Author of the original text: tzedonn

Original text compiled by: TechFlow

After experiencing a crazy fourth quarter, it's time to take a step back and reflect. Many major changes have occurred in the market within just three months.

This situation is different from the past.

Everyone is eagerly awaiting the arrival of the "Altcoin season" (the moment when the blue line surpasses the orange line), just like in 2021-2022, when all Altcoin prices experienced explosive growth. However, since the launch of the Bitcoin ETF in January 2024, the gap between Bitcoin (BTC) and the TOTAL2 index (representing the total market capitalization of Altcoins) has been continuously widening.

In previous Altcoin seasons, investors typically transferred their Bitcoin gains to higher-risk assets, driving a broad-based rally in the Altcoin market. This phenomenon formed a classic capital flow pattern.

However, now, the capital flow of Bitcoin has completely decoupled from other cryptocurrencies, forming an independent ecosystem.

The capital inflow to Bitcoin is mainly driven by the following three aspects:

1. ETFs: ETF funds currently hold 5.6% of the global Bitcoin supply;

2. Microstrategy: This company holds 2.25% of Bitcoin, and is a persistent institutional buyer;

3. Macroeconomic factors: including interest rates, political situations (e.g., the U.S. sovereign wealth fund or other countries may potentially purchase Bitcoin).

On the other hand, the capital outflow from Bitcoin mainly includes:

1. The U.S. government: Currently holding approximately 1.0% of Bitcoin, and has stated that it may not sell;

2. Bitcoin miners: Miners regularly sell a portion of their Bitcoin to cover their daily operational expenses;

3. Bitcoin whales: These investors holding large amounts of Bitcoin have seen their asset values increase by about 5 times since the market low in 2023.

Clearly, the drivers of these capital flows are completely different from the Altcoin market.

Altcoin Market: Are There Still Enough Players?

The Altcoin market can be compared to a casino.

The best time to participate is when there is ample capital flow (i.e., high net capital inflow) in the casino. Choosing the right table (i.e., investment target) is also crucial.

The sources of capital inflow to the Altcoin market are as follows:

• New capital inflow:

• For example, in 2021, a large number of retail investors entered the crypto market, bringing in new capital. However, the current capital inflow driven by Phantom/Moonshot or TRUMP token issuance, as well as the growth in USDT/C market capitalization, seems insufficient to support the market.

• Additionally, certain specific assets may benefit from capital rotation. For instance, some investors who previously did not invest in Meme may start to focus on "AI Meme" because these investments are more easily rationalized.

• Leveraged capital obtained through decentralized finance (DeFi) platforms (such as Aave, Maker/Sky) or centralized finance (CeFi) platforms (such as BlockFi, Celsius). From an institutional perspective, the CeFi market has become less active after the collapse in 2021. In the DeFi space, the IPOR index (used to track USDT/C borrowing rates) shows that the rate has dropped from around 20% in December 2023 to around 8% currently.

• Token buybacks and burns: Making players' chips more valuable

• The "buyback and burn" mechanism in crypto projects is similar to the casino owner using revenue to increase the value of players' chips.

• A typical example is the HYPE Insurance Fund, which repurchased 14.6 million HYPE at a price of $24 per token, worth approximately $350 million.

• However, most crypto projects have not been able to achieve sufficient product-market fit (PMF), and therefore struggle to conduct buybacks on a large enough scale to significantly impact token prices (e.g., the case of JUP buybacks).

Capital Outflow from the Casino: Who Is Cashing Out Their Chips?

Large-Scale Capital Extraction Events

In January, the market experienced two "once-in-a-lifetime" large-scale capital extraction events:

• The Trump Event: Capital grew from $0 to $75B, and then quickly dropped to $16B;

• The Melania Event: Capital grew from $0 to $14B, and then dropped to $1.5B.

These two events are conservatively estimated to have extracted over $1B in liquidity from the crypto market ecosystem. In other words, if someone made over $10M in a trade, they are likely to have transferred more than 50% of their gains to the off-market.

Continuous Capital Extraction Driven by Tools

In addition to the large-scale events, some tools are also continuously extracting capital from the market:

• Pump.fun: Accumulated revenue of $520M in about 1 year;

• Photon: Accumulated revenue of approximately $350M;

• Bonkbot, BullX, and Trojan: Each tool has accumulated revenue of around $150M.

These tools are gradually removing a large amount of capital from the market through dispersed small-scale extractions.

Cabal Extraction and Presale Models

Cabal extraction and presale models often mark the end of a market cycle. This is because a small group of people will extract massive amounts of capital at this stage and transfer it to the off-market. As the cycle nears its end, the duration of these events becomes increasingly shorter:

• Pasternak: Lasted only about 10 hours;

• Jellyjelly: Lasted about 4 hours;

• Enron Pump: Lasted only 10 minutes.

This rapid capital outflow is vividly described as an "euthanasia roller coaster", as it causes the market to experience a brief but violent fluctuation.

Venture Capital (VC) Fund Unlocking

Venture capital firms unlock their capital by converting crypto assets into USD to return the distributed investment profits (DPI) to their limited partners (LPs). For example, in the TIA project, VCs extracted a large amount of capital from the crypto market through this method.

Deleveraging

The market also experiences deleveraging, such as a decrease in USDT (Tether) borrowing rates. This behavior leads to a gradual reduction of leveraged capital in the market, further impacting liquidity.

(Original image from tzedonn, compiled by TechFlow)

Altcoin's Choice: How to Find Your Poker Table?

In the crypto market, choosing the right investment target is the key to success. This process can be compared to selecting the right poker table.

When the market is active (i.e., with a large number of participants), your potential returns will be higher, but the prerequisite is that you choose the right tokens.

This type of investment is referred to as a "poker game" because it is essentially a zero-sum game.

In this game, projects either:

1. Cannot generate revenue or value;

2. Attribute the value they generate to the token.

The only possible exceptions are the following two categories of projects:

• Frequently used L1s, such as SOL and ETH;

• Products capable of generating high revenue, such as HYPE.

Here is the English translation, with the terms in <> retained as is: It is worth noting that some investors are betting on the team's ability to create sustainable income based on the "fundamentals", but from a short-term perspective, I am more pessimistic about this. **The situation in 2025: Too many tables, but too few players.** By 2025, the competition in the Altcoin market will become more intense, and it will be more difficult to find suitable investment targets than before. This is because there are too many "poker tables" (i.e., token projects) in the market at the same time. Here are some data: - About 50,000 new tokens are listed on Pump.fun every day; - Since the launch of Pump.fun, more than 7 million tokens have been listed, of which about 100,000 have eventually entered the Raydium platform. Obviously, there are not enough investors in the market to support all these token projects. Therefore, the investment returns of Altcoins show a strong polarization trend. Choosing the right investment target has become an art, and usually requires considering the following aspects: 1. **Strength of the team and product;** 2. **The narrative behind the project;** 3. **Propagation and marketing effectiveness.** Kel has written an excellent article that explores in detail how to choose Altcoin investment targets. ## What does this mean? 1. **Altcoins are no longer "high-beta Bitcoins".** The past investment theory that "holding Altcoins instead of Bitcoin" can achieve higher returns may no longer apply. 2. **The importance of asset selection is enhanced.** With the Pump.fun platform lowering the token issuance threshold to almost zero, choosing the right Altcoins has become more important than ever. The inflow of funds in the market can no longer evenly drive up the prices of all tokens. 3. **Altcoin investment is more like a poker game.** Although comparing Altcoin investment to a poker game sounds a bit pessimistic, this is indeed the true portrayal of the current market. Perhaps in the future, I will write an article to explore the real long-term use cases of cryptocurrencies. Has the market peaked? Currently, the market may have reached a stage peak, but the future trend remains to be observed. **When will the next Altcoin season arrive?** The traditional "four-year cycle" theory may no longer be valid, as the performance of Altcoins is gradually deviating from the influence of Bitcoin (BTC). In the future, the Altcoin market may be triggered by some unexpected events, such as a phenomenon-level event like "GOAT". In the long run, the prospects of the cryptocurrency market are still very promising, especially under the influence of the US Sovereign Wealth Fund (US SWF), governments supporting Bitcoin, and the introduction of stablecoin-related legislation. The future is full of uncertainty, but also full of opportunities. Good luck and have fun!