Reflecting on the encryption market: returning to common sense and rationally examining market chaos

Author: Simiao Li

Compilation: Deep Tide TechFlow

TLDR：

In an extremely reflexive market, the accuracy of a certain “truth” that most people pursue is often not important, but common sense is very important. Don’t just focus on the accuracy of “fundamental analysis” and ignore common sense.

Here are some issues that violate the rules of common sense in the cryptocurrency space and should be corrected by the natural course of the market.

• Rule 1: If you see pie-in-the-sky/opportunistic behavior, that’s not how things usually work. *Rule 2: If you still rely on superficial investment advice from many KOLs, builders and investors, this is not a worthwhile approach. To understand reverse signals.
• Rule 3: Is there scams and manipulation? Are asset holders getting little to no net worth? That’s not a sign of an asset class that big-money value investors are ready to invest in.

The ability and courage to stick to common sense is rare because cryptocurrencies and crypto-twitter allow for the most nasty media price manipulation. Moreover, in the past 10 years, the encryption market basically only has an upward trend, and everyone’s attention has been trained to only chase the rise and not the fall.

EXTREME ACCURACY AND COMMON SENSE

The price of extreme accuracy at the expense of common sense is perhaps higher in the cryptocurrency space than in any other market.

You can calculate every detail of blue-chip projects and still mistake periodic leveraged betas for long-term growth (e.g. Lido, DeFi as a whole).

Most of the time, the market doesn’t care about precise fundamental calculations because we’re talking about an emerging on-chain native economy (Ethereum) with hardly any existing spending behavior. Most projects on ETH exist to burn Gas through speculative activities, and are derivatives of Ethereum’s network effects, which have no real net added value.

No amount of accuracy can compensate for a lack of awareness of the ongoing narrative:

*Ethereum wants projects that can burn Gas and increase the capital efficiency of the existing Total Value Locked (TVL) on the chain. Projects that can achieve either of these in the most efficient way will rise. Usually, a project can only achieve this for a short time, until the next project comes along. Defi Ponzi schemes are gone, RWA treasuries are next on chain, just to keep TVL in crypto.

• Only when new projects emerge that actually introduce new users and capital inflows can we get rid of this extreme player-to-player competition.

We are in an era where PvP games have all but run out of liquidity, and little new consumer behavior and real-world applications have emerged in the last two-plus years.

But I see some positive signs:

• Prediction market: Polymarket etc.
• Fun casino: Rollbit.
• Early practical use case for NFTs: Digital pawnshop for luxury watches.
• Some early attempts to build payment applications.

There really isn’t much else. Gaming (both Web 2.5’s GameFi and games fully on-chain) has yet to find PMF (Product Market Fit) in my opinion, but I hope I’m proven wrong on this one.

Common Sense

Rule 1: If it seems that pie in the sky is still widely accepted as the normal point, and scam/opportunistic behavior is rewarded, then we haven’t entered the “value zone”.

• L2 is a new replacement for L1. Now everyone (old L1, projects) wants to be L2 because it increases their valuation.
• NFT blue chip projects squeeze every last bit of value out of their most loyal users.
• Significantly overvalued projects that have yet to prove anything (Worldcoin endorsed in the name of OpenAI, overvalued). *Most dead projects pumped up their prices and then dumped to squeeze more exit liquidity out of the retail market.
• VCs invest in the new hot narrative (albeit much less than 6 months ago) because they believe that when the bull market arrives, it will hit an immediate $100M valuation like other projects that launched not too long ago.

Rule 2: If among many so-called KOLs, builders, and investors, calling orders is more important than analyzing logic, then we are still not doing enough in terms of the “builder market”.

• The convention is still too crowded. One will be in Hong Kong and the other will be in Singapore. Keynote speakers are more concerned with showing their presence than the actual content of the conference. *Being a founder is still a thing to be admired (even those who have liquidated their assets), even if your product actually has less than 100 real users and you care more about attending investor meetups than Keep working hard. *Working in the crypto space often means spending L1 fund money going around speaking and hosting events.
• VCs with mediocre track records, yet acting like kings on Twitter, talking about their certainty about the next big thing coming, and the total web traffic of the apps built by the projects in their portfolio is mainly due to them yourself and your competitors.
• Conversely, those who have contributed the most to the space tend to be low-key (Brian Armstrong, Vitalik, Opensea, some new Solana projects, etc.), founders of new projects that are slowly building legitimate products and don’t take market risks Schedule releases and announcements based on expectations, and will not engage in an aggressive PR campaign. You just build, publish, and let users judge with their money and their attention.

Rule 3: Institutions don’t come and buy our assets when manipulation is accepted by default and liquidity is still primarily for exits.

• Just open the chart of any illiquid altcoin that has been slowly falling for over a year but has periodic catalysts to drive prices higher and you will see why.
• Players like DWF become the new talking point, to be taken for granted.
• Projects without real users can still easily exit liquidity through IEO.
• Projects that do try to accumulate value for token holders do well, but are still called Ponzi schemes/scams by “professional investors” (Rollbit, Unibot).

Admittedly, this is exaggerated and simplistic about the state of the industry (common sense has returned in some places and deals are attractive), but overall it is an understated reality.

Courage and Faith

10 years of quantitative easing, ultra-low interest rates, and the cult of crypto-natives have really blinded people to common sense. WAGMI (We will all make it) because the halving is coming. WAGMI because Powell is saving our positions. Because Bitcoin has risen for a long time, so WAGMI. At times like these, sticking to simple common sense will pay off enormously.

I don’t think people’s faith has been tested enough. What would you do if we went sideways three years from now? Do you still believe in cryptocurrency? Do you still think this is the inevitable future of financial and human coordination? I would, but I’m sure most of the bulls right now won’t.

True courage and conviction require a complete disregard for consensus and appearances, as well as the persistence of patience. Both are still few qualities.