Bitcoin bull market dilemma: double pressure from macro uncertainty and stagnant industry innovation

Original title: "Stalemate, Bubble, Crisis, Icebreaking"

Original author: Ac-Core, YBB Capital Researcher

TL;DR

●     Unlike the previous bull market driven by macroeconomic prosperity, this round of crypto market is mainly affected by macroeconomic uncertainty;

●     ETF is just an "ibuprofen sustained-release capsule", and the trend of crypto-USization has become a "tightening curse" for the industry's growth potential;

●     The current bull market is almost limited to Bitcoin. The main reason for the sluggish performance of altcoins is the lack of innovation in the overall industry, insufficient liquidity and overvaluation in the primary market. The overall capital driving force is limited, and it is difficult for the market to increase in volume;

●     In the case of stagnation of industry innovation, although the entry of traditional institutions such as BlackRock can provide a certain amount of incremental funds, it cannot change the trend of market involution, and it is difficult to support sustained growth;

Can the cyclical rise of halving in one or four years be staged in a way that cuts the boat to seek the sword

1.1 The starting point of the bull market is completely different

Perhaps out of resistance to the over-issuance of national sovereign currencies and monetary policy intervention, Bitcoin was coincidentally born in the context of the global economic crisis. From the perspective of development history, before Bitcoin was widely banned in China in 2021, China was the main promoter of the encryption industry, and the domestic single mining volume once accounted for two-thirds of the global total. At the same time, China's overall economy has developed rapidly driven by the real estate and Internet booms. The macroeconomic environment before 2021 was favorable, and the central bank's monetary easing policy stimulated the market's investment enthusiasm. However, as the real estate market cooled down after 2020 and the overall economy declined, some market liquidity was gradually withdrawn. Looking at industry innovation from a rearview mirror perspective, DeFi Summer promoted Ethereum's internal circulation economy and became the main driving force for its outbreak. Subsequently, NFT, MEME, and GameFi continued to break through the circle, attracting massive traffic resources and triggering a craze for digital collections. The rise in the industry's market value has driven the development of the entire industry. However, this round of innovation is mostly "old songs" and has not brought substantial breakthroughs. Or perhaps the bull market has not really arrived yet, and the new narrative has not yet set off enough waves.

If the beginning of 2019 to the beginning of 2021 is regarded as the starting point of the last bull market, Bitcoin is in the price range of 4K-10,000 US dollars, and Ethereum is in the range of 130U-330 US dollars. The entire crypto market is small in size and has huge room for growth. However, according to CompaniesMarketCap data, the current market value of Bitcoin is ranked 10th in the world, second only to Facebook, with about three times the growth space from Apple and about 15 times the growth space compared to gold. However, compared with the last bull market, the overall expected growth space has been greatly reduced.

The rise driven by halving is the core narrative of the last bull market, and the cyclical growth of the crypto market has always been closely related to the macro economy. Since the creation of the Bitcoin block in 2009, its market value has exceeded 1 trillion US dollars, which is inseparable from the cyclical monetary easing stimulus. However, the only constant in the financial market is "change". Even if you have achieved a position, you cannot know the depth of the dive.

Data source: CompaniesMarketCap

1.2 Where is Bitcoin's positioning and future upside?

Is Bitcoin's safe-haven property only a consensus within the circle?

To this day, the US dollar still controls the global economy through pricing power, while gold, as a "safe haven" for hedging and value preservation, has seen its historical price highs accompanied by major crises. The first carnival began with the collapse of the Bretton Woods system after the end of World War II, when the US dollar decoupled from gold, driven by geopolitics and inflation. The second carnival began in 2005, when a large amount of funds poured into the gold safe haven after the subprime mortgage crisis. After the end of the Libyan war in 2011, geopolitics remained a key factor. The third carnival was after 2018, when the COVID-19 pandemic and local geopolitics drove up gold prices. Overall, gold has always been the first choice for hedging risks, and the Fed's quantitative easing to expand money supply and geopolitics are the main driving forces for its price increase.

According to Beijing time on Thursday (September 12), spot gold closed up 1.84% at $2,558.07 per ounce, a record high; spot silver rose 4.19% to $29.8792 per ounce. COMEX gold futures rose 1.78% to $2,587.6 per ounce, also setting a new historical closing record (data source: Qianzhan.com Research and Selection Express). The positioning of Bitcoin and gold as safe-haven assets seems to have been broken. Gold has skyrocketed, but Bitcoin has failed to keep up. Instead, its price trend is closer to that of U.S. stocks.

The greatest value of Bitcoin: a tool to resist economic sanctions and lack of trust in legal tender

In the context of economic globalization, all countries hope to achieve the international circulation, reserve and settlement of their own legal tender. However, the trilemma between monetary sovereignty, free circulation of capital and fixed exchange rates still exists. From what I read in "Currency Wars", paper money itself has no value. It only relies on the credit endorsement of the state. Those who control the right to issue currency can actually override the law. Even the hegemony of the US dollar is difficult to support such a large-scale credit endorsement for a long time. Behind the global economic globalization, the essence is the unsolvable contradiction between monetary globalization and national interests. Taking El Salvador's adoption of "legal currency dualization" to promote the use of Bitcoin throughout the country to weaken the hegemony of the US dollar as an example, Russia has allowed residents to trade cryptocurrencies and use them for trade settlement since September 2024 to circumvent sanctions.

The embarrassment of Bitcoin is that its value comes from hedging the risk of trust in legal currency, but its rising momentum depends on the policies of powerful countries, the adoption of monopoly capital and the influence of the macro environment. This dual dependence makes Bitcoin still subject to the restrictions of its rules while challenging the traditional financial system.

Second, ETF is only a short-term pain relief, not a cure

2.1 The post-ETF era of encryption: failed confrontation with power

Source: The Guardian-News

Bitcoin was born coincidentally against the backdrop of the global economic crisis. The unique attributes of blockchain have the potential to resist the over-issuance of national sovereign currencies and monetary policy intervention. Anti-power, advocating freedom and decentralization were once the beliefs and slogans of the industry. However, most of the "players" in the industry have a speculative mentality, and getting rich overnight seems to have become the primary productive force driving the development of the industry. Although the launch of the Bitcoin ETF is a positive, it is ultimately an unavoidable one-time event and cannot support the market in the long run.

Once, most of us believed in resisting the powerful, but now we put our hopes on the power of the powerful. In utopia, we seem to only care about profits and not the direction. The market is full of cheers for the benefits of ETFs, and everyone is looking forward to more funds pouring in to take over for us. However, we who once struggled to fight against the powerful are now handing over our achievements to the powerful step by step. This transformation reflects the profound contradiction between ideals and reality.

Giant companies such as BlackRock, Vanguard, and State Street control the world, and now BlackRock is controlling Bitcoin.

The most influential companies in the world are not Apple, Tesla, Google, Amazon or Microsoft, but the world's largest asset management companies. BlackRock is one of them. From 2009 to 2023, it has been the world's largest asset management company for 14 consecutive years, managing trillions of dollars in assets. Compared with technology giants, these asset management companies have a more far-reaching economic influence through the global flow of capital.

The direct impact of the post-ETF era is that the price of crypto assets will be closer to the trend of traditional finance. Only by holding more chips can you have a greater voice in the industry. Today, the United States is gradually controlling the development of the crypto industry through ideology. According to QCP Capital on September 10, macroeconomic uncertainty has become the dominant factor in the crypto market, and the 30-day correlation between BTC and the MSCI World Stock Index has reached 0.6, close to a two-year high. This shows that Bitcoin's price trend is increasingly affected by the performance of global stock markets.

The crypto industry did germinate in China at first, but now the "big dealer" has changed, and more professional competitors are rising. In the future, in addition to screening brand IP and track sectors, it is also necessary to have very strong trading and transaction capabilities. The Matthew effect will penetrate into every corner of the industry, and the crypto world is gradually ushering in "Wall Street-level" trading difficulties.

2.2 Metaphor of the Gold Rush

Looking back at the California Gold Rush more than a hundred years ago, hundreds of thousands of gold diggers with the dream of getting rich overnight flocked to California from all over the world. However, most people eventually returned empty-handed, and even paid the price of their lives. In contrast, Levi Strauss took a different approach and used the gold rush to make pants from a large number of canvas hoarded in his hands and sold them to gold miners, which was very popular because of its practicality. Later, he improved the pants and became the founder of jeans, and founded the now world-famous Levi's company.

Interestingly, Bitcoin mining in PoW and Ethereum staking in PoS are similar to this to some extent. The mining craze of PoW allows "gold diggers" to carry mining machines, while the staking craze of PoS allows them to use their own capital. However, characters like "Levi" are everywhere - Behind this game is that you are looking at the dream of getting rich overnight, while I am looking at the capital you have. The 7*24-hour global and uninterrupted transactions of the blockchain have brought countless opportunities to the "gold diggers", but it has also made the market particularly prone to ups and downs. High risks are accompanied by high returns, and profits and risks continue to affect everyone's courage and diligence.

Behind the fast-paced, non-stop trading and high volatility market are both tempting traps and unlimited trading opportunities. This is the greatest charm of Crypto. The dual blessing of strong financial attributes and low entry barriers makes Crypto a natural high-quality gold mine. We once shouted that the benefits of ETFs would bring more OTC funds, but after the ETF was passed, it also opened the door for more Levi Strauss, creating more opportunities for arbitrage and indirect income.

The crypto market will involve more "Levi's"

ETFs bring not only "take-over" of exposed funds, but more risk hedging transactions. The biggest innovation of blockchain at present is to put finance on the chain, create a "self-cultivating economic cycle" in the crypto market, and successfully block the direct intervention of power and traditional capital. However, in the post-ETF era of cryptocurrencies, the crypto market has, to some extent, given up a full range of financial derivatives, which will only attract more arbitrageurs and big money to enter the market, further compressing the already limited market profit margins and weakening the innovation driving force and freedom in the market. ​

Third, the primary market that is difficult to break the ice

Primary market with low circulation and high FDV

Recently, the financing situation in the primary market has changed significantly compared with the past. The listed tokens generally show extremely high FDV (fully diluted valuation) and low liquidity. According to the data provided by Binance in "Observation and Thinking on the Current Status of High Valuation and Low Circulation Tokens", the ratio of market value (MC) to FDV of tokens launched in 2024 is the lowest in recent years. This shows that a large number of tokens will still be unlocked in the future, and the FDV of tokens issued in the first few months of 2024 is close to the total in 2023.

Image source: @thedefivillain, CoinMarketCap and Binance Research, data release date is April 14, 2024

In a market that is generally illiquid, tokens are gradually unlocked after TGE (token generation event), which brings a lot of selling pressure to the market. However, did VCs really make money in this round of the market? Not necessarily. Usually, for compliant and regulated project financing, token unlocking requires at least a one-year cliff period. However, when a project has high FDV and low liquidity, it is very easy to encounter a break after unlocking. But this does not rule out the possibility that some small VCs will profit through dumping in the secondary market or selling off-market in advance. As shown in the data in the figure below, the circulating supply ratio of these tokens is generally less than 20%, and the lowest is only 6%, and the high FDV phenomenon is very significant.

Image source: CoinMarketCap and Binance Research, data release date is May 14, 2024

The current capital-driven benefits have obviously temporarily failed. In addition to the aforementioned reasons, there are some objective factors that have led to the current market situation of low circulation and high FDV:

1. Market fragmentation, more wolves and less meat: In the last round of bull market, global capital was working together to hype DeFi and public chains, but in this round of market, funds and participants are too dispersed, narratives are diversified, Eastern and Western capital do not take over each other, and it is often the case that there are not enough takers for the coins issued, and the market is fragmented;

2. Lack of copycat bull market, insufficient hype motivation: The infrastructure of the EVM-based public chain has been perfected, funds and projects are rolling in the same direction, and the Ethereum killers have not brought new breakthroughs. In the absence of a bull market for altcoins, similar projects quickly emerged after benchmark projects came out, which in turn exacerbated the value depression effect;

3. Simple things are complicated, and complicated things are story-telling: Pseudo-innovation can be seen everywhere in the market, and simple things are artificially complicated, just to tell the market about bigger dreams, which is essentially the same thing in a new bottle;

4. The Matthew effect is becoming more and more obvious: the encryption industry has been developing for nearly 16 years, and the monopoly benefits of the head have basically been generated. Whether it is technology, projects, or investors that have survived to this day, the strong are getting stronger and the weak are getting weaker, and the market voice of the head companies is becoming more and more stable;

5. Lack of innovation and liquidity: The primary challenges facing the current market are the lack of innovation and insufficient liquidity, which makes it difficult for the market to increase in volume and the overall development is in a bottleneck.

This article comes from a contribution and does not represent the views of BlockBeats.