Moving Beyond Simple Bull and Bear Thinking: Returning to Value with a Focus on Macro Liquidity
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Moving Beyond Simple Bull and Bear Thinking: Returning to Value with a Focus on Macro Liquidity
Embracing the shift towards fundamentals.
Navigating Web3 tides with focused insightsAuthor: Crypto, Distilled
Translation: TechFlow
The Evolution of Cryptocurrency
Bull and bear markets are relics of the past.
The cryptocurrency industry has matured, and the old rules no longer apply.
Below is an in-depth analysis of the new dynamics.
Rethinking Market Context: The Quadrant Model
Traditional views of bull and bear markets have become outdated.
Rancune, a top-tier crypto investor and one of the industry’s leading minds, has proposed a new model for understanding market cycles.
Rancune’s quadrant model, based on liquidity and token scarcity, offers a more nuanced framework for market analysis.
Liquidity: The Lifeblood of Crypto Markets
Liquidity is a key driver of price, but it involves more than just monetary supply.
Unique barriers such as onboarding processes and access to centralized exchanges (CEX) deeply influence liquidity flows and shape the entire crypto market.
The Impact of ETFs: Redefining Altcoin Performance
The launch of spot ETFs has changed the market landscape, especially for altcoins.
The traditional trickle-down effect from Bitcoin (BTC) and Ethereum (ETH) to other tokens no longer holds.
Analyzing the 'OTHERS/BTC' ratio reveals that altcoins are currently underperforming even compared to the 2022 bear market.
Note that "OTHERS" measures the top 125 cryptocurrencies by market cap, excluding the top 10.
Source: owen1v9
Token Scarcity: A Key Supply-Side Factor
Token scarcity is the second critical variable in the quadrant model.
As Rancune explains, this concerns how liquidity is distributed.
The shift from high liquidity and low supply in 2021 to today's low liquidity and high supply highlights the challenges of the current cycle.
Source: CoinGecko
Navigating the Quadrants: A Market Roadmap
By mapping liquidity against scarcity, we can identify four key market states:
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High Scarcity & High Liquidity (e.g., 2021)
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High Scarcity & Low Liquidity (e.g., 2019)
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Low Scarcity & High Liquidity (2025?)
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Low Scarcity & Low Liquidity (current).
Entering the “Rotation Phase”:
Rancune predicts that liquidity will increase over the next 6 to 18 months (the rotation phase).
This forecast aligns with many macroeconomic experts who expect a surge in liquidity by 2025.
However, given extreme token saturation, a repeat of the 2021-style bull run is unlikely.
Source: TomasOnMarkets
Strategy for Rotation Markets: Focus on Real Value
In a market defined by rotation, success lies in focusing on real value.
A recent Binance report emphasizes that market participants should prioritize demand, revenue, and sustainable yields over mere hype.
Source: Binance Research
The Hype Trap: Avoiding Short-Term Trends
Current market trends are driven by narratives, but these forces are often fleeting.
We’ve already seen repeated mini bubbles inflate and burst.
Understanding the transience of these trends is crucial for long-term success.
The Rise and Fall of Popular Narratives:
From AI to restaking, popular trends emerge rapidly and fade just as quickly.
Ordinary investors often chase these fads, overlooking long-term growth and sustainability.
This year’s intense focus on memes underscores the neglect of fundamentals.
Source: CoinMarketCap
Fundamentals: The Path to Sustainable Growth
To avoid falling into the hype trap, investors should focus on real value: genuine demand, revenue, and earnings.
These fundamentals provide a more stable foundation for long-term growth in crypto markets.
Source: Binance Research
Two Paradigms: Fundamentals vs. Cyclical Mania
Felipe Montealegre outlines two dominant paradigms in crypto:
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Fundamentals-driven approach
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Cyclical mania paradigm
Source: TheiaResearch
Fundamentals-Driven Paradigm:
The fundamentals paradigm believes in the industry’s long-term growth and does not expect tokens to exceed their intrinsic value.
Investors collaborate with strong teams to build real businesses, while developers focus on products and utility.
It’s about enduring value, not short-term hype.
Cyclical Mania Paradigm:
The cyclical mania paradigm aims to capture market bubbles roughly every four years.
Investors time their entries at the peak of mania, targeting hype-driven tokens.
In this view, fundamentals are ignored in favor of inflated asset valuations.
Source: The DeFi Edge
Why Fundamentals Will Prevail:
Investors following the cyclical mania paradigm may underperform as fundamentals gain increasing importance.
With token oversupply and insufficient buyers, the market is shifting toward strategies rooted in value creation and sustainable growth.
This shift is necessary because capital is scarcer in this cycle compared to the highly liquid environment of 2021.
Source: TheiaResearch
Lessons from Silicon Valley: The Power of Fundamentals
Felipe envisions a crypto future thriving through hard work and first-principles thinking, much like Silicon Valley after 2001.
This echoes the rise of tech giants in the early 2000s.
"I hope our industry can thrive like Silicon Valley did after 2001. Over the following decades, the entire industry flourished, but this was primarily driven by hard work, product-market fit, and sound risk assessment. As the market gradually shifted toward valuation methods based on first principles and basic economics, unrealistic metrics like 'price per click' and 'price per eyeball' lost relevance. During this period, companies like Amazon, Apple, and Google built some of the world’s most profitable enterprises, and nearly everyone who worked hard and focused on fundamentals succeeded."
Source: TheiaResearch
The Future of Crypto: Fundamentals or Enduring Hype?
Will crypto’s future mirror the success of Amazon, Apple, and Google through strong fundamentals? Or will memes and hype continue to dominate?
The answer lies in how we invest and build within this space.
Conclusion: Embracing the Shift Toward Fundamentals
Simplistic bull and bear thinking is obsolete. Success today requires attention to liquidity, token scarcity, and real value.
The market is shifting toward fundamentals for long-term investing, while short-term trading remains driven by narrative rotation and attention cycles.
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