Why is this cycle so difficult, and what should I do?

CN
18 hours ago

Control the downside risk, and the upside returns will take care of themselves.

Author: Aylo

Translation: Deep Tide TechFlow

First of all, this cycle is indeed very difficult; don’t let anyone pretend to tell you it’s not tough.

But the reality is that each cycle is harder than the last. You are competing with a larger pool of participants, and more and more participants are becoming more sophisticated, resulting in more ultimate failures.

If you don’t have most of your holdings in BTC or SOL during a bear market, you probably haven’t made money and may even be tearing your hair out.

If I hadn’t measured in SOL, I would struggle too. Yes, we do have some big individual winners, but I guess if you are heavily speculating on these assets, you might end up giving back a portion, or even a large portion, of your gains. Especially since people don’t just walk away after a big win.

They will say, “There’s still time in the cycle,” and then think it can continue to rise, which is how they give back their profits. The truth of “play stupid games, win stupid prizes” never goes out of style. Sometimes, this situation just plays out over a longer time frame for traders and gamblers.

So, why is this cycle so difficult?

PTSD (Post-Traumatic Stress Disorder)

We have two examples showing that most tokens in large altcoin cycles have dropped by 90-95%. Coupled with the collapses of Luna and FTX, this has led to a chain reaction throughout the industry, causing asset prices to potentially drop lower than they should have.

Many big players have been swept out, and we have yet to see the return of cryptocurrency lending platforms in this cycle. This PTSD deeply affects crypto natives. Especially in the way the altcoin market trades, primarily because the view that “everything is a scam” has become the mainstream perspective in this cycle.

In the previous two cycles, the belief that “this technology is the future” was more prevalent, but now it has become a minority view, or is on par with “everything is a scam.” No one wants to hold anything long-term because they simply don’t want to lose most of their portfolio again.

This creates a “maximum jeet cycle.” This sentiment is also amplified on Crypto Twitter, as participants constantly look for the top of the cycle.

This psychological impact is not limited to trading behavior—it also affects the entire ecosystem's attitude towards building and investing. Projects now face higher scrutiny standards, and the threshold for trust has increased exponentially. This has both positive and negative sides: while it helps filter out obvious scams, it also makes it harder for legitimate projects to gain attention.

Innovation

While innovation continues and infrastructure improves, there are no longer jaw-dropping 0 to 1 breakthroughs like DeFi.

This makes arguments like “cryptocurrency has made no progress” easier to accept and leads to more narratives of “cryptocurrency has achieved nothing.”

The landscape of innovation has shifted from revolutionary breakthroughs to incremental improvements. While this is a natural evolution of any technology, it poses challenges for a narrative-driven market.

We also still lack breakthrough applications that are necessary to bring cryptocurrency to hundreds of millions of on-chain users.

Regulation

The corrupt U.S. Securities and Exchange Commission (SEC) has caused chaos. They have hindered the industry's progress and prevented certain areas (like DeFi) from further developing, which could achieve product-market fit (PMF) with a broader audience.

They have also prevented all governance tokens from passing any value to holders, thus creating the narrative that “all these tokens are useless,” which is somewhat true. The SEC has driven away developers (see Andre Cronje’s description of how the SEC made him step back), blocked traditional finance (TradFi) from interacting with the industry, and ultimately forced the industry to finance through venture capital firms. This has led to poor supply and price discovery dynamics, with value captured by a few.

However, we are now seeing some positive changes, such as Echo, Legion, and more public sales.

Financial Nihilism

All of the above factors have led to financial nihilism becoming a significant factor in this cycle.

“Useless governance tokens” and the high FDV (Fully Diluted Valuation) caused by the SEC, along with low circulation dynamics, have pushed many crypto natives towards memecoins in search of “fairer” opportunities. Indeed, in today’s society, due to soaring asset prices and wages not keeping up with the endless devaluation of fiat currency, young people have to gamble to elevate their status, making memecoin lotteries very appealing. Lotteries are attractive because they offer hope.

As gambling has product-market fit (PMF) in cryptocurrency, and we have better technology for gambling (like Solana and Pump.fun), the number of tokens issued has surged. This is because many people want ultra-high-risk gambling; where there is demand, there is supply.

“The trenches” have always been a part of cryptocurrency, but in this cycle, it has become a widely recognized term. This nihilistic attitude manifests in various ways:

  • The rise of “Degen” culture becoming mainstream

  • Shortened investment time horizons

  • Greater focus on short-term trading rather than long-term investing

  • Normalization of extreme leverage and risk-taking

  • A “who cares” attitude towards fundamental analysis

Experiences from previous cycles have become obstacles

The past few cycles have taught people that they can buy some altcoins during a bear market and eventually get returns by outperforming BTC.

Almost no one is a good trader, so in the past, this was the best path for most people. Overall, even the worst altcoins had a chance.

But this cycle is a trader's market, more suited for sellers than holders. Traders have even gained the largest profits of this cycle through HYPE airdrops. The narratives of this cycle have not lasted long, and there are very few compelling narratives. The market has more sophisticated participants who are better at efficiently extracting value, so the mini altcoin bubbles are not particularly large.

The first hype cycle of AI agents is an example. This may be the first time people feel, “This is the new thing we’ve been looking for.” But it is still in the early stages, and long-term winners may not have emerged yet.

New buyers for Bitcoin, but mostly none for altcoins

The differentiation between Bitcoin and other assets has never been so clear. Bitcoin has unlocked demand from traditional finance. It now has an incredible new source of passive demand, with even central banks discussing adding it to their balance sheets.

Altcoins, however, find it harder than ever to compete with Bitcoin, which makes sense because Bitcoin has a very clear target—the market cap of gold.

Altcoins really have no new buyers. Some retail investors returned when Bitcoin hit new highs (but they bought XRP 💀), but overall, there is insufficient new retail capital inflow, and cryptocurrency still has a poor reputation.

The changing role of Ethereum

The decline of Bitcoin's dominance is largely due to the growth of Ethereum's market cap. Many people see Ethereum's rise as the trigger for “altcoin season,” but this heuristic has not worked in this cycle, as Ethereum has underperformed for fundamental reasons.

Many traders and investors find it hard to accept that Ethereum has failed to drive higher risk appetite; in fact, it continues to play the role of ending mini altcoin seasons, which is contrary to past situations.

Although there is evidence that certain narratives and sectors can run without Ethereum doing anything, many traders still believe that Ethereum needs to rise for a true altcoin season to occur.

What should I do?

So, what should you do from here?

Work hard, or work smarter. I still believe that, in the long run, fundamentals will always matter, but you must truly understand the projects you support and how they can actually outperform Bitcoin. Currently, only a few candidates meet this criterion.

Look for projects with the following characteristics:

  • Clear revenue models

  • Actual product-market fit

  • Sustainable token economics

  • Strong narratives that can complement the fundamentals (I think AI and RWA fit this)

I believe that due to the unlocking of U.S. regulation, those projects with stronger fundamentals and product-market fit (PMF) will finally be able to realize value accumulation for their tokens, making them lower-risk options. Protocols that can generate revenue are now ready to perform well. This marks a significant shift from the “greater fool theory” that dominated many previous token models.

If your strategy is to “wait for retail to come in before selling,” then I think you will encounter significant trouble. The market has moved beyond cycles driven purely by retail; sophisticated participants are likely to get ahead of this obvious strategy.

You can choose to become a better trader, try to cultivate your edge, and focus on doing more short-term trades, as this market indeed offers many consistent short-term opportunities. On-chain trading may yield greater multiples, but it can also be more ruthless during downturns.

For most without a clear edge, a “barbell portfolio” remains the best choice. Allocate 70-80% of your funds to BTC and SOL, and then leave a smaller proportion for more speculative investments. Regularly rebalance to maintain these proportions.

You need to understand how much time you can invest in the cryptocurrency space and adjust your strategy accordingly.

If you are an ordinary person with a normal job, competing with those young people who sit there for 16 hours a day is not feasible. Passive holding of underperforming altcoins and waiting for your turn is no longer a viable strategy in this cycle.

Another strategy is to try to combine different fields. Build a portfolio based on solid assets, then look for opportunities like airdrop mining (which is now harder but still has low-risk opportunities), or identify some emerging new ecosystems to position yourself early (like HyperLiquid, Movement, Berachain, etc.), or focus on a specific sector.

I still believe that the altcoin market will grow this year. The conditions are in place, and we are still related to global liquidity, but only a few sectors and even fewer altcoins will significantly outperform BTC and SOL. Faster altcoin rotations will continue to occur.

If we encounter some crazy money printing, we might see a situation closer to traditional altcoin seasons of the past, but I think the likelihood of that is lower than we hope. Even in that case, most altcoins will only provide market-average returns. This year, we still have many important altcoins set to launch, and liquidity will continue to be diluted and dispersed.

This is not easy, but I will give you some hope: I have never seen someone who has seriously invested in the cryptocurrency space for several years fail to make a substantial amount of money.

This asset class still has many opportunities and many reasons to feel optimistic about its growth.

Ultimately, I don’t know more than anyone else; I am just adapting to what I see in this cycle.

Additionally, I want to add: we are not in the early stages of the cycle. This is clear. The bull market has lasted a long time, and this fact will not change whether you are making money or not.

“Control the downside risk, and the upside returns will take care of themselves.”

This saying will always be the truth.

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