Looking back at the cryptocurrency cycle: Each bull and bear is slightly different, but the overall situation is basically similar

Original Author: IGNAS | DEFI RESEARCH

Compilation of the original text: Deep Tide TechFlow

It’s widely believed that cryptocurrencies need to go through three crypto cycles to really get there: the first cycle to gain knowledge and learn important lessons about how cryptocurrencies work, and the second cycle to make some gains and feel Comfortable, the third cycle is all about achieving financial freedom.

For me, this is a second bear market and soon a third bull market. I am ready.

I feel like Ive been through this before in the current phase of the cryptocurrency market. Because I did go through, specifically the 2019-2020 market cycle.

But Im not just talking about the downtrend in price. I’m referring to the overall market sentiment: government regulatory crackdowns, general public indifference to cryptocurrencies or calling them scams, and PvP models that profit from trading between different tokens.

If you were in the cryptocurrency market before the last bear market or even earlier, you probably felt the same way. This sense of familiarity is a huge advantage, as your past experience in the crypto space sets the stage for the next bull run to come.

Every bull and bear market is a little different, but the general picture is basically the same.

This article will explore, based on my experience, how the past has taught us to recognize the start of the next bull market.

deja vu market

The First Bull Market and the Crash

Deja vu is a feeling that makes one feel like one has experienced the current situation before. While this feeling usually only lasts a few seconds, the current crypto déjà vu phase lasted for several years.

I joined the cryptocurrency market at the end of 2017, and I came across the BBC article before, introducing that Bitcoin kept hitting new all-time highs. I felt FOMO for the first time.

I bought some Bitcoin and the price quickly doubled. I was very excited and thought I was smart for entering a new financial paradigm early. This excitement quickly turned into confidence that I could make more money if I invested in newer and cheaper coins.

I googled exchanges because the exchange I used for the first time (Bitstamp) didnt have a lot of crapcoins and somehow found Gate.io CEX. I like their old UI as I can clearly see the symbols and most importantly the logos of all the coins.

I did some research by reading their websites and white papers, and all of these projects seem revolutionary. Decentralized supply chain management, decentralized storage, decentralized banking! The FOMO sentiment is getting stronger.

I kept investing my scholarship funds into these tokens but at one stage there were too many of them and they all looked similar so I decided to invest based on the color of the token logo without doing too much due diligence.

Long story short, I lost most of my money.

None of them build anything substantial. There is only one website and one white paper.

This is a common story among those new to the cryptocurrency space. Greed, a naive belief in new ideas, and a lack of experience and knowledge of how the cryptocurrency market works led to disaster. Many people suffered heavy losses and eventually gave up on the cryptocurrency space. However, those who stay and learn from their mistakes have a better chance of success.

Im also disappointed but curious as to what went wrong.

This curiosity became my main motivation to continue writing about cryptocurrencies.

Second Bull Market and Crash

Curiosity and greed are powerful motivators for waking up in the morning.

After the Bitcoin crash of 2017-2018, I was still interested in cryptocurrencies and followed all the news. In late 2018, my passion for cryptocurrencies led me to my first job at an exchange in South Korea, where I worked for about 4 years. It was a great experience, I learned how market makers work, analyzed hundreds of coins, talked to their team, and attended a dozen meetings.

But the market is boring and calm. The relative calm in the market is just one similarity to the current market phase. Other similarities include:

• The crackdown on ICOs by regulators, especially in Asia, is similar to the current regulatory crackdown in Western countries.

• Cryptocurrency has been called a scam, a death, and a Ponzi scheme at least 385 times to date.

• Waiting for Institutional Adoption: Bitcoin is starting to be bought by institutions, with the current spot Bitcoin ETF.

• Cryptocurrency gains are transferred from one token to another without increasing the overall size of the cryptocurrency market.

• Awaiting mass adoption of cryptocurrencies.

There are many other similarities, but the common claim that it’s boring to be in the cryptocurrency space right now is nothing compared to the last bear market.

Back in 2018-2019, there really wasnt much to do. No DeFi, no NFTs, all my trades are on exchanges. The most interesting was the IEO (Initial Exchange Offering) and probably the EOS token sale, which raised a record $4.2 billion but delivered almost nothing.

There is little excitement in the market.

Yet, seemingly suddenly, things began to change. In early 2020, I discovered a hot new coin called AMPL (Ampleforth), which completely changed my understanding of token economics. It is the first coin with elastic supply.

AMPLs smart contract automatically increases or decreases the total supply based on the target price, which changes between $1.06 and $0.96, a process called Rebase. If the price exceeds $1.06, even at 2 a.m., the protocol will automatically mint more AMPL to bring the price down to the target level. If the price drops below $0.96, the protocol will destroy excess tokens. Long story short, this means you don’t own a certain amount of AMPL, but a percentage of the supply. Investors will see their AMPL tokens increase or decrease, unlike how any other currency works.

Its new, its exciting, and its paying off for me. I dont really understand the significance of it (speculating on what others are doing during the rebalancing is the main reason), but I like seeing the number of AMPL tokens in my wallet grow. At that time, it was the new hot thing.

Soon, more new hot things began to appear, the most exciting of which were liquidity mining of BAL and COMP tokens. They reward protocol users with free tokens proportional to the amount you deposit into their smart contract.

It was a shocking moment. And, when moments like this arise, you should pay extra attention!

Because every once in a while, an amazing token model comes along that changes the trajectory of an entire industry. The ingenuity of new token economic models is driving industry progress and can spawn a new bull market – here are my thoughts on the five most innovative tokens of DeFi Summer.

Why would they give out tokens for free? This didn’t make much sense at first because previously you either needed to buy new tokens in an ICO/IEO or complete numerous tasks to get a $5 worth of airdrops.

The craziest thing is Yearn Finance’s YFI token offering. Just by depositing my stablecoins into Curve, I received free YFI tokens at an annualized rate of 1000%+.

Things get even weirder and crazier with SushiSwap’s liquidity mining. The mechanism is to deposit ETH/USDT to earn SUSHI, or buy SUSHI and deposit it into the ETH/SUSHI LP pool to earn more SUSHI.

This 2 pool token mechanism is actually a true Ponzi scheme as the price of SUSHI will only increase as more people join.

There are dozens of 2-pool launches and crashes every day. The game theory to win the game is simple: be the first to enter, mine as many tokens as possible, sell when new money inflows are less than the token issuance and exit money.

Eventually, the large number of new popular mining pools distracted attention, and less ETH/USDT entered these new pools that were popping up every day. These mining pools collapsed as token prices fell, resulting in lower annualized yields and subsequent total value locked (TVL) flowing to higher yields.

But this crash is an important lesson and a recurring pattern in cryptocurrencies that ultimately gives cryptocurrencies their best chance. As long as you know when to exit promptly.

How Bull Markets Start and End

Here’s a summary of SecretsOfCrypto’s “The Road to Alt Season,” which provides a good overview of how money enters the cryptocurrency ecosystem through Bitcoin and gradually flows toward alt season.

But I believe there is one more key element to the bull story: innovative money printing.

What I’m not talking about is central banks printing money, which would certainly be good for cryptocurrency prices. I’m referring to the money printing machine inherent in cryptocurrencies.

In the cryptocurrency space, we claim to hate central government currency printing because it dilutes the purchasing power of fiat currencies, increases inequality, and ultimately leads to currency collapse.

However, the cryptocurrency industry is the best at printing money.

Picture this: After Bitcoin was first launched, it was several years before a serious competitor emerged. Litecoin was the first altcoin, launched in 2011. Then Ethereum launched in 2015. The following years featured Bitcoin forks such as Bitcoin Cash, Bitcoin SV, and Bitcoin Gold. This is the original Tier 1 season.

These Bitcoin forks are also the original money-printing machines in cryptocurrencies, as Bitcoin holders are issued new coins and make a profit if you sell them on launch day.

However, launching new coins is expensive because these proof-of-work mechanisms require electricity to maintain network security.

Issuing new tokens has become easier and cheaper thanks to ERC 20 tokens backed by Ethereum smart contracts. Now anyone can issue tokens at a lower cost. Thousands of new tokens can be launched with just a website, white paper and lots of commitment.

However, the most important impact of Ethereum and ERC 20 is not technical, but social. Prior to ERC 20, tokens were primarily seen as payment currencies or stores of value. But with ERC 20, tokenization becomes ubiquitous. As the price of cryptocurrencies increases, so do the use cases for cryptocurrencies.

Then, suddenly, prices collapsed.

The crash occurred because the money flowing into the cryptocurrency system was unable to sustain the exponential growth of new coins being launched every day. We ended up printing too many tokens. Additionally, as the number of tokens in circulation increases, attention becomes divided, leading to confusion about where to invest.

Then, during DeFi Summer, a similar pattern repeated itself again.

During this period, the protocol distributes tokens for free to liquidity providers or users via airdrops. The stated purpose of these tokens is more humble and moral this time around: to decentralize protocols in line with cryptocurrency ethics.

Looking back at 2017, when the ICO bubble burst, it seemed like everything needed a utility token. Now, in the DeFi space, protocols need a token for governance. We are still mostly at this stage, but disappointment with DeFi governance is rapidly increasing.

However, the real motivation behind these tokens was, and still is, to initiate liquidity. Without liquidity, protocols like Aave, Uniswap, or Curve have no value.

Just like in 2017, the DeFi market collapsed when the daily issuance of tokens exceeded the funds entering the system. Its a different story, but the underlying cause of the collapse is the same.

Interestingly, NFTs have also experienced crashes for the same reason. Crypto Punks and BAYC triggered FOMO among those who missed out, leading to the creation of new NFTs. However, the market eventually collapsed when attention and new NFT issuance failed to maintain price levels.

Currently, only a few NFT series have managed to survive, which leads me to believe that the NFT market may be near a bottom.

New Bull Market: New Story, Same Mechanics

Let’s briefly review SecretsOfCrypto’s “Road to Crypto Season.” The idea here is that a bull market starts with new fiat currencies entering Bitcoin, and then money flows to lower market cap coins.

But I believe that innovative leverage and repurposing of existing crypto capital will pave the way for bull market money-making opportunities before new money enters the system.

DeFi Summer is one example: DeFi tokens were oscillating up and down before ETH and BTC prices started surging. Crypto-native users deposit ETH and stablecoins to mine entirely new tokens that tell a compelling story about a new financial system. Some dumped these tokens, but many believed the DeFi story and held on to them.

DeFi’s pre-bull bubble and the wealth it brought were enough to convince newcomers to enter the cryptocurrency system and buy ETH/BTC. Of course, the low interest rate environment has a much bigger impact than our relatively small amount of money printing.

What interests me most is that before the arrival of DeFi Summer, the infrastructure of DeFi had been established, but before liquidity mining became a thing, few people paid attention to DeFi.

I believe we are currently in a DeFi-like pre-bull season that is laying the groundwork for innovative money printing and compelling narratives. With that in mind, I want to highlight top-tier opportunities that have the potential to create bubbles bigger than the short-term narrative weve witnessed in this bear market.

re-pledge

EigenLayer is at the forefront of this narrative.

In simple terms, Ethereums security can be rented by allowing Ethereum stakers to re-stake their ETH. This allows multiple networks to be protected simultaneously. However, this also introduces increased risk, and to compensate, re-stakers can earn higher returns. You guessed it, youre about to get a new virtual currency that promises to change the world we live in.

There will be many liquidity mining-style scam token economic strategies invented, each more creative, to stop you from selling. Our focus will be on finding tokens that create a flywheel effect so that as tokens inflate, dApp adoption grows.

And this has already begun, Stader’s rsETH is a liquid re-pledge token.

But restaking is a bigger narrative that goes beyond Ethereum. Cosmos introduced Replicated Security, in which ATOM stakers lend their security to other blockchains. The first to implement this feature was Neutron. I expect more blockchains to embrace the re-staking concept, just like they did with liquidity mining rewards during the DeFi summer.

Our mission is to understand how re-hypothecation works before the bubble starts, because then time is money.

Bitcoin DeFi

It’s a whole new narrative that hasn’t gained enough traction even among DeFi fans of the Ethereum Virtual Machine (EVM).

Im optimistic about the potential of Ordinal and Inscriptions in terms of development, but currently they dont have scam token economics to maintain inflation on newly issued tokens.

As a reminder, the Bitcoin Ordinal is the basic unit of Bitcoin, the satoshis or sats, which have been minted and integrated with unique information. Thus, satoshis can become unique and have the same identity as the underlying non-fungible token.

However, I believe the situation will change. Ordinals and Inscriptions have demonstrated strong demand for NFTs, fungible tokens, and DeFi within the Bitcoin ecosystem. Stacks fills this need well with its improved functionality and deep integration with Bitcoin.

Stacks is a Bitcoin-based smart contract layer on which DeFi applications are executed and settled in Bitcoin. Stacks is gearing up for a massive sBTC launch.

sBTC is a decentralized Bitcoin peg system that facilitates the transfer of Bitcoin between Bitcoin and Stacks. Bitcoin sent to Stacks becomes sBTC at a ratio of 1:1. Converting it back to Bitcoin requires a trust assumption, making it trust-minimized, but not trust-free. Unlike wBTC or RBTC, sBTC avoids centralized custodians and uses an open user network, improving Bitcoin liquidity for NFTs on DeFi and Stacks.

I am optimistic about Stacks because Bitcoin will enter its ecosystem soon, there are not many places to put Bitcoin yet. Thats a good thing, because capital and attention will be focused on the first few apps to roll out.

One of them is Alex. ALEX continues to expand its lead in the Stacks DeFi space, emphasizing cryptocurrency trading and lending settled against Bitcoin. At its core is the AMM protocol that powers its issuance platform and order book. It also established a BSC/Ethereum USDT bridge on Stacks Chain.

Importantly, Alex also launched an on-chain BRC 20 token indexer (wrapper) so that you can trade BRC 20 tokens on Stacks and add any scam token economics you want.

When is the bull market?

The two aforementioned claims stand out for their ability to issue new tokens while managing inflation, driven by compelling stories (Bitcoin Security Sharing and DeFi) and innovative token economics.

Having said that, the infusion of new money is critical to sustainability and the longevity of the bubble. Currently, narratives emerge and recede due to a lack of new money entering the system. However, I believe that these specific narratives have the potential to attract outside capital into the overall cryptocurrency market, specifically buyers who buy ETH for re-hypothecation, and buyers who buy Bitcoin for the Bitcoin DeFi narrative.

But keep in mind that both narratives will also have their moments of shattering. Too many tokens will be minted to meet the rate of growth in demand and attention. Dont blindly believe the stories theyre going to sell you, so develop an exit strategy before its too late.

The key is timing, and the most important factor remains the macro situation, which is also improving. Over the past few years, we have been hit by three major narratives: the Fed’s liquidity cycle, war, and new government policies. Recently, however, we have seen a shift, with the regulatory crackdown slowing and China entering deflation, with inflation and interest rates peaking.

If we believe in cryptocurrency cycles, we expect an ATH of $69k by Q4 2024 and a wild bull run before reaching a new ATH in Q4 2025.

If this is the case, the two-time money-printing Ponzi bubble period will start before the new ATH. Now is the time to research and learn, because we need to be ready when the fun begins.