Behind the crypto market crash during the Spring Festival: the triple dilemma of size, leverage and internal driving force

Before the Spring Festival, the crypto ecosystem was dragged down by DeepSeek and the US stock market fell.

As a result, during the Spring Festival, the crypto ecosystem was dragged down again by Trump's tax increase.

Although I had previously speculated that Trump might be the biggest "black swan" in the crypto market, I didn't expect this black swan to fly out so quickly, and I didn't expect this black swan to be caused by tariffs that don't seem to have much to do with the crypto market.

According to the information currently revealed by some exchanges, nearly $10 billion in assets were liquidated in this crypto market crash.

This will cause a huge loss for users who use leverage, but for users who hold spot, the loss is still controllable. I hope our readers try not to use leverage and limit their losses in this crash.

For the future development of the market, I still have hope, and I still feel that the market has not finished, because innovations in the ecosystem are still emerging.

It’s just that we retail investors need to strengthen our psychological construction, enhance our tolerance for such violent fluctuations, and prepare for new “black swan” events that may occur next.

If we carefully observe the various conditions shown by the two market fluctuations before and during the Spring Festival, we will find that on the one hand, the crypto market is not only disturbed and affected by the traditional US stock market as always, but on the other hand, the crypto market also appears to be more fragile and sensitive than the US stock market.

The US stock market can often recover to a large extent in the subsequent rebound after a deep decline. But the crypto market is not the case. It often recovers quite weakly after a deep decline, and it takes a longer time and greater positive factors to recover to a certain extent.

If we acknowledge that the current crypto market has been increasingly influenced by traditional capital and traditional investors, then the current crypto market, in a rather vulgar way, seems to be more and more like a "chamber pot" among "risk assets", which is taken out when in use and thrown aside when not in use. When the mainstream risk assets (such as US stocks) are in good market conditions, crypto assets will follow suit; and when mainstream risk assets are hit, crypto assets will be hit more severely.

This phenomenon began to show some signs in the last cycle, but it is very obvious in this cycle.

For this phenomenon, I always try to think about the reasons, because I always think that the crypto ecosystem is still quite different from the traditional financial market. It is another parallel world with its own unique development path and laws.

Just like gold and US stocks, although both are financial assets, their intrinsic properties are completely different. In many cases, there is no strong correlation between their trends and intrinsic logic.

The same is true for the crypto ecosystem. It should not always play the role of a "chamber pot" and should develop its own independent market.

But at present, the reason why crypto assets are so affected by traditional financial markets may be related to three current situations:

First, the overall size of the crypto market is not large enough. If there is a slight "stir", a certain amount of capital flow will cause drastic fluctuations in the market;

Second, the unregulated crypto market leads to uncontrolled leverage risks, which can easily amplify risks and aggravate market fluctuations

Third, the crypto market has not yet formed its own unique internal driving force and development model. In the eyes of traditional capital that already has a dominant position, it is just a theme that adds icing on the cake rather than an ecosystem that can stand out on its own. Therefore, once the risk comes, the first thing to be abandoned may be the assets of this ecosystem.

Thinking further, I think these three situations are ultimately the third one.

The so-called crypto ecosystem has not yet formed its own unique internal driving force and development model means that this ecosystem has not yet formed a large number of applications and scenarios that can go beyond the circle and attract a large number of users outside the circle.

Putting aside the positioning of Bitcoin as "digital gold", from the earliest 1CO to the last round of DeFi, NFT, and chain games, most of the applications they have spawned still serve users within the ecosystem-----------users who actually use these services through encrypted wallets.

For a large number of users who buy and sell in CEX, they are actually not real users of this ecosystem, but just investors.

So these applications have not essentially gone beyond the circle in large numbers and have not brought in a large number of users.

This is completely opposite to the Internet applications we see in reality. In real life, almost everyone uses WeChat and Alipay, but few of us have invested in Tencent or Alibaba.

Based on this comparison, if the crypto ecosystem does not have crypto applications that can match the massive number of Internet users, I estimate that the current "chamber pot" role of the crypto ecosystem may continue to be played.

But when will such crypto applications appear?

From 1CO to now, we have seen too many applications that combine blockchain with "entity" or "off-chain", but 99.99% of them are pseudo-demands and pseudo-applications. So far, it seems that none of them have become popular.

In this round of market, can we see such applications appear?