Don't judge the crypto market simply by "bulls and bears"—focus on changes in liquidity and supply
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Don't judge the crypto market simply by "bulls and bears"—focus on changes in liquidity and supply
As liquidity increases, we will enter the rotation phase within the next 6–18 months.
Navigating Web3 tides with focused insightsAuthor: Rancune
Translation: TechFlow
This might be one of the most important posts I’ve ever written. Many people could miss the "bull market." Will you? A lot of folks here think very linearly—only about bear or bull markets—one-dimensionally; prices either go up or down. This perspective has long made me uneasy (see exhibit a in my first reply). Today, I’m introducing a new conceptual model that I believe:
a) Offers a completely fresh perspective on market cycles,
b) Helps us better understand the current environment,
c) Is actionable.
Dimensions
Liquidity in the system | Accessing crypto is harder than traditional finance, with immaturity in efficiency, onboarding, stablecoins, and accessibility to centralized exchanges. Especially now, Bitcoin and Ethereum have guardrails from traditional finance, but these aren’t trickling down—the rules of the game have changed.
Token scarcity | Supply is a major factor in crypto; it determines the denominator over which available liquidity must spread. This differs from traditional finance, where token counts are naturally limited and typically require IPOs, rather than being pumped immediately after hearing a whisper in a Twitter Space on Pumpfun.
According to my theory, in 2021 we surged from low liquidity and low supply to high liquidity and low supply ("bull market feast"). Then we crashed, ultimately landing in the "bear market wasteland" of 2022. Many call this a bear market—low supply and low liquidity. The similarity between the bear market wasteland and the bull market feast is that tokens moved uniformly upward (or downward) due to low supply. The market moved, not necessarily the narratives (though they clearly existed—they just lasted far longer than our current 15-minute meta-narratives).
Slowly recovering from the damage caused by FTX and the impact of its liquidations on the ecosystem, liquidity increased slightly—but token supply increased even more. The easily preyed-upon exited the game, leaving behind experienced (and often malicious) players whose extraction infrastructure is already built and ready to extract further.
Starting in 2023, we entered the "consumption arena," where we can no longer benefit from higher liquidity because token supply is growing exponentially. It’s truly survival of the fittest; the most skilled (or best-connected / best-informed) win. Everyone else becomes the bagholder.
We often attribute token growth to Pumpfun and Solana shitcoins, which is obviously true—but it doesn't stop there. It also includes the overwhelming number of useless L1s, L2s, rollups, AI protocols, bridges, etc. Clearly, we need forks of everything—we absolutely require even more VC-backed L2s with no organic trading volume. This is what I wrote about in exhibits b and c.
From my experience, every time we expand in crypto, a contraction follows. Whether in altcoins or memecoins, there's always a shift toward higher-quality assets.
With increasing liquidity, my expectation for the next 6–18 months is that we’ll enter a rotation phase. We’ll gain some benefits from increased liquidity, but only within specific narratives and strategies. Most holders will continue holding their stagnant or slowly bleeding tokens forever, looking back after Bitcoin swings past six figures and wondering: Did I miss out?
We won’t see another “bull market feast” like the one everyone associates with a "bull market" post-2021. That’s impossible now, because token issuers have matured in skill—whether your favorite PF serial scammer or VCs trying to extract liquidity from yet another meta-narrative.
But how do you operate in this rotation phase? I’ll dive deep into that in my next article.
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