Author: Joel John Translator: Yangz, Techub News
Translator's note: Amid Trump's wavering tariff policy and turbulent global trade situation, the cryptocurrency market is experiencing a significant cooling. The author of this article analyzes the structural changes in the current cryptocurrency market from 16 dimensions. In this special period when macro policies and market mechanisms are at work, the cryptocurrency industry may usher in a profound reconstruction of value - this is not only a brutal reshuffle process, but also a necessary path for the industry to mature.
These are some of my overall thoughts on the current state of the cryptocurrency market, or how I think cryptocurrencies will develop.
1. The core of cryptocurrency is the trajectory of money in its current form. Blockchain does for currency/assets what the internet did for information, with the consequence that speculation remains the industry’s primary application scenario.
While the pace and scale of speculative activity will fluctuate, the most significant results (and the largest source of revenue) in this space will continue to come from speculation and the resulting secondary use cases, such as lending, derivatives, broker-dealers, etc.
2. With Circle submitting its initial public offering (IPO) application, the stablecoin track may reach its peak. In my opinion, a rate cut will be another domino to fall that will impact this sector. Given the dual pressures of channel moats and regulatory challenges, the next big opportunity for stablecoins may not be so hot.
Especially for founders who are not from Silicon Valley, the real marginal opportunity lies in regional fintech applications that can leverage crypto payment rails, rather than "exporting" dollars. Of course, if you can raise $10 million+ in funding right from the start and are headquartered in the US, that’s a different story.
3. The DePIN track should be hot in theory, but considering the service level agreement (SLA) and the scale required for large-scale artificial intelligence projects, the real investment opportunities will be concentrated in those networks that can generate demand-side revenue of more than US$100 million. Such networks will almost (always) work with private equity or hedge funds to meet short-term capital liquidity needs. As of now, I have yet to see a token-based network that can scale to this extent (and remain reliably operational).
The good news is that networks that can scale to this size do exist. The bad news is that most of the revenue generated by these networks will not touch the token system.
4. The reason why we began to pay attention to the relationship between tokens and income is due to two fundamental changes. First, in a post-pump.fun world, the valuation premium enjoyed by tokens is gone. When assets vest, it becomes extremely difficult to maintain a fully diluted valuation (FDV) of more than $100 million; secondly, the volatility of today's stock and foreign exchange markets is no less than that of cryptocurrencies, and the trends are clearer, causing marginal buying in the cryptocurrency market to completely dry up.
The fundamental reason why project parties really need to worry about revenue is that for liquidity funds (the last marginal buyer), there are only about 50 tokens that can generate revenue that are worth allocating, and there may be less than 30 of them with actual growth potential.
5. Venture capital firms have a strong motivation to insist that "tokens as a business model are not dead yet" and to promote the idea that "Web3 is coming." If you choose to ignore industry trends, you can continue to turn a blind eye for a while.
In my opinion, we are entering a phase where there will be fewer and fewer founders issuing tokens and they will hold the proceeds in the form of small teams. Crypto venture capital firms may not be able to cope well with this shift because their liquidity has traditionally come from exchange listings and retail orders. Some may blame the macro environment for the decline in crypto VC deployment, but the real reason is that in the years since FTX, the ability of portfolios to provide returns has been greatly weakened as the market has changed.
6. In my opinion, there are no more than 10 cryptocurrency funds capable of writing checks and creating Uber/Cisco-level achievements. And there are probably fewer than 30 partners who actually understand how to achieve this. People often attribute the lack of large-scale consumer applications in the cryptocurrency space to problems such as poor user experience or poor marketing. In my opinion, part of the core challenge is that the nature of current capital is constrained by a 3-year return cycle and is overly obsessed with liquidity brought by token listings. This has become the "opium" of cryptocurrency venture capital. Perhaps, in this environment, there is an opportunity to build large-scale consumer applications with a longer-term perspective.
7. The combination of cryptocurrency and artificial intelligence (Crypto x AI) seems to be popular, but it is difficult to keep up with the development of AI itself. This may be the first area where the "Emperor's New Clothes" phenomenon in our industry is fully exposed. Concepts such as data provenance and distributed computing resource allocation are attractive in theory, but their potential for scalability remains to be proven. Most networks that have achieved scale rely on distributed data centers, which still denominate revenue in U.S. dollars.
AI models do not show a premium advantage just because they are "compensated" for the source of their data. The area that really has potential, or is similar to the P2E model, is the crowdsourced IP address field. I think this market segment is very worthy of attention.
8. There is an opportunity in the cryptocurrency space to create a native digital bank for middle- and high-income groups. Think about it, everything from payroll management + funds transfer + portfolio construction (stocks/treasuries) to lending, all for crypto-native users. This user group is people who earn between 5k to 200k a month in the crypto space and want a bank to handle all of that. While the potential market size (TAM) for such banks is between 5,000 and 10,000 people, in my opinion, there is unique value in building such a platform.
9. Farcaster may bring DAO back to life. Many DAOs failed because it turned out that people simply didn’t want to participate in the governance of a lending or derivatives platform. If the community on Farcaster can grow to tens of thousands of people, and these communities are able to coordinate resources (such as community assets) on-chain, then DAOs will once again gain importance.
I hope this will be the way Memecoins come back. If done right, these assets could be more sustainable than Dogecoin/Catcoin. The core challenge facing Farcaster is how to balance the needs of content creators with the financialization of platforms. Without financialization, it may become just another ordinary protocol; if financialization is successfully achieved, it will become the prototype of the next generation of the Internet.
10. The current blockchain game gives people a lifeless feeling, but from the perspective of return on investment, it is the market segment with the highest return on investment in consumer applications. Teams that are still working in this field today need a certain "crazy quality", and those builders with real strength are likely to create a sustainable game market with millions of users. People always think that this track will die out in 2022 (after Axie), but if we take into account the one-year cooling-off period after the frenzy and the more than two-year product development cycle, 2025/2026 is likely to be the first year of the cryptocurrency game explosion.
11. It will be difficult for long-tail altcoins to make a comeback. This is different from 2018 and 2023, when there was a lack of retail investors taking over. Now retail investors are still active in the market, but they are no longer chasing the 50th homogeneous token.
In my opinion, this will change the investment logic of the crypto industry. The stakes used to be “can this token be listed on an exchange?”, but now they have become “is this token important?” These are two completely different questions, and few people have the answers to them.
12. The brain drain in the cryptocurrency industry will be faster than the liquidity depletion. Specifically, seeing practitioners switch to AI or seek other opportunities due to the slow progress in the cryptocurrency field will have a far greater impact on morale than a drop in coin prices. Unlike 2018 and 2023, the current macro environment portends more prolonged pain, while the field of AI continues to achieve exponential progress.
In such a market, certain companies will evolve to become beacons of hope. Corporate culture will eventually become a moat. However, there are only a few founders who can see through this transformation.
13. Research and media organizations in the cryptocurrency field are undergoing a period of consolidation. Ordinary creators have become disillusioned with this industry - because the main financiers have always been the L2 project parties, and now working with them has become a torment. The only way for creators to survive in the next 18 months is through hyper-financialization. In other words, there must be a sufficiently generous profit margin to be able to afford the luxury of investing time in polishing high-quality content.
Companies that can combine creation (writing/research), financialization (asset/transaction structure design) and moats (distribution channels/processes) will make a lot of money. But teams with this gene are extremely rare.
14. If there are fewer and fewer founders who issue coins, and more and more founders who can achieve millions of user growth, then the next capital pool to be released in the cryptocurrency field will be private equity. Although not yet at scale, private equity firms are likely to become a dominant force in the next 18 months for any company with annual revenues exceeding $10 million. The total number of companies that meet these criteria is about 50, of which perhaps 20 are privately held. So, for now, it's still a tiny market.
15. I think it would be possible to set up a fund of about $10 million to invest specifically in projects that combine creative content (music/art/writing) with cryptographic primitives and distribute them at scale. But this requires partners to have aesthetic taste, understand the distribution of consumers, and be able to resonate with creators. This is one of the things that particularly interests me.
16. The cryptocurrency industry has both a morally corrupt side and an idealistic side when it comes to how it shapes the world. The industry has achieved 100x better product-market fit (PMF) than in 2018, but is only commanding a fraction of the premium it once commanded. In this kind of market, knowing how to block out the comments of scholars and focus on data signals has become an art, or even a survival skill. It is important to remember: you both shape the world you live in and are shaped by the world you live in. Subjective initiative itself is a moat.
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