New Challenges in the Crypto Market: Lack of Funds and Overvaluation Dilemma

Before discussing the current market situation, let's review the patterns of the previous bull market.

The Evolution of Market Hype Logic

The bull markets in traditional stock markets and the crypto market follow a similar hype pattern: starting with core quality assets, gradually spreading to various sectors, and ultimately ending with a frenzy of thematic stocks and small-cap stocks. The crypto bull market of 2021 was no exception, beginning with the DeFi summer, experiencing the rise of Bitcoin and Ethereum, followed by rotations of various themes and narratives, and finally culminating in the explosion of Meme coins and metaverse concepts.

However, with the rapid development of blockchain technology, new narratives continue to emerge, such as layer two networks, restaking, inscriptions, and AI. These emerging fields are replacing the old hotspots. Therefore, we need to analyze the market cycle from the perspective of market capitalization:

Core assets → High market cap → Medium market cap → Low market cap → Meme coins → NFTs and others

The Uniqueness of the Current Bull Market

The intuitive feeling from this round of market is that there is insufficient liquidity of funds and the profit-making effect is weak. Although the launch of ETFs has injected strong momentum into Bitcoin, this liquidity does not seem to effectively transmit to other sectors. Even if the Federal Reserve may cut interest rates, it cannot guarantee that funds will flow into the crypto market immediately.

In this environment, we observe an extreme situation: core assets rise while other market capitalizations remain unchanged or even decline. Although Meme coins have risen due to short-term speculative sentiment, such upward momentum is often difficult to sustain.

Structural Changes in Capital Flow

The fundamental reason for the current lack of funds in the market is the structural change in the flow and transmission mechanism of funds. The funds brought by ETFs are mainly concentrated in Bitcoin and Ethereum, and cannot overflow into other areas like in the past.

We can compare the crypto market to a multi-layered reservoir system, where funds only flow to the next layer when the upper layer is overflowing. This means that market funds will only seek opportunities downwards when the current field is saturated or unable to find suitable targets, and the risks will also increase accordingly.

The Impact of the Secondary Market on the Primary Market

Recent ZK project cases show that the weakness in the secondary market is affecting the primary market. With insufficient liquidity in the secondary market, many investors are turning to the primary market in search of opportunities, but they overlook the limited significance of the primary market without a healthy secondary market to support it. For ordinary investors, making a profit in the current primary market has become extremely difficult.

In addition, the continuous listing of high-valuation projects has further compressed market liquidity. Based on the recent performance of new coin listings, the market generally holds a cautious attitude towards high-valuation projects.

High FDV (Fully Diluted Valuation) Issues

According to the data, the current market capitalization of the token and the FDV ratio is at its lowest level in nearly three years, while the FDV of the tokens issued in the first five months of this year is close to the total for the entire last year. This high FDV and low circulation model may push up the price of the tokens in the short term, but in the long term, it may hinder the healthy development of the market.

The impact of high FDV varies among different participants:

• Project parties may benefit from potential high market capitalization.
• Venture capital may achieve good performance from high valuations.
• The exchange is basically unaffected.
• Retail investors may be reluctant to take over due to high FDV and instead focus on fully circulated Meme coins.

This has led to a market state of "no one taking over": retail investors are unwilling to take on high FDV VC coins, while institutions lack interest in Meme coins.

Conclusion

The fundamentals of the current market have changed, and the investment logic needs to be adjusted accordingly. Insufficient funds and high valuations with low circulation are the core reasons for the poor profit effect in this round of market, which further affects the performance of the primary market.

Although we cannot accurately predict the market direction or Bitcoin prices, addressing the current issues faced by the market may be the key to unlocking the next true bull market. Only by gradually resolving these issues can the crypto market possibly usher in a new period of prosperity.