Written by: Uncle Jian
I. Overview
Being able to strictly implement the trading plan and making money in the cycle is a high probability, but we can also use the cycle to obtain profits in other financial markets, so why do we choose the encryption industry? What we want in the encryption industry is not just a few times of profits, we expect tens or hundreds of times of profits, which is something that other areas of the financial market can hardly bring us.
It is not only technological changes that promote the development of the encryption industry. The development of the encryption industry is also inseparable from the active influx of funds in the bull market. The Fed's release of water is the key to the influx of funds into the crypto market. This article will lead everyone to understand how funds are attracted into the crypto market and what tracks we should ambush.
2. Bull market tipping point
1. Spot Bitcoin ETF passed
Why spot Bitcoin ETF is so important to Bitcoin? When news related to spot Bitcoin ETF is revealed several times, the price of Bitcoin will rise accordingly.
Only two ETFs in history have reached billion-dollar trading volume in the first three trading days after listing, one for gold and one for Bitcoin futures.
After the gold ETF was launched in 2004, the price of gold rose by 420% within five years. From this aspect, we can also see how important the adoption of the spot Bitcoin ETF is to Bitcoin.
So what are the benefits brought by the adoption of spot Bitcoin ETF?
- Lower investment threshold. Through spot Bitcoin ETFs, investors can invest in Bitcoin through traditional brokerage accounts without having to master the operation of a Bitcoin wallet or exchange account. For investors who have never been involved in the cryptocurrency field, this undoubtedly reduces the threshold and complexity of investment.
- Improved market liquidity. The listing of ETFs is usually carried out on mainstream stock exchanges, which not only increases the liquidity of the Bitcoin market, but also provides investors with more convenient trading channels.
- Legal and regulatory safeguards. Because ETFs are regulated financial products, investors can enjoy a certain degree of legal and regulatory protection when investing, which is very attractive to investors who are concerned about possible fraud and manipulation in the cryptocurrency market.
- Diversification of asset allocation. Investors can include spot Bitcoin ETFs in their broader investment portfolios to achieve a diversified allocation of assets and reduce investment risks. For example, family offices, private banks, hedge funds, etc., their most ideal product is spot Bitcoin ETF.
- Save money on hosting costs. Compared with the current 2% management fee of Grayscale's GBTC, the custody fee of spot Bitcoin ETF is about 1%, and there will be multiple spot Bitcoin ETFs on the market, and competition between them will further reduce fund management fees. .
Therefore, once the spot Bitcoin ETF applied for by financial giants led by BlackRock and Fidelity is approved, it will bring a huge amount of incremental funds and users to the crypto market, and funds in the traditional securities market will pass through the spot Bitcoin ETF. This "channel" continues to flow into the encryption market.
2. Two major benefits for the encryption market: Bitcoin halving and Ethereum Cancun upgrade
Turning our attention to the encryption market itself, there are two deterministic benefits for the encryption market in 2024, one is the Bitcoin halving and the other is the Ethereum Cancun upgrade.
Although Bitcoin’s halving has less and less impact on price increases from a supply and demand perspective, the halving still has a strong narrative and expected value.
Although the Ethereum Cancun upgrade is not as beneficial as the Bitcoin halving, every bull market in the crypto market is inseparable from Ethereum's contribution. The latest Ethereum developer meeting minutes indicate that the developer test network Devnet is expected to be released in December, and the public test network will be released in Q1 next year. The time for the mainnet is not mentioned, and it is estimated that it will be at the end of Q1 next year or at the earliest. Q2 is over.
The focus of the Ethereum Cancun upgrade is EIP-4844, which is designed to enable temporary storage and retrieval of off-chain data through Ethereum nodes to meet the data and storage needs of blockchain applications. If successfully activated, EIP-4844 is expected to reduce the cost of Layer 2 rollup solutions. The Cancun upgrade will make L2 faster and cheaper. Not only will it benefit the L2 protocol itself, but the ecology on L2 will also usher in faster development.
3. The regulatory environment is improving
In the past few years, the crypto market has experienced rapid development and innovation, and has also attracted more and more investors and innovators. Against this background, some legislative bodies have begun to recognize the potential of the crypto industry and have realized The importance of developing a sound and transparent regulatory framework.
- As the crypto market boomed in 2020, it inevitably attracted the attention of regulators around the world. Some countries have adopted outright bans, but others have taken a more cautious approach and begun developing regulatory frameworks to monitor and manage the rapidly expanding digital asset sector.
- In 2021, the development of U.S. regulatory policies, especially when it comes to the U.S. Securities and Exchange Commission’s (SEC) stance on cryptocurrencies, has become a core issue around cryptocurrencies around the world. At the same time, the market has undergone a major correction due to China’s crackdown on cryptocurrency mining and trading, sparking discussions about decentralization.
- In 2022, the regulatory environment for cryptocurrencies begins to change. Following initial discussions, several countries have established clear legal frameworks setting out rules for cryptocurrencies, initial coin offerings (ICOs) and DeFi platforms.
- In November 2022, Hong Kong issued favorable policies to embrace Web3.0. With the rise of FTX and the decline of BitMEX in Hong Kong, Hong Kong is gradually moving away from the encryption market. In order to attract the entry of encryption institutions, Hong Kong has adopted a more relaxed regulatory policy.
- In 2023, some major developments changed the landscape of the global cryptocurrency market. For example, the Thailand Securities and Exchange Commission plans to relax retail investment restrictions related to ICOs, aiming to stimulate digital investment and promote market growth.
- In July 2023, a ruling by U.S. Federal Court Judge Analisa Torres confirmed Ripple's compliance with the sale of XRP on public exchanges, marking a major legal victory for the cryptocurrency industry before U.S. regulators.
- In September 2023, four members of the U.S. Congress called on SEC Chairman Gary Gensler to immediately approve the spot listing of Bitcoin.
Although Gary Gensler has a conservative stance on cryptocurrencies, it can be seen from cases such as the SEC and Ripple that more and more people in the U.S. legislative body are beginning to support the healthy development of the crypto industry, and the SEC cannot unilaterally hinder the development of the crypto industry. . This proactive regulatory policy helps provide clearer and more predictable rules for the crypto industry, and provides confidence and stability to investors and related crypto businesses, thereby promoting the healthy and orderly development of the crypto industry.
4. Complex geopolitical factors
In recent years, the expanding geopolitical risks have become the focus of world attention. From the conflict between Russia and Ukraine to the conflict between Palestine and Israel, the occurrence of these geopolitical events has not only had a huge impact on the local area, but also brought uncertainty and volatility to the global economy and financial markets.
In such an uncertain environment, Bitcoin, as a decentralized digital asset, has become increasingly prominent in its hedging role. Whether it is the Russia-Ukraine conflict or the Palestine-Israel conflict, it usually leads to problems such as local currency depreciation and financial market turbulence. However, the transactions and value of Bitcoin do not depend on any specific country or region. Investors can use Bitcoin to avoid local problems. Monetary and financial system instability.
3. Possible outbreak tracks
The narrative changes with every bull market. Looking back at the last round of crypto bull market, many popular narratives such as DeFi, NFT, Layer1 and DAO appeared in the market, attracting a large influx of users and funds. What will be the narrative that will lead the bull market in the next cycle?
1. RWA
Introduction
Real World Assets (RWA) refers to traditional assets that are tokenized through blockchain technology. This process gives these assets digital form and programmable characteristics. Under this framework, various types of assets, from real estate and infrastructure to art and private equity, can be converted into digital tokens.
Of course, not any asset that is put on the chain can be called RWA. For example, if Zimbabwean government bonds are tokenized, even locals dare not invest in them, there should be very few buyers. This kind of asset has no trading value after it is put on the chain. So it has investment value
The criteria for judging RWA are:
- Assets that can form a consensus around the world, and high-quality assets like U.S. bonds as underlying assets can be recognized by a borderless market like the crypto market.
- Whether they are compliant and regulated, no one would dare to invest in assets like treasury bonds without the endorsement of state authority. Not to mention treasury bonds, even stocks must be regulated.
Reasons for recommendation
RWA mainly brings the following benefits:
- Lower investment thresholds: For example, tokenized real estate can allow investors to purchase part of a specific commercial building or residence, which is different from real estate trusts, which are investment vehicles for real estate portfolios.
- Reduce transaction costs and time: Traditional financial transactions generally involve intermediaries, with complex processes in between, which are time-consuming and labor-intensive.
- Facilitate lending: Tokenization can promote lending by using tokens as collateral. Taking agricultural products as an example, directly using agricultural products as collateral would be costly or difficult to implement. Tokenizing agricultural products solves this problem. In addition, the settlement of tokenized assets is more convenient than the underlying assets or financial assets in the real world.
- Improve the liquidity of underlying assets: Traditional physical assets sometimes face the problem of insufficient liquidity. For example, fixed assets such as real estate usually take a long time to be converted into cash. RWA can digitize and tokenize physical assets, greatly increasing liquidity.
We can see that RWA can serve as a bridge between the real world and the crypto world. It can not only provide higher liquidity and convenience for the transactions of real world assets, but also attract more liquidity funds and users to the crypto world. In addition, after RWA, there will be decentralized second-layer projects such as RWAFi that do not require compliance, which will have positive significance for enriching the ecology on the chain.
Related project information
Currently facing problems
Although RWA has great prospects, the development of RWA still has a long way to go and is always accompanied by supervision. From the current point of view, it is difficult for assets like treasury bonds to be directly put on the chain due to regulatory factors. In the existing RWA projects in the market, users only hold the income rights of the underlying assets, and holding the token cannot be accepted in the real world.
2. Bitcoin Ecology
Introduction
The Bitcoin ecosystem has recently been widely discussed in the crypto community due to the wealth creation effects brought by some asset issuance protocols, and the Bitcoin ecosystem has begun to attract everyone's attention. In the crypto, a place with strong speculation capabilities, prices will become far away from value driven by emotions. Judging from the development history of the encryption industry, hype has always driven the development of technology and ecology, especially when new concepts are born. Putting aside the speculative component of the Bitcoin ecosystem, the current ecological construction is still in its early stages.
Reasons for recommendation
From the current point of view, the impact of speculation on the price is greater than its impact on its value. However, with the influx of funds, developers will gradually be attracted, and the factors supporting the price will gradually transition from hype to value, thus affecting Bitcoin. bring positive impacts to the long-term development of the ecology. Bitcoin is the absolute leader in the encryption market. If the Bitcoin ecosystem can be built, new funds will inevitably flow into the Bitcoin ecosystem.
Related project information
We have summarized the main projects of the Bitcoin ecosystem into a table for the convenience of readers.
Currently facing problems
- There are fewer developers. According to Developerreport data, the current number of developers in the BTC ecosystem is 340, ranking only fourth in the industry, far lower than the number one Ethereum - the number of active developers is 1,889, which is approximately 5.6 times that of the BTC ecosystem. And this is only the difference in the number of full-time developers. If part-time developers are included, the gap will be even greater.
- Sustainability. The Bitcoin ecosystem has mainly attracted attention due to the exaggerated increases of some assets. This increase is definitely unsustainable, so it is still unknown whether the enthusiasm of developers will also decline along with the prices.
3. Rollup and other expansion solutions
Introduction
The course of the blockchain industry over the past few years has shown that it is nearly impossible to scale a monolithic blockchain with transaction execution, consensus, and data availability without sacrificing security and decentralization. From the improvement of the consensus algorithm, to the L1 sharding scheme, to the current layered design of L1, L2, and L3, the most mainstream layered scheme now is Rollup.
Rollup is a scalable solution that bundles, compresses and sends transactions to the consensus layer for validation. By validating multiple transactions at once, they greatly increase efficiency while allowing Ethereum to process from 15 to over 3,000 transactions per second (TPS) without sacrificing security.
There are currently two different types of Rollup: Optimistic-Rollup and ZK-Rollup.
Optimistic-Rollup bundles hundreds of transactions and publishes only the minimum information needed on the chain, without any proof. This basically assumes there is no fraud or malicious behavior, hence the name "Optimistic". Optimistic-Rollup only provides evidence when a transaction or state is challenged.
ZK-Rollup differs from Optimistic-Rollup in that they integrate privacy using ZK technology. ZK refers to the ability to prove something (a transaction or status) to another party without disclosing necessary information.
Image from: Nervos
Reasons for recommendation
- User demand is strong: As the ecosystem on the Ethereum chain grows, more and more people begin to use Ethereum, and Ethereum's performance problems begin to be exposed. Congestion will occur when many people interact on Ethereum at the same time, and everyone's interaction time and gas costs will increase, so the need for Ethereum expansion becomes more and more urgent.
- Official recognition and support: At the end of 2020, Buterin published the article "Ethereum Roadmap Centered on Rollup". In 2022, the status of the Rollup route was reaffirmed at the Ethereum Shanghai Summit.
- Conducive to building a prosperous multi-chain ecosystem: No matter which expansion method the platform adopts, its ultimate goal is to provide users and developers with a better experience, thereby building a prosperous ecosystem on top of it. We believe that next-generation expansion solutions led by Rollup will continue to present a diversified pattern, and diversified infrastructure is more conducive to applications and ecosystems where a hundred flowers bloom.
Related project information
The representative projects of Optimistic-Rollup, Arbitrum and Optimism, have done relatively well in their ecology, and there are many projects on them. At the same time, because of its exit characteristics, many third-party cross-chain bridges have a good market.
ZK-Rollup launches the network much faster than Optimistic-Rollup, but it is relatively poor in compatibility with EVM and support for universal contracts, so the current representative projects ZkSync, StarkWare, etc. are still in the preparation stage.
Currently facing problems
- Centralization: The smooth user experience of the Rollup network is achieved by compromising security, and many components of the network are centralized.
- Economic mechanism: Users cannot participate in the protocol as a node to earn income, only Rollup developers can earn it; tokens cannot be used for value capture, gas payment, POS pledge, etc., and are only used for governance.
4. Re-Staking
Introduction
Re-Staking is the act of using liquid staking token assets for staking with validators on other networks and blockchains to earn more revenue while still helping to improve the security and decentralization of the new network.
Reasons for recommendation
- Huge growth opportunities: Currently, the largest market in the DeFi industry is Liquid Staking, with a total value of approximately US$24 billion (TVL). And now that many blockchain platforms are being developed, the size of the cryptocurrency market continues to expand. Therefore, the Re-Staking market will have numerous growth opportunities.
- Expand Liquid Provider's benefits: Through Re-Staking, investors can get twice the benefits from both the original network and the Re-Staking network.
- Unlock the liquidity of LSD and LP tokens: Staking LSD or LP tokens to validators can increase the amount of original assets pledged on the native network and provide more liquid asset options for the DeFi industry.
- The narrative is not limited to Ethereum: Cosmos introduced Replicated Security, in which ATOM stakers lend their security to other blockchains, and the first to implement this feature was Neutron. We expect more blockchains to adopt the concept of re-staking, just as they adopted liquidity mining rewards during DeFi Summer.
- Increased security of networks using liquidity staking: As more assets are staked, the value of the network increases, making it more resistant to attacks and becoming a trusted location for other decentralized applications, protocols, and platforms.
- Reduces sell-offs: Re-Staking makes the original token more useful, thereby avoiding sell-offs, allowing the project and its investors to avoid significant value losses.
Related project information
Tent: Tent is the L1 of the Cosmos ecosystem and is developed using the Cosmos SDK toolkit. The project is developed by the same team that developed the BNB Chain ecosystem and ANKR, the largest liquidity staking project in the Cosmos ecosystem.
Tenet and other blockchain platforms adopt the PoS consensus mechanism and integrate the project governance Stake Token into the validators to ensure the security of the network. Compared to networks such as Ethereum, BNB Chain, Cosmos, Cardano, Polygon, Avalanche and Polkadot that accept LSD Token assets, Tenet is more advanced.
Currently facing problems
- Risk of asset loss: If a node engages in inappropriate behavior, your assets are at risk of expropriation or fines, which may result in the loss of some or all of your assets.
- Asset Bubble: Inflating the market through new Wrap Tokens or the value doubling of Tokens, causing the market value to no longer reflect its true value. Beyond platforms, continuing to mint stablecoins using assets that represent value locked in validators increases the risk of making the original asset vulnerable to liquidity.
4. Summary
The crypto market has now grown into a market worth over a trillion dollars. The halving of Bitcoin mining rewards and the Cancun upgrade of Ethereum may not be enough to trigger the next round of cryptocurrency bull market, but if you consider the spot Bitcoin ETF The introduction of cryptocurrencies, the improvement of the regulatory environment, and the intensification of geopolitical risks. The superposition of many positive factors is enough to trigger the next cryptocurrency bull market.
Which tracks will shine in this bull market? The encryption industry has been ups and downs for more than ten years. From the ideological foundation to the underlying technical foundation, to the construction and improvement of applications, I believe we are on the eve of the full explosion of the blockchain industry. In addition to the several tracks mentioned above, good projects will stand out in decentralized derivatives, GameFi, middleware, cross-chain basic protocols, etc. No matter how the economic model is designed, it cannot escape the cyclical nature of its financial attributes. As products mature and the resonance of application narrative innovation comes, we will once again face the next big cycle opportunity in the future.
