Original author: IGNAS - DEFI RESEARCH

Original compilation: Deep Chao TechFlow

Not so fast: Is this the start of a new bull market?

Interest rates have reached their highest levels in decades, people are struggling to pay their bills due to high inflation, two major wars are underway, and the SP 500 is down 9%. Even Googles stock price is down 10% as I write this.

Despite the macro environment looking bearish, Bitcoin (BTC) has continued to hold steady above $34,000 for over a week. You must have watched Wall Street Cheat Sheet: The Psychology Of Market Cycles over a hundred times by now, and it now looks like were experiencing a doubt-style bull market.

A little over four months ago, Delphi Digital published a compelling market research report called “Catalyst Overlay – Will Narrative Drive Fundamentals?”

This report is paid, but I wrote a summary in X that explains how the narratives developed and identified the catalysts that led to their emergence.

Delphi identified three important core narratives: the Feds liquidity cycle, war, and new government policies. They explain how each has impacted and will continue to impact cryptocurrencies in the short and long term. This article was prophetic in its accuracy and many negative events are now turning into positive ones. Since then:

• The SEC failed in court against Grayscale (and therefore XRP), paving the way for a Grayscale BTC spot ETF and putting Gary’s position at the SEC in jeopardy. Further failures against Binance, Coinbase, etc. will (hopefully) continue to build more fire to fuel the bull run.

• China has begun fighting deflation by providing $137 billion in budget support, and cryptocurrencies have historically benefited from China-driven liquidity expansion.

• Approval of a Bitcoin spot ETF from Blackrock and others is almost certain. This will continue to bring much-needed liquidity to the cryptocurrency space.

Its unclear when the Fed will start lowering interest rates, but the worst of the hike appears to be behind us. Arthur Hayes believes that the end of the fiat currency era and the rise of artificial intelligence will help the development of cryptocurrencies.

As macro catalysts evolve, they align perfectly with the Bitcoin halving in April 2024. The repeating pattern of macro cycles is why Bitcoin is following a similar trajectory today as it has been in the past.

So, is this the beginning of a bull market? I believe so.

But even if Im wrong, I can wait for any dips and continue to learn and research cryptocurrencies to prepare for future bull markets. I cant sit back and miss out on this crazy bull market.

The bull market is crazier than you think

Inverse Finance ($INV) is just one example of the last crazy bull run. However, the launch of INV started with the YFI token.

Founded by just one person, Andre Cronje, the yEarn revenue aggregator requires what we call governance: maintenance and decision-making on setting up fees, rules, etc.

Therefore, they released YFI, a completely worthless 0 supply token.

“We reiterate, it has no financial value. No pre-mining, no sale, no purchase, no appearance on Uniswap, no auction. We have none.”

——YFI Blog

Anyone can provide liquidity on protocols like Curve (as far as I know) and receive YFI for free. I provided liquidity and to my surprise, I received a 1000% annualized rate of return!

I cant understand how a seemingly worthless token can trade for thousands of dollars per token. Cryptocurrency topics on Twitter are filled with speculation about the price of YFI, ranging from $0 to $1 million. But YFI is a brand new concept, and our traditional investment framework does not apply. YFI revolutionizes our understanding of token launches.

Eventually, I sold my YFIs for about $3,000 each, and a few months later, the price shot up to $90,000. Thats 2900% of potential gain that Im missing out on. I was not prepared for how crazy the market could get.

Since then, I have always kept an open mind to the things that confuse me the most. These things may disappear or they may completely change the dynamics of the industry. DeFi and NFT are important examples of this, giving birth to a generation of wealthy Degen, just like the early BTC and ETH buyers.

YFI is just one of seven tokens that changed my understanding and the dynamics of token economics. The other six are AMPL, OHM, COMP, CRV, NXM and SNX.

But all of these coins have crazy stories and valuable lessons. Olympus DAO, a Ponzi scheme with a four-digit annualized rate, can inflate OHMs market value to $4.3 billion as long as no one sells - (3.3)! By comparison, this is more than AVAXs current market capitalization.

All was going well until the Ponzi scheme collapsed.

Olympus PTSD makes me dislike the Friend Tech 3.3 game. Don’t be naive and be fooled by new marketing techniques (Olympus should be DeFi 2.0). On the way up, sell at least some of your profits.

When the bull market comes back, there will be more bull memes, WAGMI chants, new Ponzi schemes that promise bigger things, and youll see some stories of degens making very good money. In short, we are going to be reckless and the bull market will be crazier than you think.

We need to be cautious, but not so cautious that we miss a “once-in-a-lifetime” opportunity. We need to adjust our thinking, but staying calm is easier said than done.

How to navigate narrative in the coming wild bull market

There is always a bull market in crypto. Even in this bear market, we have PEPE popping up and more recently the rise of SocialFi.

How does one know where to look for early clues to a new narrative? The Delphi article I mentioned above shares why narratives are important and how they are formed.

Narratives are crucial because they help us make sense of this complex, daunting, and seemingly random world. When clear communication is not possible, we rely on shared knowledge, common sense, and social norms to make decisions. These decisions often rely on salient cues, known as Schelling points.

Two people are faced with a list of numbers [2, 5, 9, 25, 69, 73, 82, 96, 100, 126, 150], and if they each choose the same number, they will receive a reward. If the two An individual who is a mathematician will most likely choose 2 - the only even prime number. A non-mathematician will most likely choose 100 - a number that is no more unique to a mathematician than the other two square numbers. An illiterate person might be surprised by its 69 was chosen for its special symmetry - for those who are interested in numbers rather than mathematics, this may be for different reasons.

——Delphi Digital.

Crypto Degens will most likely converge on the number 69. Do you think it’s a coincidence that Bitcoin’s all-time high price is $69,000 for meme reasons?

In other words, decision diversity is critical; it drives markets. While people are driven by emotions and stories, markets thrive through collective consensus and narrative. These narratives help us make sense of the seemingly random events happening around us.

PEPE successfully captured the imagination of a bored but profit-hungry crypto community. PEPEs fascinating story has brought it to prominence in a market where no other big things are happening, and the advantage of a smaller market cap compared to competitors like Doge and Shiba Inu really helps boost morale.

But bear markets are tricky because these opportunities are few and often short-lived. In a bull market, multiple narratives emerge simultaneously, so opportunities are abundant. And things will be crazier than you think.

My advice is to keep an open mind, try those new things that confuse you the most, study them, and never sell the new tokens you acquire all at once. Even those coins that have received criticism or negative perceptions are worth exploring. New ideas that challenge the status quo often trigger a sense of insecurity among older generations.

This is exactly what Bitcoin has done to traditional finance (TradFi) and what Ordinals are doing to Bitcoin maximalists. The criticism of Ordinals from Bitcoin maximalists is one of the reasons Im bullish on it. This shows that even they recognize its importance and consider it worthy of attention.

I believe the crypto market rewards those who identify emerging narratives early and keep an open mind to quickly adapt to new market dynamics. Even ostensibly fundamentals-driven “real yield” tokens end up being just another narrative for sale, and I actually checked the performance of “real yield” tokens before and after the narrative emerged (and declined) to confirm this a little.

What are the bull market narratives?

I once mentioned that narratives are created by combining new technological innovations with compelling narratives.

One of them is Bitcoin DeFi with Ordinals, Stacks and BitVM, designed to enhance Bitcoin smart contract functionality without the need for forks.

But here are a few narratives that I think could explode in a bull market, thanks to 1) technological innovation and 2) currency (token) production capabilities.

• Liquidity restaking tokens.

• The convergence of artificial intelligence and encryption. Arthur Hayes promotes Filecoin (FIL) tokens because of the need for storage, but Arweave (AR) or newer tokens could also come to prominence at the right time (both have underperformed). There is also the potential for a renaissance of the machine-to-machine micropayments narrative thanks to developments in artificial intelligence and other technologies.

• Modular versus monolithic blockchain narrative. Ethereum and Cosmos are prime examples of modular blockchains, although they both have different visions for implementation. Solana leads the pack in monolithic L1 storytelling, and time will tell which approach will dominate the next decade.

• A new generation of decentralized exchanges (DEX). I keep a close eye on recent projects that have raised funding from top VC firms. Most of the new DeFi protocols raising funds are DEXs. This is not surprising as one of the main uses of crypto is speculation. As trading volume increases in a bull market, the valuation of DEXs and their tokens will rise.

• A new generation of DeFi stablecoin. The collapse of UST is obviously not the last attempt to solve the stablecoin trilemma. Liquidity V2 is said to be doing this, with Frax V3 and DAI leveraging RWA to scale. Ethena offers a different (albeit not decentralized) approach to scalability, and I expect new models will continue to provide new ways to get rich.

However, in every bull market, a completely new narrative usually emerges that may surpass each of the narratives mentioned above. Its like Friend tech and SocialFi seemed to pop up out of nowhere.

Protocols that successfully create new narratives and those that embrace those narratives early will be the winners of the next bull market.

In Al Ries and Jack Trouts book, The 22 Immutable Laws of Marketing, they mention the Laws of Leadership. According to this law, its much easier to make yourself number one in someones mind than to convince them that your product is the first successful product.

So, all these SocialFi forks marketing themselves as better Friend tech are only doing FT a favor in establishing FT as the leader in the category.

Remember, when a new narrative emerges, it’s often wiser to bet on the original protocol rather than a fork. There are some exceptions, like Pancakeswap and Velodrome, and most forks promise you heaven but end up just taking you to hell.

Celestia is a great example of someone who has mastered another marketing law introduced in the book - the Law of Category. Celestia is not the first protocol to jump into the modular blockchain narrative, but unlike the hundreds of L2s today that focus on the “execution layer,” they focus on the data availability layer. How many DA solutions do you know?

Some forks actually perform well in the short term, so avoiding them entirely may be a missed (short term) opportunity.

at last

Everyone’s experiences and lessons are different. That’s why there’s a saying in crypto that you need to go through 3 cycles to “succeed” in crypto: one for learning, one for making money, and one for financial freedom.

No matter how crazy the market gets, make sure it doesnt completely destroy you. You can lose 10%, 20% or even 50% of your equity on an agreement, but if you lose everything, you have no chance.

The crypto market is filled with what Nassim Taleb calls “Fat Tails” distribution events. These extreme events happen frequently, but we cannot predict them. FTX, Celsius, Terra, etc. were once major players in the last bull market, but they are now in disgrace.

So, to prepare for the crazy bull market going forward, also prepare for the worst-case scenario. Risk management sounds boring until you lose money. My biggest loss in dollar terms was on the Osmosis OSMO/UST pool when Terra crashed. Since there is a two-week unlock period, I cannot withdraw LP, so from then on, I no longer lock my stablecoins with time.

So even if the market gets crazier than we expect, thats no excuse for us to be crazy and stupid ourselves. Learn, be prepared, and have fun!