Original text: Empire

Compiled by: Yuliya, PANews

In the turbulent cryptocurrency market, accurately grasping trends and opportunities is crucial. As one of the most influential research institutions in the industry, Delphi Digital is known for its in-depth market analysis and accurate investment insights, with its research reports becoming an important decision-making reference for institutional investors.

In the latest episode of the Hivemind podcast, core team members from Delphi engaged in an in-depth dialogue about the prospects of the cryptocurrency market in 2025. Host Jose (head of Delphi Labs) discussed with Ceteris Parabus (head of the institutional research department), Duncan (small-cap investment expert), and Jason (market head of the research department) various hot topics in the market, including the evolution of AI narratives, the Bitcoin L2 ecosystem, and the return of infrastructure value. PANews has compiled a written version of this podcast episode.

*Note: The podcast was recorded on January 16, which may differ significantly from current market data and popular sectors.

Market Observation

Ceteris:

The market has been extremely volatile in recent weeks. Looking back, after the FOMC (Federal Open Market Committee) meeting at the end of December last year, there was a wave of selling. At that time, Bitcoin's price was close to the $100,000 high, but within just a few hours, it plummeted below $90,000.

My main view is that this market volatility has not changed the fundamentals. For example, during the recent downturn, Bitcoin remained the best-performing asset, while some DeFi projects and old Meme coins (OG Memes) have not shown much movement. This indicates that the market's points of interest have not fundamentally shifted. The projects that performed best during the rebound, such as Virtuals and ai16z-related frameworks, are still those assets that stood out at the bottom.

In summary, I believe this market volatility is influenced by macro factors, such as CPI data and other policy rumors, as well as technical adjustments. Many token price charts have appeared very "crazy" in the past few weeks, and these extreme price movements naturally lead to corrections and liquidations.

Jason:

Much of the volatility is related to market positioning. For example, last week’s news about the DOJ planning to sell $6 billion worth of Bitcoin now seems possibly false or over-interpreted. As Trump's inauguration date approaches, if they really intend to sell but have not taken action, this is actually a positive factor.

From my perspective, last week’s macro data was better than expected, which may raise recent targets. However, I feel that the more significant the rise before major events, the greater the likelihood of "selling the news." Just like when Trump is inaugurated next Monday, if Bitcoin continues to rise before that, I would be concerned about a short-term correction, similar to what happened when the ETF was approved.

On the other hand, Trump may issue a series of executive orders upon taking office, some of which may target cryptocurrencies. Given the relatively low liquidity in the crypto market, he has the ability to influence the crypto market just as he does with traditional financial markets, and his impact may even be greater.

Ceteris:

I see that Trump's younger son and his circle are involved in cryptocurrencies, which may mean he will view Bitcoin prices as a "stock market indicator" for young people. While this claim needs verification, it is credible considering his children are involved. If he really starts talking about becoming the first "crypto president" or "Bitcoin president," he has many ways to help promote the development of cryptocurrencies.

Jose:

Trump can leverage many tools to help the development of cryptocurrencies, but clearly, we have experienced a massive surge after the election, and the market is now digesting that rise. I believe that the scale of future market trends will largely depend on Trump's actual measures regarding cryptocurrencies and the influence of the officials he appoints in the broader macro market, such as the performance of Scott Benson as Treasury Secretary.

This recent downturn before Trump's election feels like a great buying opportunity. I think there is a simple inference regarding Trump's election—he can easily implement some policy measures that benefit cryptocurrencies. Currently, Washington is pushing forward a cryptocurrency bill, and the industry has evolved from being ignored or even widely disliked to now having a "Crypto Bowl" and an upcoming crypto advisory committee. So there’s really no need to overthink it; I feel Trump is clearly bullish on cryptocurrencies. Of course, there is a possibility that he may do nothing, and it is not uncommon for politicians to fail to deliver on promises, especially Trump, who is not the most trustworthy person. But I believe that promoting the development of cryptocurrencies aligns with his interests, so I remain quite bullish.

AI Bubble

Jose:

In fact, I bought quite a few tokens related to AI frameworks during this downturn. From my perspective, I believe AI itself will be the biggest narrative in 2025. The capital expenditure by mega tech companies is astonishing, with Microsoft alone planning to spend $80 billion, and other companies are investing almost all their free cash flow into building computing infrastructure for training AI models. Progress in 2025 may be faster than in 2024.

To me, the definition of AGI (Artificial General Intelligence) is AI reaching or exceeding human levels in multiple domains and possessing a certain degree of autonomy to perform tasks for users. In simple terms, it’s like having a research assistant or investment analyst with a PhD-level intelligence.

Currently, only a few people in Silicon Valley and the tech circle truly understand the impact AI will have on the world, but in the coming years, this realization will spread globally. I believe this will become one of the largest bubbles in financial history because the fundamentals of AI are very strong, and the most attractive narratives can be built around it. No technology has ever had such strong fundamentals at such an early stage, like OpenAI's revenue and the potential income from code assistant tools.

Despite the strong fundamentals of AI, humans always tend to get overly excited about some emerging things, leading to cyclical market fluctuations. I believe the big AI bubble has not truly arrived yet, but its emergence is almost inevitable. Even if we assume that crypto AI has no fundamentals at all, I believe the flow of funds itself is enough to drive the market. Just think about how ordinary investors can participate in the AI narrative? The valuation of the "MAG7" (Microsoft, Apple, Google, etc.) is high, but not unbearable; however, buying stocks of large tech companies does not easily lead to wealth reversal. Additionally, stock picking in the market is very difficult, and many people feel it is a "manipulated game," while venture capital is also out of reach for 99.9% of people. So, what remains is to bet on crypto AI projects.

I believe this field, such as the Agentic sector, currently has a market cap of about $10 billion, while the entire crypto AI market is about $50 billion. As we mentioned in our predictions, this scale will only continue to grow.

Ceteris:

My strategy has always been "act first, research later." I think the focus now is to engage with those hot sectors, and when truly valuable projects emerge, then determine their position in the industry. Meanwhile, I am also betting on the growth of the entire industry. However, last week's market performance reminded us that the volatility in this field is very intense. For example, some project prices may drop by 50% within two days, and such drastic rotations may happen repeatedly over the next year. Therefore, I will not hold onto AI tokens all year but will adjust flexibly based on market dynamics.

Currently, the main leaders in the market are Virtuals and ai16z, but I do not believe they have an insurmountable moat.

• Virtuals' advantage lies in its built-in token value capture mechanism, such as users needing to pay Virtuals tokens to activate agents, which provides stable cash flow.
• On the other hand, ai16z relies more on the widespread usage of its framework but currently lacks a clear profit model.

Ultimately, the dominant force in the market still lies in the attractiveness of the platform, especially its ability to attract more developers and users. Notably, this is also the first time we see a decline in user attention towards the chain itself. Many agent functions operate off-chain, with the chain mainly supporting token trading or liquidity. Therefore, users care more about the functionality and convenience of the platform itself rather than which chain it operates on.

The Moat of Agent Tokens

Jason:

I believe the main moat currently is attractiveness, which is the ability to serve as a Launchpad, and this is key to capturing value. The value of a Launchpad depends on how many users and attention it can attract, and whether these users find the platform's fees reasonable. This is also why Binance can charge projects 3% to 10% of token supply as fees for its Launch Pool, and Virtuals has proven its capability to do this. However, this moat is very fragile, and competition may be fierce.

The future market will experience brutal capital rotations, and it may be difficult to keep up with these changes completely. I hope that in the future, there will be time to see different platforms gradually emerge and be able to reduce risks. Take TAO as an example; it was initially the main choice in this field, but as better options continue to appear, its position has begun to weaken. Current leaders, such as Virtuals and ai16z, are likely to face the same situation. Right now, they are the main choices for betting on this narrative, but better solutions will emerge in the future, and new narratives will rise in the AI field. Once this happens, I believe the wise approach is to continuously reallocate the portfolio. This is more like a trading behavior rather than a choice suitable for long-term holding.

Ceteris:

Personally, I have not yet found any team that makes me confident in its long-term development. While some may say to invest in infrastructure like "mining tools," it is uncertain whether these "tools" will remain effective, even by the end of this year.

Duncan:

For example, Pump.Fun has a significant advantage in the Launchpad space, but I am skeptical about whether Virtuals can maintain this position in the long term.

Ceteris:

From what I understand, the actual technical framework of Virtuals is not excellent; it is more about the convenience of launching agents that attracts users. For instance, a certain team initially launched an agent through Virtuals but recently switched to the Eliza framework. Although this agent still belongs to the Virtuals ecosystem and operates in conjunction with Virtuals on the Base chain, the technical core has shifted to Eliza.

Jose:

This situation is actually not uncommon. Some investors who were originally bullish on Virtuals have turned to the ai16z framework after using its products. This shift has made many previously optimistic investors less so. I believe this phenomenon may recur in the market. For Virtuals and other AI tokens, there is a lot of uncertainty about their future. Nevertheless, these projects are currently seen as credible options, leading to a significant influx of capital that has driven their short-term growth.

Additionally, from my conversations with industry insiders, I have found that there are still many skeptics of the AI narrative in the market who have not participated in investments. This indicates that there is a large amount of potential capital that could enter this market. While current AI projects are considered the only worthwhile investment options, if new projects with more long-term value and moats emerge in the future, they may perform better.

Jason:

On the technical side, my team is currently conducting in-depth research on these platforms, including their technical trade-offs. Larry's point—that "crypto AI agent frameworks have almost no technical advantage, and big tech companies can replicate these features in weeks"—may be correct, but it doesn't indicate much of a problem, as tech giants have a significant resource advantage. However, I also agree with the current market situation where these projects are the only seemingly credible investment choices, and capital is flowing into them.

The Decline of OG Memes

Jose:

I believe AI is essentially a bigger meme than WIF. It tells a better story and excites people more easily because there is at least some potential for fundamentals. I think that by 2025, not only meme coins but most of the capital in the cryptocurrency market will shift towards AI. The transition in the meme coin market may be more direct because AI agents can, to some extent, outperform traditional memes by telling a bigger story.

Jason:

I largely agree with this view. This may not be because AI is inherently better than memes, but rather that the market has grown tired of traditional memes. People have been playing with FROG, WIF, BONK, and so on for over a year. While making money is fun, most people still want to buy something that has at least some actual value or a path to value.

However, this doesn't mean I have to buy those things. When the market clearly tells you that people are not focused on this at a certain time, you can hold both beliefs simultaneously. This is also key to becoming a good tactical trader—what matters is not what you believe or hope is true, but what the market tells you.

For most of 2024, the market has been telling us it prefers meme coins, whether due to a lack of new users entering, people chasing patterns from previous cycles, or a poor regulatory environment. But starting from mid-November, the market has clearly indicated it prefers AI.

I think some OG meme coins may still perform well, but the meme coin wave from March may be over. In fact, I believe most meme coins and these agent projects will ultimately fail. Someone should tell the Coinbase listing team that the meme coin era is over. But looking at the DOGE chart, I feel it hasn't peaked yet.

I think DOGE is a good benchmark for assessing the overall meme coin market. The meta narrative has indeed shifted, and now the easy money-making opportunities are in agents and AI. This doesn't mean all meme coins are doomed; it just means they won't be the only area worth investing in like last year.

Now that Trump is coming back, people may be more willing to invest in cryptocurrencies, so I might consider DeFi coins or projects like Ethena. Since the White House now has supporters of cryptocurrencies and AI, maybe I should buy all AI coins because there could be some positive catalysts.

Duncan:

In the long run, aside from a few projects like Bitcoin or DOGE that have already reached escape velocity and mind share, any project without actual business support is likely to trend towards zero, especially considering the speed at which new projects are being launched.

Return to Fundamentals

Ceteris:

I agree with the view that projects without fundamental support are difficult to sustain in the long term. I believe we are entering a new era in infrastructure, and without a long-term revenue story, these projects will struggle to persist. We have already seen that projects capable of generating real revenue, such as some L1/infrastructure projects, are gaining more attention.

According to the latest data from Blockworks, over 50% of revenue in the crypto space now comes from Solana applications. (Of course, this revenue does not all belong to Solana; JTO takes a small portion, but this part is not included in the revenue statistics, as it directly belongs to stakers.) Specifically:

• Solana: 56.8%
• Ethereum: 17.9%
• Base: 8.7%
• BNB: 4%
• Arbitrum: 1%

If Solana can reach 80% on these metrics by the end of the year, it will be hard not to believe it could surpass ETH. There are two key metrics here:

• Revenue generated by applications, also known as "on-chain GDP"
• R-value, which is the most objective measure of the economic value generated by the chain

When Solana generates 80% of industry revenue, other softer metrics, such as "Ethereum has more developers" or "Ethereum is more decentralized," become less important.

Duncan:

I agree with this view. We are indeed seeing bubbles in infrastructure tokens, high FDV low liquidity tokens, and meme coins. The market is moving towards some balance, where those base coins that can generate actual revenue will find buyer support at some price, while meme coins or overvalued infrastructure tokens will struggle to find a price floor because they essentially have no revenue.

Jose:

I also want to point out that there are some issues with these metrics. For example, revenue metrics primarily account for DEXs and on-chain money markets, etc. Moreover, with new mechanisms like Pump.Fun emerging, the revenue distribution model may change.

Ceteris:

Regarding app-specific sequencing, I think crypto researchers may have overhyped it a bit. Many believe applications will capture 100% of the economic value on-chain, but that is not the case. There is a synergy between applications and L1, validators, and some form of profit distribution is needed. While L1 currently takes 100%, this situation will not last. Even if L1 ultimately only takes 30% and applications take 70%, this model will still be very favorable for L1 as the chain expands and more applications join.

I lean towards app-specific sequencing rather than app chains because it maintains the same shared state. But there are trade-offs—every time we invent such a new mechanism, it brings new centralizing forces to some extent. UniChain is the first project to implement pure application sequencing from the start, so I am very interested in its development.

People often say that building app chains is to capture all economic value, but looking at the GDP chart, the most profitable applications are on Ethereum. Some say these applications should build their own app chains, but that completely contradicts the fundamental truth—the most profitable applications are on Solana; why would they want to leave? Just to capture more revenue?

This does not take into account the trade-offs of building independent chains. For example, Pump runs very well on Solana; perhaps from the perspective of a perfect world in the long run, it would be better as an independent chain, but for now, it can leverage the advantages of the liquidity pool and shared state on Solana.

We are indeed seeing bubbles in infrastructure tokens, high FDV low liquidity tokens, and meme coins, and now it may be the turn of AI concepts. While the overall prospects for AI may be large, these skyrocketing tokens will eventually lead the market back to balance over time. Those projects with real revenue will find buyers at some price, while meme coins or overvalued infrastructure tokens will struggle to determine a bottom because they essentially do not generate revenue and can only be measured by subjective metrics.

The market is maturing, which is a good sign. Those severely overvalued infrastructure tokens, high FDV low liquidity tokens, or meme coins are losing momentum, and investors are starting to focus on projects that have real business support and reasonable fundamentals.

Duncan:

If there is a particularly good user experience with a chain abstraction wallet, will the differences between these chains become less important?

Ceteris:

My view is that it does primarily depend on user experience rather than shared state. However, chain abstraction cannot completely eliminate the differences between multiple chains, as there will inevitably be latency issues when using different state machines. This means performance will decline due to cross-chain operations.

For example, investment tracking tools like Lighthouse.one are an embodiment of chain abstraction. They consolidate users' assets across different chains and display them in a single front-end interface, which is very convenient. But if cross-chain interaction is needed, such as switching between different state machines, performance will always be affected. Therefore, while chain abstraction enhances user experience, it cannot fully replace shared state from a technical perspective.

Next-Generation L2 and L3

Jose:

Regarding the development of L2, I think they performed well last year. Although there is no single token to invest in, and this success has not directly benefited ETH, it has been quite successful from a product perspective. The total value locked (TVL) in L2 has doubled, growing from $22 billion to $40 billion. However, it is important to note that a large portion of Base's TVL comes from customer deposits at Coinbase, which is more like a centralized exchange doing accounting on its proprietary blockchain.

Looking ahead, I am optimistic about Solana and L2, and I believe that by 2025, at least one large financial institution will announce the launch of its own L2. Institutions like BlackRock may put tokenized securities on L2 because it provides them with greater flexibility while addressing some limitations of traditional blockchains. Of course, this "private blockchain" model may spark debates about decentralization, but if securities are truly to go on-chain, this will be a more realistic choice.

Ceteris:

Currently, only three L2s have TPS (transactions per second) exceeding Ethereum, which is incredible. Ethereum's throughput is very limited, at about 12 TPS. We see a winner-takes-all effect, where the strong get stronger. Specifically, the low TPS of these L2s is due to a lack of demand rather than a lack of technical capability. I expect Mega ETH to perform well when it launches, but its funds will likely be transferred from existing L2 projects. Currently, the amount of ETH bridged to L2 is actually not much, only about 2.5%.

Ceteris:

I am also optimistic about developments at the application layer, especially projects related to AI agents. This is somewhat part of the infrastructure but also different. As I mentioned earlier, people are starting to care less about whether a project is built on BSC or Solana, which is a good trend.

I find it interesting that many people once thought Solana wouldn't succeed because they believed technology didn't matter, which has always seemed like a strange viewpoint to me. It is now clear that technology is indeed important, and you can see the entire industry moving towards these high-performance systems. My main conclusion is: We now have no reason not to create high-quality applications.

Bitcoin's Dominance

Duncan:

In the context of a gradually loosening regulatory environment, will we see a rally in altcoins, or will Bitcoin's dominance continue to rise?

Looking at the data for BTC.D (Bitcoin dominance), it has been steadily increasing since 2022. In 2022, it was at 40%, peaking at 61% a few weeks after the elections, and is now around 58%. We did experience a small altcoin rally from November to early December, somewhat similar to the situation in March.

The key question is: will this become the new normal? Just like in March when Bitcoin formed a temporary top around $72,000 and then oscillated in the $60,000-$70,000 range while altcoins generally declined. Or will this time be a stronger cycle that brings in new capital and allows altcoins to truly outperform?

Jose:

I think even if Bitcoin's dominance remains unchanged, you could still see some small-cap tokens perform exceptionally well. In 2021 and 2022, when Bitcoin peaked, we saw a crazy altcoin rally. But after Bitcoin hit a new high in March this year, most altcoins were actually hit hard during Bitcoin's consolidation period. Traditionally, this should have been altcoin season, but that has changed.

I believe the traditional concept of "altcoin season" may be outdated. Instead, projects with strong fundamentals and clear narratives will perform significantly, while others will perform mediocrely.

Jason:

When it comes to predicting the peak of Bitcoin's dominance, we are essentially discussing the ETH/BTC ratio, as it mainly revolves around the competition between these two currencies. Of course, XRP and BNB are also in the forefront now. Theoretically, if the entire AI sector skyrockets tenfold, it could also have some impact on Bitcoin's dominance.

From this perspective, I believe Bitcoin may still outperform Ethereum this year, especially if some favorable executive orders come into play. This is a bold prediction, but I made a similar prediction last year, and it came true. However, the gap this year may not be as large, as factors like an improved regulatory environment and a crypto-friendly president will benefit ETH, as evidenced by the flow of funds from ETFs.

Six months ago, I predicted Bitcoin's dominance would reach 66%-68%, but it seems it may not reach that high now. If Bitcoin rises to $125,000-$150,000, I think Bitcoin's dominance might return to 62%-63% and then start to decline.

Duncan:

It's worth noting that in January 2021, Bitcoin's dominance was 73%, and then it fell all the way to 40%. In contrast, the recent rally from November to December only dropped from 61% to 55%, with a fluctuation of about one-eighth to one-tenth of what we saw in 2021.

The Feasibility of Bitcoin L2

Jose:

I believe Bitcoin L2 could become a dark horse by 2025. In the past, Bitcoin holders rarely did anything with their Bitcoin, and the peak of WBTC only accounted for about 6% of Bitcoin's supply. The adoption rate of existing multi-signature L2s is not high, but by 2025, we may see some real ZK L2s launching on Bitcoin, such as projects like Citrea or Alpen Labs.

This could have a huge impact because Bitcoin holders do value security, and the market size is enormous. Bitcoin L2s not only provide scalability but also enable programmability. You can already use smart contracts on Ethereum L1, but you can hardly do anything on Bitcoin L1. So the changes brought by Bitcoin L2 are more significant—not only do they gain greater scalability benefits, but they also gain programmability. Even if only 1-2% of Bitcoin enters the L2 ecosystem, it would be enough to multiply the TVL of L2 several times.

Ceteris:

I am looking forward to the development of Bitcoin rollups. I have never believed those who say "Bitcoin holders don't want to use DeFi" or "don't want to do anything with their Bitcoin"; that has always seemed absurd to me. Indeed, there are some loud voices on Twitter who may never do so, but this is an asset worth over $20 trillion, and many people will want to use it, even if just to obtain on-chain loans without any wrapping.

Currently, achieving this requires a trusted bridge, but if OPCAT passes, it could enable trustless bridging through ZK proofs and other means. OPCAT has been running on the Bitcoin testnet for about a year, and some say it may officially launch in 2025. This functionality actually existed in the early days of the protocol but was removed due to a catastrophic vulnerability, which is no longer an issue now.

I believe Starkware's Starknet could be a dark horse for Bitcoin L2. Once OP_CAT passes, they can start submitting proofs to Bitcoin. This field is now vibrant, which can only benefit Bitcoin. Even if people do not use Bitcoin DA (data availability), merely submitting proofs to Bitcoin is still meaningful.

Even if only 2.5% of Bitcoin holders use these services, that would represent a $50 billion market. Moreover, not only existing holders will use it; there will also be people specifically buying Bitcoin to use these services.

Jose:

I think we will see some non-custodial solutions this year. It would be worth writing a new report to update all the latest developments in Bitcoin L2, as our existing report is nearly a year old. If Bitcoin L2 really takes off, it could put a lot of pressure on Ethereum.

Currently, there are about 10,000 Bitcoins in existing Bitcoin L2s, such as W-BTC (Wrapped Bitcoin). I think this number could grow about tenfold in the future, especially if it is not multisig. Bitcoin holders are actually very concerned about this issue because many of these L2s may turn towards EVM in the future. If there is a ZK bridge or an extremely reliable codebase (like Aave or Morpho) that allows you to deposit Bitcoin and borrow stablecoins like USDC, or perform a Maker CDP (collateralized debt position) operation, I believe such a solution would definitely find a market.

Jason:

From a financial perspective, there is a demand for lending, and BlockFi used to do a lot in terms of deposits. After the launch of the Bitcoin ETF, traditional finance also began to offer custodial solutions for Bitcoin; will they also provide credit solutions for Bitcoin? In the future, will more people lean towards using these crypto-native solutions, or will they choose platforms like JP Morgan, which, although centralized, have more safeguards and room for remediation in case of issues?

I believe the main source of demand for Bitcoin in the future may come from non-crypto-native markets. Currently, there are about $32 billion worth of Bitcoin in a state similar to L2, including Bitcoin on chains like Ethereum, Arbitrum, Base, and Solana. This data is very interesting, even though most of these solutions are not truly "secure" solutions, except for the Lightning Network. However, if a real solution for Bitcoin emerges, this number will increase significantly.

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