Author: Simiao Li
Translation: Deep Tide TechFlow
TLDR:
In a market with extreme reflexivity, the accuracy of the “truth” that most people pursue is often not important, but common sense is very important. Do not only focus on the accuracy of “fundamental analysis” and ignore common sense.
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Here are some questions in the cryptocurrency field that violate common sense and should be corrected through the natural process of the market.
- Rule 1: If you see behavior that relies on pie in the sky/opportunism, things usually don’t work that way.
- Rule 2: If you still rely on surface investment advice from many KOLs, builders, and investors, this is not a valuable way. Understand reverse signals.
- Rule 3: Are there scams and manipulations? Are asset holders almost not gaining net value? This is not a sign of asset categories that large value investors are ready to invest in.
The ability and courage to stick to common sense are rare, as cryptocurrencies and cryptocurrency Twitter allow the most annoying media price manipulation. And, in the past 10 years, the cryptocurrency market has mostly been on an upward trend, and everyone’s attention has been trained to only chase the rise and not the fall.
Extreme Accuracy and Common Sense
In the cryptocurrency field, the cost of pursuing extreme accuracy at the expense of common sense may be higher than any other market.
You can calculate every detail of blue-chip projects, but still mistake cyclical leverage Beta for long-term growth (e.g., Lido, the entire DeFi).
Most of the time, the market doesn’t care about precise fundamental calculations because we are talking about an emerging on-chain native economy (Ethereum) with almost no existing consumer behavior. Most projects on ETH exist to burn Gas through speculative activities and are derivatives of Ethereum’s network effects, with no real net value added to it.
No amount of accuracy can make up for the lack of awareness of the ongoing narrative:
- Ethereum hopes to have projects that can burn Gas and improve the capital efficiency of the total locked value (TVL) on the chain. Projects that can achieve either of these two most efficiently will rise. Typically, a project can only achieve this for a short period of time until the next project appears. The Ponzi scheme of DeFi has disappeared, and the next is on-chain RWA treasury bills just to keep TVL in cryptocurrencies.
- We can only escape from this extreme player-to-player competition when new projects are introduced that truly bring in new users and capital inflows.
We are in such an era where PvP games have almost exhausted liquidity, and there has been almost no new consumer behavior and actual applications in the past two years.
But I have seen some positive signs:
- Prediction markets: Polymarket, etc.
- Interesting casinos: Rollbit.
- Early practical use cases for NFTs: digital pawnshops for luxury watches.
- Some early attempts to build payment applications.
There isn’t really much else. Games (including GameFi in Web 2.5 and games fully on-chain) in my opinion haven’t found product-market fit, but I hope to be proven wrong in this regard.
Common sense
Rule 1: If it seems like people still generally believe that money falls from the sky and scams/opportunistic behavior are rewarded, then we haven’t entered the “value zone” yet.
- L2 is the new replacement for L1. Now everyone (old L1s, projects) wants to be L2 because it increases their valuation.
- NFT blue-chip projects squeeze out the last bit of value from their most loyal users.
- Projects that haven’t proven anything are obviously overvalued (Worldcoin with the endorsement of OpenAI, high valuation debut).
- Most dead projects raise prices and then dump to squeeze more exit liquidity from the retail market.
- Venture capital firms invest in new hot narratives (although much less than 6 months ago) because they believe it will be valued at $100 million like other projects launched recently when the bull market arrives.
Rule 2: If in the “builder market,” shilling is more important than analytical logic among many so-called KOLs, builders, and investors, then we are still not doing enough.
- There are still too many participants at conferences. One minute they are in Hong Kong, the next in Singapore. Keynote speakers are more concerned with showing their presence rather than the actual content of the conference.
- Becoming a founder is still something to be praised (even for founders who have liquidated their own assets). Even if your product actually has less than 100 real users, you are more concerned with attending investor gatherings than continuing to work hard.
- Working in the cryptocurrency field often means spending L1 funds on preaching and holding events.
- Underperforming VCs act like kings on Twitter, talking about their certainty about the next big event coming up, while the total network traffic of the applications built by projects in their portfolio is mainly attributed to themselves and their competitors.
- On the other hand, those who make the greatest contributions to this field are often low-key (Brian Armstrong, Vitalik, Opensea, some new Solana projects, etc.) The founders of new projects that are slowly building legitimate products do not schedule releases and announcements based on market risk expectations and do not engage in aggressive public relations activities. You just need to build, launch, and let users judge with their money and attention.
Rule 3: When manipulative behavior is default accepted and liquidity is still primarily used for exits, institutions will not come to buy our assets.
- Just open any low-liquidity altcoin chart and you will understand why they have slowly been falling for over a year, but there are regular catalysts to raise the price.
- Players like DWF have become new topics and are even considered a given.
- Projects without real users can still easily exit liquidity through IEOs.
- Projects that do try to accumulate value for token holders perform well but are still called Ponzi schemes/scams by “professional investors” (Rollbit, Unibot).
Admittedly, this is somewhat exaggerated and oversimplifies the current state of the industry (some common sense has returned and trading is attractive in some places), but overall, this is an underestimated reality.
Courage and Belief
10 years of quantitative easing, ultra-low interest rates, and the worship of crypto localization have really caused people to lose their judgment. Because the halving is coming, so WAGMI (we are all going to make it). Because Powell is saving our positions, so WAGMI. Because Bitcoin is rising in the long term, so WAGMI. In times like these, sticking to simple common sense will yield tremendous returns.
I believe people’s beliefs have not been tested enough. If we were to go sideways for another three years from now, what would you do? Would you still believe in cryptocurrencies? Would you still think this is the inevitable future of finance and human coordination? I would, but I’m sure most of the people who are bullish now wouldn’t.
True courage and belief require completely ignoring consensus and appearances, as well as a steadfast commitment to patience. These two qualities are still possessed by only a few.
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