Original author: napkin
Original translation: TechFlow
In 2021, market reflexivity was mainly driven by several mainstream narratives (such as DeFi and NFT) and ample liquidity.
However, today, the market is clearly fragmented.
Why does this cycle have only breadth but no depth?
I haven’t written anything here for a long time, but I would like to take advantage of the arrival of 2025 to briefly share some of my recent thoughts, as an update of my recent thoughts as an ordinary market enthusiast.
That being said, this content in no way constitutes any investment advice. Please always do your own due diligence and research thoroughly before investing in this “casino clown world” we call cryptocurrency.
Preface
As we continue to explore this cycle, one thing is clear: this is completely different from the market in 2021. At that time, market reflexivity was driven by a few mainstream narratives and ample liquidity, forming a strong upward momentum. Now, the market is divided into multiple fragmented small narratives, with new hot coins and concepts emerging every day, but liquidity is diluted to the limit. Although reflexivity still exists, its influence is dispersed among countless tokens and narratives, resulting in a market that is broad but not deep: many assets are rising slightly, but few can continue to rise.
In this article, we will explore how reflexivity manifests itself in this new environment, analyze why liquidity has become the invisible killer of this cycle, and my market positioning at this stage.
Which stage is this cycle in?
I tend to think we are on the verge of a bottom, or have already hit it (of course, this is just to comfort my position). Almost every sector has suffered a sharp correction this year, with AI and Memes sectors suffering the most, falling by 80%-90%.
I guess by now you’ve probably felt the fragmentation of the market and the thinness of liquidity in your daily pursuit of narratives and search for the “next big hot coin.” Since the beginning of this bull run (while most people like to place the starting point in November 2022 or January 2023 after the FTX event, I prefer January 2024 as the beginning of the new paradigm), we’ve witnessed an explosion of narratives in addition to BTC, ETH, and DeFi.
Animal Theme
As the granddaddy of meta-narratives, “AnimalCoin” is still alive and well, even though Dogecoin and Catcoin deserve their own categories, as they have spawned countless subcategories, sub-subcategories, and even sub-sub-subcategories.
Real World Assets (RWA)
This is a favorite of traditional finance (TradFi), which can be cleverly packaged as fundamental transactions rather than simply imitating speculation. Representative projects include: $ONDO, $PRCL, $CPOOL, etc.
AI (Intelligent Agent)
In the first half of 2024, the AI narrative mainly revolved around projects such as $RNDR, $NEAR, $FET, and $AGIX. Subsequently, the Truth Terminal appeared, and now the AI narrative has almost completely turned to intelligent agents and their frameworks. Representative projects include: $VIRTUAL, $ARC, $AIXBT, $AI16Z, $pippin, $AVA, etc.
DeFAI (Decentralized AI)
This is a small branch of AI, but it has grown into an independent large category. Now, smart agents can perform DeFi tasks and have formed their own sub-category. Representative projects include: $GRIFFAIN, $ANON, $GRIFT, $BUZZ, etc.
Presidential Theme
This category does not require much explanation. Representative projects include: $TRUMP, $MELANIA, $BARRON, $KAI, etc.
Web2 founder narrative
If you are active on Crypto Twitter (CT), you must have seen this narrative. The founder of Web2 started the redemption journey in the crypto field. Representative projects include: $VINE, $JELLY, etc.
The narratives that are still in the spotlight are just the tip of the iceberg. But you may have forgotten that just a few months ago we had things like “wifhats,” celebrity coins, zoo-themed, cute animal coins, “euthanasia animal coins,” quant coins, baby coins, old coins, young coins, TikTok coins, and so on. The list goes on and on.
From a bigger picture perspective, we can focus on a few key metrics: TOTA L3, BTC.D, and stablecoin supply.
TOTA L3
TOTA L3 refers to the total market capitalization of the crypto market (excluding BTC and ETH), which essentially reflects the total value of all altcoins, stablecoins, and memecoins. Currently, this indicator is close to the high point of November 2021.
BTC.D
BTC.D represents Bitcoin’s market share, which is currently stable at 58%, down from 61% in November 2024.
From November 2024 to January 2025, the market has experienced a altcoin season dominated by on-chain activities, especially around AI and meme coins. During this period, BTC.D fell, TOTA L3 rose sharply, and the supply of stablecoins also grew synchronously, currently close to $215 billion.
Reflexivity in past cycles
George Soros defines reflexivity as a theory that a positive feedback loop between expectations and economic fundamentals can cause price trends to deviate significantly and persistently from equilibrium prices. This phenomenon is often described as “prices drive narratives, not narratives drive prices.”
Crypto markets provide the perfect environment for reflexivity:
Lack of a clear valuation framework: Complete reliance on pure speculation;
Low liquidity: Market funds are relatively thin;
Attentionomics: Key opinion leaders (KOLs) from Crypto Twitter (CT), TikTok, and Telegram group chats collectively build momentum.
In 2017, there was the ICO boom; in 2020, there was the DeFi yield farm; and in 2021, there were memecoins and NFTs. From January to May 2021, Dogecoin ($DOGE) achieved a nearly 200-fold increase.
Dogecoin is a perfect example of the reflexivity of crypto markets and the overall changes in the past and present. It has no fundamental valuation framework and has become the pioneer of what we now call memecoins.
High-profile endorsements, especially from public figures like Elon Musk, ignite a self-reinforcing feedback loop.
While stablecoin liquidity was comparable to today’s levels, funds flowed to fewer exits, creating a “crowded theater” effect—capital and speculation were highly concentrated in Dogecoin. In addition, the market’s novelty and retail-driven frenzy, coupled with stimulus checks and boredom from home quarantine during the pandemic, further reduced market skepticism and allowed meme culture to dominate.
What’s most impressive is that this is all driven almost entirely by retail spot demand, not leveraged derivatives. At the peak of Dogecoin’s price, open interest (OI) was only about $60 million; today, with the price at only half of its all-time high, open interest is over $1.5 billion.
Reflexivity in the present
The crypto market in 2024 has broken previous trends, with Bitcoin remaining strong while most altcoins have struggled to steal the spotlight.
The market appears to be suffering from attention deficit disorder (ADHD), with investors’ attention jumping from one shiny new narrative to another and any single trend struggling to gain sustained momentum.
Although stablecoin liquidity today is comparable to that of 2021, the reflexivity effect has been diluted and is difficult to maintain across many narratives. These narratives include artificial intelligence (AI), decentralized physical infrastructure (DePIN), real world assets (RWAs), and more than 100 meme coins. The main reasons for the weakening of reflexivity are as follows:
Fragmentation of capital: Funds are spread across hundreds of tokens with lower market caps, which weakens the strength of reflexive feedback loops.
Leverage saturation: More and more traders use perpetual swaps (perps), making open interest (OI) a key metric.
Increased risk awareness: Market traumas in 2022 (such as the LUNA crash and the FTX incident) have made investors more wary of “dumb money” speculation.
Most new tokens or narratives end up like the Bitconnect price chart, experiencing a brief frenzy followed by a rapid crash.
The traditional Altcoin Season seems elusive in the current market.
The strong rotation of funds from Bitcoin (BTC) to altcoins in the past has not occurred as expected.
@intuitio_ points out that unlike previous market cycles, this time around Ethereum and other altcoins are lagging significantly… (yes, Ethereum never broke out to its all-time high).
Today’s market structure is characterized more by breadth: many tokens experience small, short-lived rallies, but market sentiment for any single token appears shallow and lacks depth.
To illustrate how fragmented the market is, look at the end of 2024: Bitcoin Dominance rises to levels not seen since early 2021. And by January 2025, Bitcoin Dominance reaches 65%. All of this is happening while the total market capitalization of the crypto market is still growing, which means that other tokens are lagging behind across the board.
While there are a plethora of tokens that have seen some activity in the market, few have been able to sustain this trend long enough to outperform Bitcoin. In fact, the Altcoin Season Index has spent much of 2024 stuck in the “Bitcoin Season” range.
The Economics of Attention
In the current crypto market cycle, “attention” has become the most sought-after asset. Fundamental analysis and traditional token economics (Tokenomics) have taken a backseat, replaced by memes, viral moments, and reflexive hype.
This phenomenon is called attentionomics, where the value of many tokens depends more on attracting eyeballs than on their underlying value.
In a market fragmented by thousands of tokens, human attention is the only truly scarce resource. Projects that can successfully capture that attention tend to see their price performance rise in tandem.
As @redphonecrypto said:
“In the attention economy, a coin’s ability to attract attention is more important than any other metric. The greater its ability to attract attention, the greater its potential upside. And the size of this ability can be judged by some very real and identifiable factors.”
Attention Flywheel
In today’s social media-driven crypto market, “Attentionomics” can be summarized as a self-reinforcing “attention flywheel.” This cycle generally follows a similar process:
Viral Catalyst: A meme or event sparks a new narrative and curiosity that motivates someone to mint a token. For example, “Ghiblification” is a classic example.
Early speculators flocked to the token, causing the price to soar rapidly. In the crypto space, the price itself is the content. Charts of prices increasing 10 times in a few hours began to circulate on social media, attracting widespread attention.
The price surge is seen as proof of the “strength” of the meme, attracting more attention. The viral post brings in a second, larger wave of buyers who don’t want to miss out on the next “moonshot” opportunity. The influx of liquidity pushes the price up further, and copycats (Beta tokens) begin to appear on the market.
This feedback loop — attention → price → more attention — can often unfold rapidly, sometimes within just one day of a meme’s creation.
Mainstream expansion: If the craze grows large enough, it will transcend the confines of the cryptocurrency space. This spread is further amplified by media coverage, exchange listings, or celebrity endorsements, creating value through virality.
This reflexive cycle means that attention itself becomes a potential energy. As Cobie, a famous person in the encryption field, said:
“People always talk about scarcity in crypto. Whether it’s digital scarcity through NFTs or the idea that ‘there are 55 million millionaires in the world but only 21 million Bitcoins.’ But in reality, the only truly scarce resource in crypto is attention. Venture-seeking capital is definitely not scarce.”
Projects or tokens that win the “attention lottery” can easily see explosive growth in market capitalization, a phenomenon rarely seen in traditional finance (TardFi).
The rise of spam: From joke to wealth secret
Recall that many of the hottest tokens in 2024-2025 were essentially “Shitposts with a Price Feed.”
For example, $ROUTINE was created purely for fun (and profit) around a popular topic. Ironically, rather than deterring investors, this straightforward self-mockery has become part of its appeal, fitting in with the ironic humor in crypto culture.
However, attention-driven projects are often short-lived. For this reason, some of the most successful meme projects have begun to try to give tokens practical uses or build infrastructure.
But the question is, does this attempt really work?
Take $PEPE as an example. Its team proposed the idea of developing an exclusive Pepe Chain and related products, trying to leverage its huge community base. By creating a Pepe-themed second-layer network (L2) or decentralized exchange (DEX), $PEPE holders can have more token uses than just buying and selling. This is a strategy to start a real platform user base through brand awareness.
The so-called utility of many meme projects is more like an additional excuse after the price surge. Some meme-branded DEXs or peripheral merchandise stores may exist, but they usually cannot significantly increase the intrinsic value of the token. In the final analysis, these utilities are often just thin packaging for the communitys speculative impulse.
In these projects, attention is still the core driving force, and the product is only a supporting role.
Capital’s game of musical chairs
What happens when attention spans are stretched too thin? The answer is that traders enter a never-ending game of rotation.
In the crypto market, capital will move from one sector to another, or move down the risk curve to buy those copycats (Betas). This has become a mainstream strategy.
Since a single narrative rarely delivers consistent 10x returns (especially for investors who miss the main swing), the optimal solution is to capture a series of smaller swing gains.
This is exactly how the “Euthanasia Coaster” meme was born.
We’ve already seen this phenomenon in action: after people made a killing on $ROUTINE, profits quickly shifted to related tokens (like $SARATOGA, another meme token from the same viral video).
This rotation of hot money is why we see some strange market cycles, such as all dog-themed meme coins soaring together one week, and then AI-related tokens taking their turn the next week, and then maybe the old DeFi tokens suddenly usher in a wave of random funds (because someone said hey, Yearn hasnt risen yet, maybe its the next target).
It’s a fast-paced game of reflexivity:
Seeing the price increase,
Buy,
Let the price go higher,
Then sell before prices turn lower.
Repeat the process over and over again.
From spot to leverage: a huge shift in the market
From 2021 to now, a huge change has taken place in the crypto market - the role of leverage has become increasingly important.
The 2021 Dogecoin frenzy was driven primarily by spot buying, with millions of retail investors using their pandemic grants to buy DOGE directly through Robinhood and Coinbase.
Today, a large part of the markets momentum comes from derivatives, especially perpetual contracts (Perps) and options trading. A large number of crypto traders use margin for high leverage operations on platforms such as Binance and Bybit.
When open interest (OI) is this large, price movements can become extremely volatile.
In November 2024, Bitcoin surged from $75,000 to $90,000 in just two days, with multiple short squeezes. This price surge is a reflection of the reflexive effect of leverage: shorts are forced to close = forced to buy = price increases = more shorts are closed, and so on. However, this mechanism is a double-edged sword.
High leverage means high reflexivity, but that is often not healthy or sustainable.
We are starting to see price swings become more frequent and out of control, far beyond what is reasonable. Such swings are often driven by leverage, but will eventually revert to the mean because price increases are not based on a steady influx of new money. A key insight is that open interest can drive prices higher, but it is not equivalent to new capital inflows. Ultimately, this is more like a player-versus-player (PVP) game.
Taking the data from November to December 2024 as an example, total open interest (OI) increased by about $70 billion, but stablecoin supply only grew by $30 billion.
The size of OI in 2024 is much larger than that in 2021, which tells us that the reflexivity of this cycle is more mechanical than natural. When the tokens skyrocketed in 2021, people bought and held with firm conviction. Today, when the tokens skyrocket, more scenes are traders shouting Im already long, dont let me get cut! while their fingers are hovering on the sell button.
Summarize
The current crypto market exhibits a cyclical characteristic dominated by breadth, with many narratives and tokens taking turns to explode in their own independent small cycles.
Perhaps we are in a transitional phase, with a deeper, more unified cycle yet to come. The foundation laid by institutions (e.g. ETF approvals, RWA integration, etc.) may eventually ignite a broader bull run, driving a massive influx of funds into the altcoin market (alts), the full release of the dry powder of stablecoins, the decline of BTC.D (Bitcoin Dominance Index), and the classic alt season.
On the other hand, market fragmentation may have become the new normal, which may be a sign of the growing maturity of the crypto market. The crypto industry has become so large and diverse that it may no longer be realistic to expect everyone to rush into the same trade due to fear of missing out (FOMO). The market is no longer a all tokens go up together scenario like in 2017. Today, selectivity, flexibility, and skepticism are more important than ever to survive in this market.
No matter where the market goes, reflexivity will always exist, just in different forms and degrees. The challenge (and opportunity) is to identify which feedback loops are just short-lived hype and which ones may evolve into larger trends.
Just when you think a narrative is over, it comes back again.
Who would have thought that “Trump meme coins” would become a hot topic? But they have.
Just when you think an asset is “too big to fail,” it falls even further (like ETH continuing to fall from $1,800).
As markets continue to evolve, I’ll keep in mind the lessons of this cycle: stay flexible, but also know when to sit back and be skeptical of every narrative.
I admit that more breadth, less depth sounds like a complaint, but it also reflects the reality of a market that is maturing in unpredictable ways. Perhaps in the next phase, depth will return; or perhaps we will further fragment into more small echo chambers. However, there are always opportunities for those who are prepared, and pitfalls for the unwary.
Reflexivity has not disappeared, it has just become more complex.
Stay safe, stay sharp, and don’t forget to protect your freedom when your memecoins turn into apartments. Finally, I want to end this with a classic quote from @mgnr_io :
“In subjective trading, the most correct position is often a short position.
Dont do anything. Five times a year, theres free money on the ground.
Pick it up, then continue doing nothing.
That’s excess return.”
Best wishes!
Disclaimer
The content of this article is for general informational purposes only and is based on current facts and sources. It should not be considered professional advice. Please conduct your own research and consult with qualified advisors before making any decisions. The author is not responsible for any consequences of any information based on this article.
