From capital flows, policy environment to the performance of various assets, we deeply dismantle the bull market structure and answer the ultimate question that the community is most concerned about: How long can the market continue to rise? What opportunities are there?

Host: Jsquare / DFG

Guest lineup:

James-DFG Founder and CEO

Du Jun-Founder of Vernal

Lily - D 11-Labs Cofounder

Yang Mindao - Founder of dForce

host:

Angela Tong - DFG&Jsquare CMO

Topic 1: What are the core drivers of BTC’s record highs? Is this trend sustainable?

1. This year, the cryptocurrency market capitalization has surpassed $400 billion, BTC has surpassed $120,000, and over 90% of Ethereum addresses are already profitable. In your opinion, what triggered this surge?

James: From a general perspective, the main reason is monetary easing. During interest rate hikes, both cryptocurrencies and the stock market typically enter bear markets or experience corrections. However, we are currently in a rate cut cycle, with ample liquidity in the market, naturally making it easier for high-quality assets to attract buying support. Furthermore, this rally has been accompanied by landmark events such as the approval of a Bitcoin ETF and large-scale Bitcoin purchases by US-listed companies like MicroStrategy, further driving direct and indirect capital flows, particularly from institutional and retail investors, into the crypto industry. These two factors combined are crucial reasons why Bitcoin has risen to $120,000 and hasn't yet pulled back.

Mindao: In this market rally, funding is a crucial factor, particularly the fundamental shift in capital structure. Take Bitcoin ETFs, for example. Over the past two years, assets under management have grown to approximately $150 billion. Adding MicroStrategy's approximately $70 billion, the combined total exceeds $200 billion. In previous cycles, the market was primarily driven by leveraged funds within the cryptocurrency community, driven by a cycle of leverage and deleveraging. In contrast, ETFs and MicroStrategy are essentially equity-based, not leveraged. For example, MicroStrategy's ATM financing is pure equity, without the leverage concept of margin calls; and the convertible bonds issued have virtually no price liquidation mechanism. Therefore, even if the price of the cryptocurrency falls, this type of funds won't be forced to sell, making a stampede-like crash less likely. From Bitcoin's price rising from $50,000 to $70,000, the average cost of establishing this $200 billion position was between $70,000 and $80,000.

Meanwhile, Ethereum has risen 25%-30% in the past two weeks, yet on-exchange funding fees are only around 10%, far lower than the 20%-50% seen during periods of high leverage. This reflects the current market trend being driven by low-leverage, long-term equity-based funds. This is one of the key reasons Bitcoin and Ethereum have reached new highs, and this trend is likely to continue. Previously, cryptocurrency arbitrage was primarily concentrated on offshore exchanges, but now more arbitrage is occurring between ETFs and CME futures, involving $20-30 billion in capital. Therefore, ETFs are not only passive investment targets but are also becoming a crucial tool for arbitrage and hedging in regulated markets, potentially even taking on options attributes in the future. With the continued influx of this type of capital, the size of the "traditional cryptocurrency-equity" asset class is expected to expand, a key factor supporting Bitcoin's push past $120,000 and beyond.

2. Are ETFs or US stock capital flows truly becoming a "new rigid demand"? Is there any data to support this?

Lily: I feel that this round of market is the most blurred one between the cryptocurrency market and the stock market that I have ever experienced. I have a very senior cryptocurrency friend who has recently come into contact with many institutions on Wall Street. He said that almost all Wall Street institutions that have something to do with cryptocurrency are now trying to do cryptocurrency stocks, traders or similar businesses.

From a macro perspective, the US GDP accounts for less than 30% of global GDP, but the US dollar holds approximately 60% of global foreign exchange reserves and over half of cross-border payments. This imbalance stems primarily from trust—the belief that the US is the strongest sovereign state and its currency has the strongest credibility. However, this trust has begun to waver in recent years. Trump has repeatedly stated that he "does not want to be the world's policeman" and is more focused on the well-being of the US domestically, raising global questions about the long-term value of US dollar assets and US Treasuries. Therefore, one of the most common understandings behind this market trend is that the US dollar's credibility is weakening. The world is beginning to search for inflation-resistant assets that are worth holding for the long term, which is one of the reasons for the surge in gold and Bitcoin prices.

The approval of ETFs has played a crucial role. Many Wall Street institutions were previously unable to directly hold cryptocurrencies due to regulatory compliance. However, through ETFs, they can indirectly allocate and use them as proof of assets. This has officially brought crypto assets into the traditional financial landscape and blurred the boundaries between traditional and crypto assets. The launch of ETFs poses a significant challenge to centralized exchanges. Following the MSTR, we've seen more and more treasuries allocating to tokens like Ethereum, such as Wood's purchase of BMNR, which has also prompted a deeper understanding of crypto within the traditional financial community.

However, I believe Wall Street's current enthusiasm for cryptocurrencies is a bit excessive. While this enthusiasm may undergo periodic adjustments, it's still on the rise. A significant amount of traditional capital is actively participating. I'm familiar with US investment banks involved in cryptocurrencies, and they are encouraging some well-known practitioners in Asia and the US to issue new shares. This, combined with PIPE financing, makes it relatively easy to raise $500 million to $1 billion. Therefore, this trend remains at a very high level in terms of funding volume, enthusiasm, Wall Street recognition, and consensus.

3. Hong Kong immigration policy supports crypto ETFs as proof of assets. Besides US stocks, is capital flowing from Hong Kong stocks into the cryptocurrency market?

Lily: Hong Kong stocks are currently in a clear bull market phase. I was one of the people who privately bullish early in 2023-2024. Both the recent IPO volume and various trends related to the crypto industry show that market sentiment is high. Take Boyaa as an example. Although it is a red chip structure and the financing channel has not been fully opened, the market is still highly sought after. The current PB has exceeded two times, even close to three times, exceeding benchmarks such as MSTR. Recently, the market has responded very positively to any large investment related to Crypto, and stock prices tend to rise rapidly. Old Hong Kong stocks such as OSL, Blueport, and Xinhuo have seen a significant rise in recent times; traditional payment companies such as Lianlian have also performed well in stock prices after transforming to Web 3. Overall, Hong Kong stock targets are scarce, and the market is enthusiastic about Crypto. Many A-share analysts are also exploring whether they can launch concept targets such as stablecoins in A-shares, which has become a hot topic at present.

4. The U.S. House of Representatives passed three cryptocurrency bills. How will this current policy direction affect the subsequent performance of BTC?

Mindao: I think the passage of these three bills may not have such a direct impact on Bitcoin (BTC). The Genius Act mainly involves stablecoins, and the Clarity Act may have a greater impact, focusing on clarifying which regulator is responsible for supervising the market. The most important significance of these three bills is that they provide a very clear implementation framework for many compliant exchanges and asset issuers. For example, we see that Coinbase has allowed perpetual contract transactions in the United States, which I think will directly promote Bitcoin trading demand. But overall, I think the biggest beneficiaries this time may still be Ethereum, DeFi, and stablecoins, which are new financial infrastructure projects.

Lily: In the long run, these changes are definitely positive overall. As the "system" of the entire cryptocurrency world, Bitcoin will only gain wider acceptance as the industry becomes more open. But in the short term, I agree with Professor Mindao that there won't be a particularly direct impact. The greater significance lies in bringing more regulation to the industry, something many have long anticipated. If we want this industry to thrive in the long term and to produce truly great companies, then, at this stage, increasing public acceptance requires greater legislative support.

Topic 2: Is ETH's recovery signal real? What does it mean for the future market?

1. ETH has been included in multiple listed companies. Is this a long-term positive for ETH?

James: It's not surprising that mainstream capital has shifted to speculating on Ethereum after Bitcoin's rise to $120,000 and then sideways. Previous data suggests Ethereum has gained a degree of mainstream recognition, and its on-chain TVL (TVL) data for DeFi is relatively reliable. When the bull market turned bearish in 2021, Ethereum and Bitcoin experienced similar declines, making it a defensive asset. During this bull market, mainstream capital, as a rule, prioritized Bitcoin, driving it to establish a bull market. Ethereum's current rebound is a natural logical progression. From our perspective, Ethereum remains attractive in the long term. It enjoys mainstream recognition, while on-chain DeFi applications are active, accounting for over 50%-60% of the total TVL. Currently, TVL and FDV have yet to reach new highs. In comparison, Solana's issuance will be even higher. Overall, we remain optimistic about Ethereum's medium- to long-term performance in this cycle.

2. Can the return of ETH prices draw attention back to the Ethereum ecosystem?

James: First of all, I don't think there's a recapture issue. Even at Solana's peak, its market capitalization never came close to Ethereum's. Over 50% of its TVL has always been in Ethereum. It's just that industry trends, like the meme coin surge brought on by Trump coin, have made the Solana ecosystem more popular. I believe Ethereum has always been the king of chains; the only question is how far it's separated from the others.

Mindao: What's interesting is that the current discussion about Ethereum and Solana is actually a discussion about whether the future of blockchain will be multipolar or unipolar. Ironically, the Ethereum community often says, "Bitcoin is the idea, Ethereum is the execution," meaning Bitcoin is the ideal, while Ethereum is the implementation. While the concept of multi-chain was first proposed by Polkadot and Cosmos, it was Ethereum that truly executed it well. You could say Ethereum copied the original idea, but did it more successfully.

Looking back at this cycle, I believe the future will be a multi-chain world. Early on, BSC, Huobi, and OKEx all developed their own EVM chains. This time around, Coinbase and Kraken also launched L2 based on Ethereum. Robinhood recently issued assets on Arbitrum and plans to launch its own L2 based on the Arbitrum Stack. In the future, companies like JP Morgan or BlackRock will undoubtedly want to build chains or issue assets in a controlled environment, further validating the multi-chain trend.

One advantage of Ethereum is that it is more willing to be compatible with traditional finance. From a political perspective, there are 195 sovereign states in the real world, which means that the pattern is destined to be multipolar. The blockchain world will not have only three or four chains left to dominate. In this multipolar pattern, Ethereum's multi-chain architecture may make it the core of blockchain infrastructure.

Furthermore, Ethereum-related strategy companies operate differently from Bitcoin. Bitcoin treasury companies like MicroStrategy operate more like passive reserves; Ethereum companies like Sharplink not only bring stock market funds onto the blockchain but also push on-chain assets into the market. For example, they actively participate in on-chain DeFi, such as staking and LSD. If companies like Sharplink and Bitmine invest their TVL in DeFi in the future, it could drive a wave of infrastructure upgrades. I'm even more excited to see a scenario where publicly traded companies issue DeFi convertible bonds and place them on-chain, allowing them to interact directly with DeFi protocols. Even protocols like AAVE are expected to one day issue convertible bonds on the stock market, using the proceeds to feed back into on-chain liquidity. For example, Ethena recently announced plans to go public as a stablecoin protocol through a SPAC reverse merger, which also reflects this trend.

Dujun: First, why am I optimistic about Curve? Because it's essentially an on-chain "foreign exchange market." If this can be accomplished, it could become a $10 billion company, yet its current market cap is only around $1 billion. There are virtually no real challengers, including Uniswap v3, which hasn't reached the stage where it can challenge it. Furthermore, thanks to founder Michael's previous lending meltdown, the project has already achieved complete decentralization. This is why I'm optimistic about Curve. Second, both last year and now, I've always been bullish on Ethereum. One point worth emphasizing: in today's blockchain world, besides Bitcoin, Ethereum is the only truly decentralized and relatively neutral blockchain. Other chains are either less decentralized or lack sufficient technological maturity.

When discussing what problems blockchain can solve, I believe we should first focus on finance, such as putting real-world assets (RWAs) on-chain. So, which chain will these assets choose? Clearly, it won't be a bunch of small chains. Large funds, institutions, and even sovereign nations with billions or even billions of dollars in assets will only choose a highly decentralized and neutral chain: Ethereum. Therefore, I believe that, currently, Ethereum has no real challengers. Whether in terms of maturity, ecosystem, or developer base, it's the strongest. Therefore, I remain firmly bullish on Ethereum. If blockchain truly rises on a large scale in the future, Ethereum will undoubtedly be a highly valuable core asset.

Topic 3: Why are the performances of altcoins so polarized? Is there still a chance for linkage?

1. Has this round of altcoin linkage market ended, or has it not yet truly begun?

Lily: I think this round of altcoin market has not really started yet, and it is far from over. Of course, differentiation is inevitable. Projects like EOS have passed their peak and are more about making new attempts. Just like the stock market, the 50 strongest companies a hundred years ago are completely different from today. Whether they can last for a long time depends on whether the team can continue to operate. The current direction of altcoins is mainly divided into two categories:

The first type is emotion-driven, such as the representative meme coin Pump. Although it has recently pulled back, its circulation market value is still more than a billion US dollars, and its daily revenue is also millions of dollars. The core of this type of project lies in "human nature" and "narrative", and many CEX contracts are also amplifying this gaming mentality.

The second type is application-driven. I personally support DeFi more firmly. Because the first thing that Crypto changes is actually the financial system, especially the payment system. Like the recently popular Xstock, issuing and trading stocks on the chain, achieving 7 x 24 hours without a break, this is difficult for the traditional market to do in the short term. For example, Nasdaq plans to achieve 7 x 24 spot trading by 2026, and the options market does not even have a timetable. The advantage of DeFi is that it can already provide these infrastructures, but it still needs more liquidity and user education. In the future, the pricing mechanism of traditional assets may also be migrated to the chain. So I believe that DeFi projects like Curve that can serve real financial scenarios will become important infrastructure for the entire industry. Of course, the combination of AI and Crypto is also worth paying attention to. AI for Crypto and Crypto for AI both have opportunities, but at present, except for data rights confirmation and some interactive scenarios, it may not have found a point that can really release huge energy. But it will definitely be one of the big tracks worth betting on in the future.

2. What do you think about the future development of the AI and DeFi sectors?

James: Bitcoin itself is a product of the financial crisis. It was precisely the problems of the traditional financial system that gave rise to Bitcoin. If we were to identify the most pragmatic direction in the blockchain industry, DeFi is undoubtedly the most solid and meaningful. Current mainstream DeFi protocols, especially those at the Blue Chip level, are generally profitable based on financial data and have mature product systems. Comparing traditional finance and on-chain DeFi, the difference is significant. Offline financial services are primarily targeted at high-net-worth individuals, making it difficult for ordinary people to access high-quality services. DeFi, on the other hand, is fairer and more open. Traditional financial institutions can even ban accounts based on vague user agreements, while on-chain rules are transparent and trustworthy. Furthermore, DeFi is constantly evolving in terms of product experience, stability, and innovation. While there were security issues during the DeFi Summer, mainstream protocols on Ethereum have now matured, generating stable profits and consistently providing high-quality services. Therefore, we will focus on allocating to leading DeFi projects in the secondary market, such as DEXs and lending. In the long term, DeFi is our most promising sector.

As for the direction of AI, I don't have a technical background and my understanding of it is limited. Currently, most Crypto+AI projects are still talking about narratives, and there are not many products that have actually landed. Whether this track can grow in the future depends on whether it can be applied on a large scale and whether there are real users using the products. If it is just about concepts, the narrative heat will be difficult to sustain and the investment risk will be high. But once a hit product appears, it may usher in explosive growth. At present, the valuations of many CryptoAI projects are still low. For example, our main holdings, Render and Near, are not expensive. The key to the follow-up is whether there are any actual landings.

Dujun: At that time, we mainly focused on the infrastructure field. Because at that stage, apart from stablecoins, the industry had hardly made many practical achievements. There were limited projects that could be invested in, and there were not many stories to tell. At that time, everyone generally had a logic: if the infrastructure is not perfect, it will be difficult for applications to develop. This is actually a "chicken and egg" problem. Many people think that "5G cannot be made without Douyin", but I think it is "Douyin can only exist with 5G". So about one-third of our projects at that time were infrastructure-oriented, such as account abstraction, data analysis, L2, and parallel EVM. These projects are more technically based and were relatively reasonable choices at the time.

So why is Vernel still incubating infrastructure today? Because the logic of today's infrastructure has changed. In the past, it was about public chains and data, but now it is more about security. The biggest challenge at present is: how to make it more convenient, safer and more trustworthy for users to enter the on-chain world. Although some projects in the past (such as account abstraction and gas-free) have solved some of the "ease of use" problems, security issues are still serious, such as frequent thefts, scams and the proliferation of junk tokens. Now tens of thousands of coins can be issued on the chain every day, but there may be only dozens or even single-digit people behind them who are repeatedly operating. How can wallets identify these malicious behaviors? How to prevent being cheated? Including in the future when stablecoins are widely used, how will wallets face compliance, anti-money laundering and other issues? For example, KYT, how to identify funds from sanctioned addresses or illegal accounts? These all belong to the category of "new generation infrastructure". Therefore, we will still incubate some technical projects, but the direction is more inclined to security and compliance. Overall, in each of our projects, about one-third to one-quarter will still be focused on this direction.

Mindao: In this cycle, our definition of "altcoin season" has also changed. Looking back at the cycles of 2013, 2017, and 2021, everyone defined the "altcoin season" as "most currencies other than BTC and ETH hit new highs." But I think that in this cycle, the "altcoin season" that we used to understand may not really come. Why? Mainly because the capital structure has changed a lot as I just said. For example, why did Ethereum obviously underperform Bitcoin in the past round? It is because there are more than 200 billion US dollars of institutional funds behind Bitcoin, including ETFs, MicroStrategy, etc. This type of funds is completely different from the highly leveraged funds in the traditional currency circle. Looking back at the previous cycles, the market pricing benchmark has actually undergone changes: BTC was the main currency from 2013 to 2015; after 2017, Ethereum gradually became the unit of account; later, stablecoins began to become popular, and now most tokens are priced based on USDT. Once priced with stablecoins, the "resonance" effect of the market is not as obvious as in the previous cycles. Because stablecoins are no longer directly linked to the prices of BTC and ETH, the logic of "leading by the leader" is weakened.

Ethereum and Bitcoin hit new highs, and the biggest beneficiaries are still those basic protocols that take on TVL spillover. Recently, the TVL of DeFi as a whole has approached its historical high, but this is not due to the innovation of the protocol itself. Most DeFi protocol structures were basically formed as early as 2019, such as AMM, lending, asset management, etc., lacking substantial breakthroughs. The growth of TVL and handling fees is more the result of natural promotion with the rise in currency prices, rather than the reflection of the project's own efforts. This also highlights the key difference between DeFi and other altcoins (such as Meme, AI, GameFi) - the former can naturally take on the liquidity after the main chain rises, while the latter is more difficult to do. However, from an investment perspective, I do not agree with the statement that "DeFi is triple leverage of ETH". This is not because DeFi cannot capture value, but because of the current capital structure. The main players in the market prefer to directly configure BTC or ETH as asset reserves or ETF underlying assets, rather than further sinking into DeFi projects.

Topic 4: How are institutions and the stock market changing the Web 3 market?

1. Judging from the flow of funds, is Wall Street "entering the market" or "cutting off and leaving"?

Lily: Not all Wall Street funds are long-term funds, and everyone needs to have a basic understanding of this. I have participated in the operations of many Crypto companies in the US stock market and have a very good understanding of the situation of several projects. Many hedge funds in the market are very active in PIPE (Private Placement). After they get the chips at a discount, they use hedging strategies to sell them in large amounts the day after the PIPE is issued, resulting in huge transactions. This type of fund operation does not necessarily mean that they are optimistic about the long-term value of the industry, but their entry is indeed good for the industry. Because the LPs of these funds are various retail investors, family offices or institutional investors, in a sense, this is also a form of "breaking the circle".

The participation of the entire Wall Street in Crypto is becoming more and more formalized. For example, everyone has been paying attention to the inflow of funds into ETFs for a long time, and will try to build a model to predict the price trend of BTC: how much net inflow of funds into ETFs each week corresponds to how much Bitcoin may rise. This model has formed a certain reference value. Similarly, we can also look at the capital flow of coin stock companies in a similar way. For example, some companies announced that they would support Ethereum, and the actual funds invested behind them may come from the money originally used for asset allocation such as real estate. This will make Ethereum more closely linked to traditional funds. In addition, except for Bitcoin, all other chains are essentially "application chains". Platform chains such as Ethereum, Solana, and BSC rely on more breakthrough applications and user scenarios. As more and more institutions enter the industry through primary market investment or direct use of products, more positive impacts will be driven.

In general, the integration of traditional finance and the crypto world is good for the entire industry to be more well-known. But we can also see the problem: a lot of funds on Wall Street are also leveraged. When the market enters a downward cycle, many cryptocurrency companies will be below net assets, that is, market value is lower than book assets. In the past, companies like Grayscale have experienced inversions, and it will happen again in the future, especially for long-tail companies. There are very few companies that can truly bet on Crypto for a long time like MicroStrategy.

2. For entrepreneurial projects, have the preferences of VCs, CEXs, and traditional funds changed?

James: Now that we are in the bull market, the price of coins is rising. Many "coin stock" companies are naturally more willing to benchmark against crypto assets, and even have a very positive attitude. But when the bear market really comes and the price of coins continues to fall, the asset value of such companies may be greatly discounted, or even "inverted". I completely agree with this. So we have always been very cautious when investing. Although we have received many good investment invitations, various coin stock companies hope that we will participate, such as buying Ethereum, Solana or other crypto assets, but so far, we have not invested in any of them. Of course, this does not mean that we will not invest in the future, but that we will be more cautious. Especially for those companies that are not mainstream and have not reached the top, but have a high valuation premium, we believe that they are not of much value to long-term investors. In contrast, we prefer to invest in some companies that truly have product capabilities, clear business models, and even profitable, and may be listed on the US stock market in the future, such as Circle, Ledger, CoinLis, which are leading teams in the track with real users and revenue. This type of company is more in line with our investment logic of focusing on "long-term value".

Mindao: The recent "coin stock" craze on Wall Street is indeed hot, but from my point of view, there are not many coin stock companies that really have long-term value. Bitcoin-related leading companies, such as MicroStrategy, are indeed valuable because they use real money to issue bonds, issue stocks, and use structured products to net buy Bitcoin in the market. In contrast, Ethereum and other public chain coin stock companies have structural differences. Many of these companies use PIPE to increase issuance, introduce large holders of coins, and then use the raised funds to repurchase tokens. In essence, it is "pouring from the left pocket to the right pocket", not real new capital inflow. This kind of operation risk cannot be ignored, especially when the coin price goes down. The current market is not sensitive enough to the "market value premium" of coin stocks (market value divided by the number of coins corresponding to each share). The premium of some Ethereum-like coin stock companies has reached 2-4 times. If they continue to issue through ATM, their behavior is very similar to the Rebase model of early algorithmic stablecoins-continuous issuance at a high premium to dilute the original shareholders and form an arbitrage cycle. Only a few companies, such as MicroStrategy, can use financial instruments to maintain a premium above NAV and maintain market value through repurchases and other means in a bear market. But this is almost impossible for most cryptocurrency companies. To achieve a long-term positive cycle, such companies must quickly become industry leaders and become core liquidity opponents that cannot be bypassed by market arbitrage, hedging and other institutions. Otherwise, most of them still remain in the arbitrage logic of "stock speculation with coins", which is similar to the gameplay of the early DeFi Summer. Therefore, we always remain highly cautious when facing such projects, focusing on whether they have real product capabilities, financial instrument combination capabilities and long-term value.

Dujun: I think we can look at this issue from a different angle. We won’t go into the specifics of listed companies like Xinhuo, so just pay attention to the official announcement. But whether it is a coin issuance project or a listed company, it all comes down to an essential question: What value does your company create? How do you make money? How is your cash flow? From this perspective, I am actually very grateful for this wave of market conditions. Because it allows us to see more clearly that a good project is a good project, and a garbage project is garbage. So whether it is a company in the primary market or a listed company, it must eventually return to the fundamentals, to the real value creation and cash flow capabilities.