Crypto: When Perception Becomes Reality?
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In the world of cryptocurrency, past bull markets have typically been “beta” rallies, where nearly everything increased in value. The word better means a measurement of how much an investment’s price fluctuates compared to the overall market. The key strategy was to hold onto tokens, without worrying much about which specific ones you owned.
During these rallies, the pattern usually started with Bitcoin reaching new highs, followed by other layer-1 tokens, and eventually, everything else. However, this time, people jumped straight to investing in everything else. Bitcoin was still 50% below its all-time highs when memecoins surged in February.
This preemptive move might explain why Bitcoin and Ether are struggling while other tokens are collapsing. When market patterns are recognized, they often change, much like the observer effect in quantum physics, where observing particles alters their behavior. In financial markets, this means that once traders identify a pattern, they act on it, causing it to disappear.
Quantitative hedge funds continuously adjust their strategies for this reason. They trade patterns out of existence once they recognize them in data. This is also why technical analysis, like using the Fibonacci sequence, doesn’t always work as expected—it defies financial logic.
The current crypto bull market has fallen short of expectations because the familiar pattern of altcoins rising after Bitcoin was so predictable that many sellers were prepared to counter it. This has led to a reevaluation in the industry, as traders, investors, and developers realize the old strategies are no longer effective.
So, what’s the new strategy? It’s still too early to tell, but there are signs that the crypto industry might face its biggest challenge yet: learning the fundamentals.
We’ll Get the Tokens We Deserve
The irrational valuations that crypto investors have placed on memecoins, governance tokens, and ghost chains have led many to believe that valuation has little significance in the world of crypto. However, this cycle suggests that even the idea of “valuation is a meme” is itself becoming outdated.
As most tokens experience declines, there is a noticeable increase in valuation-based investment pitches. Previously, being slightly ahead of the newest trends—such as re-staking, modular money, or Airbnb for GPUs—was sufficient. However, venture capitalists have introduced too many of these themed tokens for the available pool of crypto investors to absorb.
For the first time, the need to differentiate between tokens has become crucial, leading to the adoption of fundamental investing. This shift does not imply that crypto will become less exciting; on the contrary, it marks the beginning of a phase where the market agrees on valuation metrics, adding a new layer of interest for investors.
Take Ethereum (ETH) as an example. Its investment appeal has historically relied on slogans like “world computer” and “ultra-sound money,” which are compelling but lack quantifiable investment criteria. Now, some argue that layer-1 blockchains should be valued based on the fees and MEV they generate. Multicoin Capital believes ETH is overvalued by $340 billion compared to Solana (SOL), while VanEck thinks ETH is undervalued by $2.4 trillion over a five-year period. This significant discrepancy highlights the unique nature of crypto investing, which differs greatly from traditional finance.
VanEck also predicts that GEODNET, a decentralized GPS service, could see its GEOD token increase by 50 times by 2030, a forecast rarely seen in traditional finance. Similarly, M31 Capital has projected that the SQD token of blockchain data provider Subsquid has a potential 250x upside, supporting their analysis with detailed market assumptions.
Despite the SQD token’s lack of liquidity, M31’s detailed research showcases a unique blend of high-quality investment analysis and venture capital-style investing, which is distinct to the crypto space. More of these types of analyses are available on the BidClub website, an exclusive investment club where members share top crypto ideas, combining traditional valuation metrics with the volatile nature of crypto assets.
Ultimately, how we evaluate and question crypto tokens will shape their development. As Werner Heisenberg suggested, “What we observe is not nature itself but nature exposed to our method of questioning.” By applying fundamental analysis to crypto, we will likely see the creation of tokens that meet these criteria, leading to a more refined and potentially rewarding investment landscape.
