Author: BroLeon from Down Under
Before going to TOKEN2049 this time, I set a very important goal for myself.
That is, to have as many truly in-depth exchanges as possible with participants at different levels of the industry, especially those veteran players who have been through multiple cycles and have long-term accumulation.
I wanted to figure out a few questions:
👉What stage is the industry actually in right now?
👉Can the crypto space still keep moving forward, or is it still a sunrise industry?
👉Where might future opportunities lie?
👉Is it still worth it for young people to enter the industry?
👉Can retail investors still generally make money?
👉And for those of us who have been in the industry for many years, can we still expect to strike gold in a big way like in the past?
This time I had in-depth exchanges with some senior VC friends, very successful project founders, veteran KOLs, KOL agencies, and friends at exchanges. Each exchange basically lasted more than an hour.
With limited time and resources, about 70% of the people I talked to were Chinese, and 30% were Westerners (plus one Japanese friend on a Western project).
Interestingly, everyone had considerable disagreements about their judgments of the future. I want to first lay out these different views, and then talk about my own feelings.
After all, rather than only looking for voices that support your own judgment, it is better to first see what everyone is actually arguing about.
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The pessimistic camp. The core judgment of this group of friends is:
The era of huge profits in crypto may be coming to an end.
1. Compliance
No industry can remain prosperous forever. All go through a difficult embryonic stage -> a toddling childhood stage -> an enterprising, bold, and vigorous youth stage -> a steady but somewhat boring adulthood stage -> a twilight old age heading toward decline.
The crypto industry has long passed the stage of early dark-forest wild growth. The main theme is inevitably compliance, and the result of compliance is inevitably that the various bug dividends brought about by unclear rules and lax controls are patched up, and the window for ordinary novices to get collectively rich shrinks.
Today's cryptocurrency market has already become too large to be ignored by governments around the world. As time goes on, regulatory, tax, and legal authorities in various countries understand more and more about how cryptocurrency operates. European and American countries have increasingly mature crypto tax regimes, and control over CEX licenses is also moving closer to traditional finance.
This will lead to several inevitable results:
1. CEXs used to be able to ignore everything because there were no internet barriers, and could suck retail investors from various countries into their venues for trading and take a cut, but now major exchanges in developed countries have begun to follow relevant regulations step by step. Travel Rule, contract leverage, derivatives access thresholds, and so on are all cooling down the funds that once rushed in blindly.
2. The people and capital willing to pump prices and organize setups will decrease.
Speaking of getting rich quickly, it is hard for me to forget the former LUNA and FTX during the SBF era. One helped Real Madrid create the miracle of a single person's $800 million in paper wealth, only for it to come to nothing in the end. The other, by stepping on its own left foot with its right foot, used user funds to lift the early Solana ecosystem into the sky.
Why do such cases basically not appear in US stocks? Precisely because of strict compliance controls.
A large amount of black and gray capital once entered crypto and to a certain extent promoted the periodic great prosperity of crypto, such as former Wanghui funds, Russian casino funds, and funds from sanctioned countries. With compliance tightening now, it will be very difficult for this money to enter the pool again and become a driver pushing coin prices higher.
2. The channel for traditional capital to enter Web3 has been cut off
Many people only see that altcoins have fallen, Meme is no longer fun, and retail investors no longer take the bag. But if you look one layer deeper, you will find that an important capital cycle that supported the prosperity of crypto over the past few years is gradually failing.
After the last round of loose liquidity, a large amount of traditional capital, including family offices and funds, found a relatively compliant way to enter the crypto industry:
That is, investing in Crypto VCs.
These traditional funds do not need to trade Meme themselves, nor do they need to directly participate in various on-chain speculations. They only need to allocate funds to crypto funds.
After the VC gets the money, part of it may be allocated to mainstream assets such as BTC and ETH, while another part is invested in the primary market.
The project team obtains financing, recruits a team, develops products, conducts marketing, distributes airdrops, connects with exchanges, and eventually the project goes live, the token enters the secondary market and is sold off, and the VC recovers funds.
This formed a fairly complete capital cycle.
But since last year, this model has been facing serious challenges. LPs of traditional capital have gradually discovered that the experience of investing in Crypto VCs is not ideal.
First, the investment cycle is very long and capital recovery is slow. Second, after altcoins list, it is increasingly difficult to reach the crazy valuations of the past, and even if they do, by the time they can unlock, they have already fallen so much that little is left. More importantly, retail investors are no longer willing to keep paying for these high-valuation projects.
When VCs cannot create ideal returns for their LPs, new fundraising will naturally become more and more difficult. And when VCs cannot raise money, project teams will also find it hard to obtain a steady stream of financing like before.
This is the fundamental reason why a large number of VCs in crypto shut down and left over the past year or so (especially Asian VCs).
Add to that the AI wave. The volatility of US tech stocks is no less than that of Crypto, attracting a large amount of capital and excellent entrepreneurs to leave Web3 and participate. As a result, our industry has gradually become a stock market lacking new participants and scarce in liquidity.
How to get this traditional capital to come back legally and compliantly and inject new blood into the industry may be one of the most difficult problems facing the current market.
3. Lack of innovation in narratives
In the short term, the bigger problem in crypto is that one of the most important wealth-creation links in crypto in the past -- the consensus around altcoin narratives -- has collapsed, and its successor Meme is not much better.
After liquidity became scarce, DePIN, GameFi, and many tracks that were once highly expected gradually exposed problems in business models and real revenue.
In the end, retail investors no longer believe in altcoins, nor in those grand-sounding narratives, and instead turn to support "anti-Wall Street" Meme.
But Meme was once a weapon against VCs, and now it has also begun to ossify. Today's Meme, although it has escaped the traditional VC model of collectively issuing coins and dumping on exchanges, has gradually formed another set of interest groups.
Coin-issuing groups, shilling groups, and various mutually bound small circles have begun to dominate more and more opportunities. For ordinary retail investors to rely on early participation or personal insight to achieve several-fold or even dozens-of-fold returns has become increasingly difficult.
Not long ago, Vitalik also said that small groups on Pump.fun, through continuously issuing Meme, have cumulatively harvested more than $100 million, and the loss rate for retail investors playing Fomo exceeds 90%.
Regardless of the specific cases, the problem reflected behind them is worth paying attention to:
The Meme game, which once sold itself on fairness and openness, is also gradually being occupied by a new interest structure.
The old game has been broken, and the new game has begun to ossify, while we have not yet found the next new game model that can be exciting, allow relatively many retail investors to share in the dividends, and have less intense competition.
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The optimistic camp. The core judgment of this group of friends is:
The improvement in industry fundamentals is visible to the naked eye, and we have already emerged from the bottom.
Although their ways of expressing it differ somewhat, quite a few friends agree that today's crypto may be very similar to the state after the ICO bubble burst in 2019.
At that time, the market's trust in the previous mainstream narrative (everything can be ICO'd) completely collapsed. There were no new projects on the market at all, old projects died in batches, and practitioners did not know where the future direction was, and jumped ship back to finance and the internet.
The entire industry seemed to have no project that could land and continuously generate revenue, and there was nothing worth looking forward to. But as a result, during nearly a year of bear market, DeFi, that dazzling flower, was born.
And now, something similar is happening again.
Actually, I already had this feeling since last year. At that time, the market began to decline, retail investors were no longer willing to pay for altcoins, but Meme was still popular for a while.
At that time, I felt that the industry might need to go through a relatively thorough clearing out. I even wrote a long tweet specifically, talking about how VCs forming groups and dumping after listings had already pushed the industry into a complete deadlock, and I did not know who could untie this knot, otherwise the bear could come very quickly.
Later, the rise of Meme and Binance Alpha's innovative gameplay kept the market alive for more than half a year, until after 1011, when market liquidity shrank sharply, and the market went through a long, gradual process of dying out.
It was not until this 2049, nearly a year later, that I clearly felt that the old projects on the market had been cleaned up almost completely.
Those that could list had long since listed, and many that could not list had already died.From this perspective, the current downturn in the industry may not necessarily be a bad thing.
It is more like a long detox process, and detox takes time. Only when the old things gradually exit the market can new narratives and new ways of playing have a chance to truly grow.
As the saying goes, there can be no construction without destruction.
After winter arrives, only things with true vitality have a chance to sprout again in the next spring. If we extend the time horizon, perhaps we can view the current market environment more rationally and wait for the next wave of innovation with more patience.
Moreover, we can already see that some projects with stable user bases that can continuously generate revenue now exist, making it hard for others to Diss cryptocurrency as just a castle in the air, a big Ponzi.
Regarding the compliance process mentioned by the pessimists, the optimists' view is that, from another angle --
"Cryptocurrency is being accepted by more and more countries and gradually entering the mainstream financial system. Isn't this exactly what we early participants once dreamed of?"
Thinking back many years, what did we early Crypto believers hope for?
It was for cryptocurrency to be truly widely used. For more and more people to understand blockchain and digital assets. For cryptocurrency to no longer be just a game within a small circle, but to be able to enter the real-world financial and commercial system.
Now, these things are actually happening step by step, such as @circle and cryptocurrency companies going public, many exchanges being invested in by mainstream financial institutions, Hyperliquid being mentioned by Trump, 82 million US Samsung phones beginning to embed stablecoin wallets, and Robinhood and Futu providing users with cryptocurrency trading access.
These seemingly vague benefits that seem far from our daily Alpha-making may, when the external environment changes, such as when liquidity becomes loose again, very likely become the cornerstone for a much larger wave of users pouring into Crypto.
Just as we could not conclude that the industry was finished simply because the once-popular ICO no longer Worked, we also cannot conclude that the entire industry is already doomed just because the VC token issuance model no longer Works and it is hard for retail investors to make money in the Meme model either.
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Actually there is still quite a lot of content, but I do not want to make it too long, my friend. I will come back later and slowly give my own thoughts and answers to the questions raised earlier, one by one.
I only want to say that we should extend the time horizon and look at the industry's development with a more open mindset, rather than using the old era's rules of the game to judge whether a new era still has a future.
This may be the thing most worth continuing to think about after my exchanges with different friends at this TOKEN2049.