innovation; innovation does not die, and bubbles will eventually end. If there is a glimmer of light, it will be a lighthouse.
Pessimists, however, believe that the bubble has not yet fully burst, and the cryptocurrency circle still needs to undergo a deeper "avalanche reshuffle." Only when extractors have no coins to extract and the market structure dominated by intermediaries collapses can true reconstruction be welcomed.
In between, practitioners must traverse a chaotic and muddy phase: doubt, internal strife, fatigue, and existential questioning.
But this is the essence of the market—cycles are destiny, and bubbles are also a prelude.
The future may be bright, but the tunnel leading to the light will be long.
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