Reflecting on the Crypto Market Returning to Common Sense and Rationally Examining Market Chaos

Author: Simiao Li Translation: TechFlow


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. Don’t just focus on the accuracy of “fundamental analysis” and ignore common sense.

Here are some questions in the field of cryptocurrency that violate common sense rules 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 the investment advice of many KOLs, builders, and investors on the surface, this is not a valuable approach. Understand reverse signals.

  • Rule 3: Are there scams and manipulations? Do asset holders hardly gain 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 because 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 after gains and not losses.

Extreme Accuracy and Common Sense

In the field of cryptocurrency, 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 periodic leverage Beta for long-term growth (such as Lido, the entire DeFi).

Most of the time, the market does not care about precise fundamental calculations because we are talking about an emerging on-chain native economy (Ethereum) with almost no existing consumption behavior. The purpose of most projects on ETH is to burn Gas through speculative activities and is a derivative of Ethereum’s network effect, which does not truly add value.

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 existing Total Value Locked (TVL) on the chain. Projects that can achieve one of these two efficiently will rise. In most cases, a project can only achieve this temporarily until the next project appears. The Ponzi scheme of DeFi has disappeared, and the next is the on-chain RWA treasury bills just to keep TVL in cryptocurrencies.

  • We can only break free 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 for over two years, there has been hardly any new consumer behavior and real applications.

But I have seen some positive signs:

  • Prediction markets: Polymarket, etc.

  • Interesting casinos: Rollbit.

  • Early use cases for NFTs: pawnshops for luxury watches.

  • Some early attempts to build payment applications.

There really isn’t much else. Games (including GameFi in Web 2.5 and games fully on-chain) have not yet found product-market fit in my opinion, but I hope to be proven wrong in this regard.

Common Sense

Rule 1: If it seems like people still generally believe that free lunches falling from the sky are normal and scams/opportunistic behavior is rewarded, then we haven’t entered the “value zone” yet.

  • L2 is the new replacement for L1. Now everyone (old L1, projects) wants to become L2 because it increases their valuation.

  • NFT blue-chip projects squeeze out the last bit of value from their most loyal users.

  • Projects that have clearly been overvalued without proving anything (Worldcoin with the endorsement of OpenAI, high valuation).

  • Most dead projects raise the price and then dump to squeeze out more exit liquidity from the retail market.

  • Venture capital firms invest in new hot narratives (though much less than 6 months ago) because they believe that when the bull market comes, it will immediately reach a valuation of $100 million like other projects launched not long ago.

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

  • There are still too many participants at conferences. One moment in Hong Kong, the next moment in Singapore. Keynote speakers are more concerned about showcasing their presence rather than the actual content of the conference.

  • Becoming a founder is still something to be admired (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 rather than continuing to work hard.

  • Working in the cryptocurrency field often means spending L1 funds on preaching and hosting events.

  • Underperforming VCs act like kings on Twitter, talking about their certainty about the upcoming next big event, while the total network traffic of the applications built by projects in their portfolios is mainly attributed to themselves and their competitors.

  • On the contrary, those who have made 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 expectations of market risk, and they do not engage in aggressive PR activities. You just need to build, release, 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 shitcoin chart and you’ll understand why they have slowly been falling for over a year, but there are regular catalysts to boost the price.

  • Players like DWF have become a new topic and are surprisingly taken for granted.

  • 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 labeled as Ponzi schemes/scams by “professional investors” (Rollbit, Unibot).

Admittedly, this is somewhat exaggerated and oversimplified for the current state of the industry (some common sense has already returned, and trading is attractive in some places). But overall, it is an underestimated reality.

Courage and Belief

10 years of quantitative easing, ultra-low interest rates, and the idolization of decentralized finance have really caused people to lose their common sense. Because the halving is approaching, so WAGMI (we are all going to make it). Because Powell is saving our positions, so WAGMI. Because Bitcoin has been rising in the long term, so WAGMI. At such times, adhering to simple common sense will yield great rewards.

I believe people’s beliefs have not been tested enough. If we were to continue trading 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 humanity? I would, but I am confident that the majority of people who are bullish now would not.

True courage and belief require completely disregarding consensus and appearances, as well as maintaining patience. These two qualities are still possessed by only a few.

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