Original author: XinGPT? (X: @xingpt )
After returning from Consensus in Hong Kong, I met some friends in China one after another, and the familiar laughter still echoed in my ears. Old friends are still active, KOL, agency, market maker, trader - people have not dispersed, the market has not collapsed, the only thing that has changed is the spirit of this market.
This is neither a bull market nor a bear market. It is not the market dominated by greed or fear as people are familiar with, but an indescribable alienation - an industry atmosphere that old investors have never experienced and that makes people feel like they are in another world.
In this era, there is only one business left in the cryptocurrency world: selling coins.
Three pillars: creation, discovery, and circulation
Roughly speaking, the cryptocurrency industry has always been running on three wheels:
Value creation——Bitcoin, Ethereum, stablecoin, Layer 2, DePIN, AI Agent, etc. meet user needs through technological innovation and create practical use value.
Value discovery - VC investment, transaction 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, assist projects in reaching retail investors, and complete the circulation from primary to secondary.
These three should be a market ecosystem that meshes with each other and complements each other. But now, what we see is:
The first two are declining, while the third is flourishing.
Projects no longer pursue users and products, and VCs no longer study trends and tracks. The entire market is left with only one voice shouting: How to sell the coins?
CoinSell Economics and Resource Club
A reasonable and healthy market should have three inseparable links: the project party should make good products, meet user needs, and obtain profits and capital market premiums; the primary and secondary institutions should provide capital allocation for the project party, intervene during the trough period, and exit to make profits during the peak period; and the selling channels laid by the circulation party also provide the capital market with higher capital efficiency.
However, in the current cryptocurrency circle, there are no project owners or VCs discussing which areas of the cryptocurrency circle still have opportunities for innovation, what products can be made, or what needs can be met. Even in the second half of 2024 when VC coins are generally falsified, there are still local industry hotspots such as AI Agent that can stimulate the enthusiasm of entrepreneurs.
Secondary institutions are also generally flat, altcoins hit their peak as soon as they go online, the liquidity of meme coins is almost exhausted, and the durability of BSC is still lacking.
Under this market situation, there are only the third type of active institutions in the industry, MM market makers, agencies and middlemen. The topics they talk about are nothing more than: how to brush up good data or get connections to large exchanges, how agencies do publicity to attract buying orders, and how active market makers cooperate with buying communities to dump more trading volume.
Market participants are extremely homogeneous and are all trying to squeeze out the increasingly scarce existing funds in the cryptocurrency world.
In this way, the top resource providers (top projects, large exchanges and their listing departments, MMs and agencies with strong resources) have formed an unbreakable community of interests. The blood of the cryptocurrency circle is input from LPs to VCs, and from VCs to top projects. It also infiltrates through the capillaries of retail investors in the secondary market, feeding the parasitic tissues of these interest communities, which then grow bigger and bigger.
The disappearance of entrepreneurs
After FTX went bankrupt in 2022, the cryptocurrency circle experienced a dark moment. Bitcoin fell to 18,000 and all the copycats were silent.
But what is different from now is that a large amount of funds in the cryptocurrency circle are deposited in the hands of VCs and secondary funds/big investors. These funds have the function of generating blood. VCs will invest in entrepreneurial projects. Entrepreneurs can generate positive externalities, create value and attract funds to enter the market.
At this moment, a large amount of funds are sucked away by the middlemen. Entrepreneurs and project owners only want to earn the price difference after listing, becoming middlemen between VC and the secondary market. They do not need to create value, but only need to create a shell story. From the perspective of traditional business logic, if the downstream distribution channels eat up most of the costs, then the upstream RD and operating expenses must be cut.
The project team simply gave up on making products, and used all the funds to complete the promotion and listing stages. Anyway, there are many coin listings without products and users, and now promotion can be packaged as meme-driven. The less money is spent on products and technology, the more funds can be used for listing and trading.
The innovation path of the cryptocurrency industry has become:
“Tell a good story → package quickly → find connections to get listed → cash out and run.”
Products? Users? Value? That’s the romantic’s self-touching.
Pumping water is destiny
On the surface, the project team spends money on listing on the exchange and raising the price of the currency. It benefits everyone. The fund gets an exit, secondary retail investors have room to maneuver, and the middlemen make a lot of money from the commission.
But in the long run, the loss of positive externalities will only result in the middlemen becoming bigger and bigger, and after forming a monopoly, the proportion of profits they extract will become higher and higher.
Upstream project owners cut production and research costs, and regulatory pressure and the squeeze of pumping money led to a serious asymmetry in risk-return ratio, so they had no choice but to withdraw. Downstream retail investors’ pvp became more and more serious, “taking over every time”, and a large number of them withdrew from the circle after the money-making effect was lost;
In essence, middlemen, whether they are exchanges, MMs, agencies, or communities, are all service providers. Service providers do not directly create value and positive externalities. When service providers and water-pumping parties become the largest interest groups in the market, the entire market is like a cancer patient with a tumor. The final outcome will definitely be that the cancer cells grow fatter and fatter, and the host will wither and die after the nutrients are drained.
The power of cycles and post-disaster reconstruction
The cryptocurrency world is ultimately a cyclical market.
Optimists believe that after this trough of drying up liquidity, there will be a real spring of value one day. Technological innovation, new usage scenarios, and new business models will re-stimulate enthusiasm for innovation. Innovation is immortal, and bubbles will eventually end. If there is a glimmer of light, it will be a beacon.
Pessimists believe that the bubble has not yet burst, and the cryptocurrency circle will still have to undergo a deeper avalanche reshuffle. Only when the pumpers have no more coins to pump and the market structure dominated by middlemen collapses, can real reconstruction be achieved.
In the meantime, practitioners have to go through a chaotic and muddy stage: questioning, internal friction, burnout, and doubt about life.
But this is the nature of the market - cycles are destiny and bubbles are prelude.
The future may be bright, but the tunnel leading to the light will be long.
