Original title: Blowing the Bull Market Horn and Analyzing Market Vitality (2023 Summary and New Year Outlook)

Original source: Jocy@IOSGVC

1. Growth in scale effects brought about by effective regulation

Binance’s regulatory boot has been implemented. Many people regard it as negative news for the industry and a process of “Crypto’s largest unicorn finally compromising with regulation.” However, in my opinion, this means that the biggest potential risk minefield has been dismantled. The industrys overall risks are controllable and it is moving towards a regulated market, which will also accelerate the adoption and implementation of ETFs.

We can imagine: CME’s current trading volume accounts for more than 25% of the entire BTC Futures (verifying the conjecture that traditional institutions have entered the market in large numbers). With the weakening of US regulations, the trading scale of BTC on compliance exchanges (such as Binance/Coinbase) will occupy a major share of the market, and we may even see Nasdaq directly list BTC and ETH. Under such circumstances, one can imagine how big the daily BTC trading market is? Amid the U.S. debt crisis, the Federal Reserve and the Democratic Party seem to have reached some kind of consensus on crypto governance, and they are likely to be playing a big game. Regulation can make peace with the encryption market, which is one of the factors that is good for the industry, which will allow the industry to move towards a broader market.

2. Data tells us the bull market has begun to return

Currently we can see three events getting closer and closer to alignment in the coming months:

The first is the acceleration of ETF approval mentioned above (this will become an inevitable event, and Wall Street’s seizure of Bitcoin pricing power will also become a certain event);

The second is that when inflation peaks and falls, the Federal Reserve begins to take interest rate cuts (based on the current debt situation of U.S. debt, interest rate cuts will also become a more certain event);

The third is the halving of Bitcoin production within our industry and the iteration of infrastructure Layer 2 and application innovation in the Ethereum ecosystem.

These three things will happen simultaneously in the next half year, which means that the industry will start to correct from the current market and have the opportunity to impact a stronger bull market.

We can analyze the historical bull and bear cycle rise and fall data (quoted from IOSG internal data analysts) to verify the current market situation. The median decline in historical bear market cycles is -77%, and the average decline is about -75% (the recent bear market cycle fell exactly 77%). The median price increase during a bull market cycle is 15x, and the average increase is about 60x.

As for the duration of the cycle, the median duration of a bear market cycle is 354 days, and the average duration is 293 days (the duration of recent bear market cycles is also close to 354 days). For bull market cycles, the median duration is 604 days and the average duration is 571 days.

Analyzing historical information is valuable in understanding market cyclicality. We are currently buying into the middle of a medium-length bull cycle and are entering the climb phase of this crypto bull market.

3. Continuous ecological innovation, Ethereum is too big to fail

Regarding the ecological innovation of Ethereum, we have to mention the DevConncet conference in November. This is the event where the largest number of crypto developers gather together this year, and it is also the event where Buterin appears the most on different occasions. Can we sort out what happened in Devconnect?

Continuously strengthening infrastructure: New technologies and market segments have emerged. In L 2D ay, zkDay and zk Accelerator, we have seen many ZK and L2 protocols learn from each others strengths and compete on different stages. Protocols based on zkRollup innovation include Risc 0/Nil Foundation, and Scroll/zkSync/Aztec have begun to compete for the mainnet launch, and will present a diversified ecological pattern.

1) ZK Coprocessor is a direction that we think is very promising. This direction includes Axiom, Brevis, Lagrange and Herodotus. Axiom The application prospects they describe so far are simple and easy to understand. One of the biggest differences between CEX and DEX is the Referal Program and loyalty program. The more users you attract, the more transactions you make, the more you earn, and the more handling fees are reduced. Axiom hopes that DEX will also have these plans to help Uniswap collect all related interaction data on the chain. Calculate each users new acquisition and transaction status in a trustless and secure manner, and provide subsidies.

2) Different protocols on the Layer 3 and Raas tracks are also beginning to compete, including Conduit/Caldera/Gelato, etc., and are beginning to launch different application chains based on games/social/Defi, etc. Due to the Israeli-Palestinian conflict, many developers with Jewish backgrounds did not attend this conference. Even so, you can still see countless developers and founders constantly promoting their Rollup as service solutions to the market. This is a rare early stage. market! For a moment, I was sitting in a coffee shop, surrounded by L2/L3 founders with different backgrounds. They kept pitching their solutions on how to better help application deployment on-chain, and provide industry applications equivalent to Web2. experience. This is a bit like the early Web1.0 market around 2000 and the eve of Saas around 2012 when it was about to explode on a large scale.

Many people say that the Ethereum network innovation is very slow, and many modules are subcontracted to technical teams in different developer communities, but this actually proves its powerful network effect. The mainstream L2/L3/DA and other projects mentioned just now are helping Ethereum better solve performance and use case problems. Under the wave of competition among all teams in technology development, it seems that the entire encryption ecosystem, whether it is infra/dapps/vc, has Becoming employees in the Ethereum network, everyone does not receive a salary but works together to contribute to the growth of this network.

3) Some recent new development directions are also inseparable from hotly discussed technologies, such as distributed GPU and ZKML. Bittensor’s narrative and growth have shocked many people, and in the same field, Gensyn, whose seed round valuation has reached $500 million, has also attracted attention. They are all committed to bringing decentralized AI computing to users.

This popular field is not a castle in the air with no application scenarios. A game developer once showed me how they combined Crypto and AI. Their presentation surprised me about the natural close connection between Crypto and AI. Based on ZKML technology, they developed a full-chain football game platform with 5 players playing independently. Every pass and goal is supported by ZKML, and the game results are automatically uploaded to the blockchain. Players can set up different strategy models (ZKML) for battle (similar to the previous use of Bot/AI strategies in Dark Forest).

Although the discussion and user acceptance around on-chain LLM and ZKML use cases remains divided, I believe we will soon witness more AI-centric crypto platforms. Recently, Vitalik also mentioned d/acc (decentralized acceleration). We will see new projects from Unibot and former Flashbot founder Stephant in the future, which will attract more new users to change their trading habits and start using Bot trading methods.

The last direction is to go back to fully on chain gaming. I mentioned this direction before. I want to share with you what I saw about a young game genius developer Small brain - Word 3, Drawtech, Gaul who designed exquisite full chain games. . The designer behind it not only developed many outstanding gameplays and created games with blockchain characteristics, but also relied on his unique output of opinions in the AW community to rally a group of like-minded developers to quickly iterate on MUD. . They are moving towards the goal of launching a new full-chain game every six weeks and have made many interesting experiments.

I think the skeptics of Ethereum have ignored the compatibility and evolutionary capabilities of Ethereum itself. Especially when new application products encounter bottlenecks, Ethereum can absorb new technologies the fastest and solve bottlenecks (tps, gas costs). Provides solutions to most application problems. The new alt L1 has no obvious advantages in terms of application scenario segmentation.

In this cycle, Ethereum has two particularly typical network expansion models that are different from the past.

The first is currency and security output. Through LSD assets, this dollar-like expansion is exported to various Layer 2, altchain, restaking protocol, DA protocol; with the spillover of Ethereum LSD, Ethereum currency expansion will be greatly Strengthen the network benefits of Ethereum, which also makes the characteristics of moneyness and store of value of ETH more obvious;

The second is technology absorption and mergers. In every cycle, Ethereum absorbs new technical paradigms based on the failures of new platforms in the past, whether it is POS, after four or five years of observation, summary, and final implementation; or expansion, from Plasma, sharding to various rollups , all learned from many failed projects. In an open source system, this capability is equivalent to the tens of billions of dollars in RD sunk cost that most competitors have invested in the past few cycles, and this is all Ethereum’s investment capital, I don’t think any platform (including Bitcoin) has benefited as much as Ethereum in this regard. Fortunately, after this cycle, Ethereum has not stopped continuing to absorb and merge.

What reasons do we have to question Ethereum above? Even in a bear market, there are still countless projects and developers creating different products and protocols on the Ethereum network, and there are still tens of thousands of developers and projects creating new module components on this network regardless of returns. All Web3 funds and investors cannot avoid Ethereum ecological investment, which means that under the current ETH market value of hundreds of billions of dollars, they will continue to bet hundreds of billions of dollars on Ethereum ecological projects, and Ethereum will become more and more popular. Too big to fail!

4. The BTC Ordinals ecosystem that must be mentioned

With the rapid recovery of the market, Bitcoin is the proud son of God, and many Bitcoin ecological projects have begun to compete with various themes. It is extremely difficult to think about Ordi’s value proposition from the fundamentalism of Bitcoin. Bitcoin, as the leader of the crypto world Totem and value storage are its core functions. As Bitcoin gains wider social acceptance, consensus increases, value appreciates, institutions enter the market, ETF expectations, Bitcoin halving and many other factors superimpose. Ecological prosperity is inevitable by accident; whether it is the second layer of Bitcoin, Ordinals or others Protocol applications should first respect and protect the core of Bitcoin, which is the storage of value.

The rise of Bitcoin meme and NFT assets has a lot to do with the retail investor movement against VCs fair offering; after all, under the leadership of VC, retail investors can only eat bones, and VCs eat all the meat. Compared with the ICO era, the valuation threshold for retail investors is too high (Ethereum’s ICO in 2014 was only valued at 2,300 U.S. dollars). Basically, the secondary market for first-class projects is billions of dollars in FDV. For retail investors, EV is really too low.

It is under this market structure that retail investors initiated the current Occupy Wallstreet in the currency circle. However, this trend itself is also unhealthy. During the DeFi Summer, there were a large number of fair sale projects, but in the end, the fair sale projects were all short-term, quick and easy pump and dump projects, and various simple and crude forks, from January Tour to One Month Tour Day trip, bad money drives out good money;

Finally, after a cycle of big waves, there are very few fair offerings left, and the remaining long-term development projects are still old projects that have been tested for a long time and have good financing structures. Long-term projects require long-term capital risk investment, and short-term and fast fair sales cannot support long-term ecological development. The reason why mainstream encryption institutions have not followed up on the Bitcoin technology ecology is because there is indeed no substantial technical scalability, and it is more of a call for retail investors’ emotions under the label of “fair sale” (of course, this does not rule out the fact that some institutions and exchanges operate like this Emotions).

We do not support technical applications that threaten the robustness of the Bitcoin native network. Emotional speculation cannot last long. BRC 20 protocol technology still has many shortcomings. As institutional investors, we do not encourage speculation, but are willing to support more valuable and meaningful projects. builder, bringing more ecologically valuable protocols.

Therefore, the encryption market is a big dye vat. The current BRC 20 tokens such as Ordi have amplified speculation and price hype. I believe many people will earn a lot of returns from it, but when we do more profit-oriented transactions without thesis driving Sometimes, we will gradually lose our way and there will be losses on some projects for the same reason.

So if new friends who are ready to enter the market see this tweet, or if there are family members and friends around you who want to start buying under the FOMO mood, I hope everyone can do a good job in mobilizing their thoughts and reminding them of the risks, so that they only need to buy in BTC/ Making choices in ETH is the simplest and least error-prone path. It is very difficult to adhere to principles in investment. Hype and memes bring wealth effects, but how to not only see these in the encryption market, but also get rid of the hype and memes to support protocols with more value propositions and application prospects will also become an industry Important responsibilities and responsibilities of the beneficiaries.

Thanks to Teacher Mindao/Wendy/Fiona for the modification suggestions